Another 5-4 arbitration decision from the US Supreme Court: No class-action arbitrations based on ambiguity. There must be an affirmative contractual basis for concluding that the parties agreed to class arbitration. Lamps Plus v. Varela (US Supreme Ct 04/24/2019) [PDF].

Varela filed a putative class action against his employer on behalf of employees whose tax information had been disclosed to a hacker. Varela's employment contract contained an arbitration agreement, so the employer moved to compel arbitration on an individual – not class – basis. The trial court authorized class arbitration and dismissed Varela's claims. The 9th Circuit affirmed. The US Supreme Court (5-4) reversed, holding that under the Federal Arbitration Act (FAA), an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.

The 9th Circuit recognized that Stolt-Nielsen S. A. v. Animal Feeds Int'l Corp., 559 U. S. 662 (2010), held that a court may not compel arbitration on a classwide basis when an agreement is "silent" on the availability of such arbitration. But the 9th Circuit ruled that Stolt-Nielsen was not controlling because the agreement in this case was ambiguous rather than silent on the issue of class arbitration.

The US Supreme Court pointed out that courts must give effect to the intent of the parties, and it is important to recognize the "fundamental" difference between class arbitration and the individualized form of arbitration envisioned by the FAA. Class arbitration "sacrifices the principal advantage of arbitration – its informality – and makes the process slower, more costly, and more likely to generate procedural morass than final judgment." Like silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to sacrifice the principal advantage of arbitration. Instead, there must be an affirmative contractual basis for concluding that the parties agreed to class arbitration.

The dissent would allow the application of California's "plain-vanilla rule of contract interpretation" which would require interpreting an ambiguous contract against the drafter.