This week, the U.S. Supreme Court granted certiorari in a case that should further clarify the circumstances in which class arbitration can be required. The question presented in Lamps Plus, Inc. v. Varela is "[w]hether the Federal Arbitration Act [FAA] forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements."
In a landmark 2010 decision, Stolt-Nielsen, S.A. v. AnimalFeeds International Corp., the Court held that in light of the fundamental differences between class and bilateral (one-on-one) arbitration, class arbitration cannot be required unless there is a contractual basis for concluding that the parties "agreed" to arbitrate on a class basis. Thus, courts cannot presume such an agreement from the fact that the arbitration agreement is silent on the issue of class arbitration or from the mere fact that the parties agreed to arbitrate at all.
In Lamps Plus, a divided panel of the U.S. Court of Appeals for the Ninth Circuit, applying state contract construction canons, inferred that the parties assented to class arbitration based upon the standard language in their agreement that "arbitration shall be in lieu of any and all lawsuits or other civil proceedings" and a description of the substantive claims subject to arbitration. The dissenting judge concluded this was a "palpable evasion of Stolt-Nielsen." The Courts of Appeal for the Third, Fifth, Sixth, Seventh, and Eighth Circuits have likewise concluded that the FAA preempts state contract law on this issue because the FAA requires affirmative evidence of consent as a matter of federal law. A decision is expected next term.
Lamps Plus reflects the Supreme Court's continuing interest in arbitration. The Court is poised to decide whether the FAA trumps the National Labor Relations Act so as to allow class action waivers in employment agreements. And in February 2018, the Court granted certiorari in New Prime, Inc. v. Oliveira, which involves the question of whether an exemption in the FAA for certain transportation workers who signed "contracts of employment" applies to independent contractors in the transportation industry. The case also involves the threshold issue of whether this arbitrability question should be decided by a court or an arbitrator.
Although Lamps Plus involves an arbitration agreement that is silent on the issue of class arbitration, the Supreme Court upheld the validity of arbitration agreements containing express class action waivers in AT&T Mobility, LLC v. Concepcion and American Express Co. v. Italian Colors Restaurants. Congress validated those decisions when it voted last fall to override the Consumer Financial Protection Bureau's final arbitration rule, which would have prohibited the inclusion of class action waivers in consumer financial services arbitration agreements. Accordingly, arbitration agreements in bank, credit card, and other consumer financial contracts should contain a properly drafted class action waiver.
Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).
Copyright © 2018 by Ballard Spahr LLP.
(No claim to original U.S. government material.)
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.
This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.