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U.S. Supreme Court Decision in Lamps Plus Will Shed More Light on Class Arbitration

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.

Copyright © by Ballard Spahr LLP

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About this Author

Kaplinksy, partner, New York, finance
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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215-864-8544
Mark Levin, Ballard Spahr Law Firm, Litigation Attorney
Partner

Mark J. Levin is known for his work in complex commercial, insurance, and class-action litigation, with particular experience in consumer finance litigation, the structuring and enforcement of consumer arbitration clauses, and the defense of insurance companies in class actions. He testified in 2007 for the lending industry before a subcommittee of the U.S. House Judiciary Committee at an oversight hearing on whether mandatory arbitration in consumer contracts is fair to consumers.

Mr. Levin has represented banks in defending against the first private class-action lawsuits under the Federal Trust Indenture Act, nuclear power plant owners in a year-long arbitration against an international insurance consortium, and school districts in a major funding lawsuit to recover state funds. He is currently involved in defending banks, other lending companies, and insurance companies in a wide variety of consumer class actions, including numerous class actions brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

215-864-8235