Lewis Brisbois Secures U.S. Supreme Court Reversal in Class Arbitration Case

Washington, D.C. (April 24, 2019) – A California team from Lewis Brisbois’ Class Action and Appellate Practices has secured a reversal from the U.S. Supreme Court in a closely-watched case centered on class arbitration. Los Angeles Partners Eric Y. Kizirian and Michael Grimaldi, and San Diego Partner Jeffry A. Miller, represented Lamps Plus, Inc. before the Court in Lamps Plus, Inc. v. Varela, No. 17-988 (U.S. Apr. 24, 2019). At issue was whether the Federal Arbitration Act (FAA) bars a state-law interpretation of an arbitration agreement that would lead to class arbitration authorization based solely on general language commonly used in such agreements. In a 5-4 decision, the Supreme Court overturned the lower court’s authorization of class arbitration based on that style of interpretation, and remanded the case back to the Ninth Circuit.

The events leading to the case began in 2016 when a hacker tricked an employee of Lamps Plus into disclosing the tax information of some 1,300 company employees. After a fraudulent federal income tax return was filed in the name of respondent Frank Varela, a Lamps Plus employee, he filed a class action against Lamps Plus in Federal District Court on behalf of all the employees whose information had been compromised. Lamps Plus moved to compel arbitration, on an individual rather than class wide basis, per the arbitration agreement in Varela’s employment contract, and to dismiss the suit. The District Court rejected the individual arbitration request, but authorized Varela’s class arbitration and dismissed his claims. Lamps Plus appealed, arguing that the District Court erred in compelling class arbitration, and the Ninth Circuit affirmed.

The Supreme Court, expanding on its decision in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662, held that, under the FAA, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration, reversing the Ninth Circuit’s decision and remanding the case.

“Today’s Lamps Plus decision applies the well-established principle that parties must agree to class arbitration,” said Mr. Kizirian. “It also affirms that a contract interpretation based on public policy rules, not agreement by the parties, is not enough to compel class arbitration.”

“Once again, the Supreme Court has made clear that lower courts may not use reasoning that circumvents precedent and well-settled arbitration principles to compel class arbitration - exactly the type of judicial antagonism towards arbitration that led Congress to create the FAA in the first place. We are very pleased with this outcome,” Mr. Kizirian said.

Read our Legal Alert about this case here. Learn more about our Appellate practice here.