High Court Rules Ambiguous Arbitration Provisions do not Permit Class-Based Claims

On Wednesday April 24, 2019, the U.S. Supreme Court ruled in Lamps Plus Inc., et al. v. Frank Valera that class-based arbitration cannot be compelled where an arbitration agreement is ambiguous as to that issue.

The dispute stemmed from Valera’s allegations that Lamps Plus failed to adequately protect personal data ahead of a 2016 phishing attack that stole tax and income statements affecting Valera and approximately 1,300 coworkers.  Lamps Plus sought to compel individual arbitration pursuant to the Supreme Court’s prior ruling in Stolt-Nielsen, which prohibited class-based arbitration where there existed no “contractual basis for concluding” the parties agreed to such an arrangement.

In a 5-4 decision authored by Chief Justice Roberts, the justices overturned the Appellate Court’s determination that the defendant’s arbitration agreement let the plaintiff pursue class arbitration, even though the agreement was vague on that issue.  Following Stolt-Nielsen, Chief Justice Roberts stated an  “ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.”  Chief Justice Roberts further noted 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.’”

Businesses should be sure to assess their arbitration provisions in light of the Supreme Court’s ruling.  Retaining counsel to review your contracts can help determine if appropriate language is used, and ensure your arbitration provisions encompass class-based claims.