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High Court Action Clarifies Arbitration Agreement Language, Says LeClairRyan Attorney

05/02/2019

Absent specific contract terms, class-action arbitration can’t be compelled, notes Leslie Machado

A recent Supreme Court ruling clarifies that a party bringing a class action claim cannot compel arbitration if an arbitration agreement lacks specific language, according to Leslie Machado, an Alexandria-based partner in national law firm LeClairRyan. If the agreement is ambiguous on whether the parties agreed that claims could proceed on a class-wide basis, no such arbitration can be ordered, he added.

“In Lamps Plus Inc. v. Varela. (No. 17-988) employee Frank Varela filed a putative class action after his tax information, and the tax information of other employees, was compromised,” Machado writes in a recent blog, Trend of Pro-Employer Arbitration SCOTUS Decisions on Class-Actions Continues with Lamps Plus. “Lamps Plus moved to compel arbitration on an individual rather than class-wide basis, and to dismiss the lawsuit. Both the California District Court and the Ninth Circuit held that arbitration could proceed on a class-wide basis.”

But at the Supreme Court, Lamps Plus continued to argue that — because it had not clearly and affirmatively agreed to class-wide arbitration in its arbitration agreements — such arbitration could not be compelled. Plaintiff Varela countered that the lower courts were correct because the agreement was ambiguous on whether class-wide arbitration was allowed.

Building upon its decision in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010) — where the Court held that a court may not compel arbitration on a class-wide basis when an agreement is “silent” on the availability of such arbitration — the majority concluded that “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.”

The decision continues a trend of pro-employer class-action arbitration decisions issues, including American Exp. Co. v. Italian Colors Restaurant, where the Court held the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the ground that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery; AT&T Mobility LLC v. Concepcion, where the Court held the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of class-wide arbitration procedures; and Epic Systems Corp. v. Lewis, where the Court held that arbitration agreements providing for individualized proceedings must be enforced.

The latest decision “is a win for employers, who will not be forced into class-wide arbitration unless they have clearly and explicitly agreed to proceed in that manner,” Machado concludes. But he cautions that it is also “a good reminder of the need to make sure arbitration agreements and clauses are drafted as clearly as possible.”

The full column is available here.

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