No Surprise: The U.S. Supreme Court Says “Ambiguous” Arbitration Agreements Do Not Permit Class Arbitration

Lamps Plus, Inc. v. Varela, 139 S. Ct. 407  (2019).  In Stolt-Nielsen, S.A. v. AnimalFeedsInt’l Corp., 559 U.S. 662 (2010), the Supreme Court of the United States, by a 5-3 vote, held that an agreement that is “silent” as to whether the parties intend to permit class arbitration cannot support a demand for class arbitration.  Today, in a class action that arose out of a data breach, the Court held that an “ambiguous” agreement also does not permit class arbitration.  The vote was 5-4, with Chief Justice Roberts writing the majority opinion.  He was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh, with Justice Thomas filing a concurring opinion.  Justice Kagan, joined by Justices Ginsburg, Breyer and Sotomayor (each of whom filed their own dissenting opinions as well), dissented.

Relying not only on Stolt-Nielsen but also AT&T Mobility, LLC v. Concepcion, 563 U.S. 333 (2011), discussed at length here, the majority reiterated the assertion of those cases that class arbitration differs in “fundamental” ways from individual arbitration.  ” It sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment.”  That position, together with the principle that “arbitration is strictly a matter of consent,” led the majority in Stolt-Nielsen to “doubt the parties’ mutual consent to resolve disputes through classwide arbitration.”

The majority today said that its “reasoning in Stolt-Nielsen controls the question we face today. 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,’” quoting Concepcion.

The Ninth Circuit had reached a contrary conclusion by applying the doctrine of contra proferentem, construing an agreement against its drafter.  The Supreme Court majority asserted that the doctrine “provides a default rule based on public policy considerations,” rather than attempting to ascertain and apply the intent of the parties.  The majority concluded that “[t]he general contra proferentem rule cannot be applied to impose class arbitration in the absence of the parties’ consent.”  Though contra proferentem is a neutral rule that neither favors nor disfavors arbitration, as Justice Kagan’s dissent correctly noted, the majority perceived it, without any real explanation, as a state law principle that “target[s] arbitration either by name or by more subtle methods, such as by interfer[ing] with fundamental attributes of arbitration,” again quoting Concepcion.

The dissenters had the better of the argument, as was the case in Stolt-Nielsen and Concepcion.  Justice Kagan’s opinion carefully dismantled the majority’s argument about contra proferentem, concluding that the majority’s “approach disrespects the preeminent role of the States in designing and enforcing contract rules.  It discards a universally accepted principle of contract interpretation in favor of unsupported assertions about what the parties must have (or could not possibly have) consented to.  It subordinates authoritative state law to (at most) the impalpable emanations of federal policy, impossible to see except in just the right light.”

Justice Kagan also laid bare the underlying motivation of the majority: its antitpathy to class proceedings.  She observed that the majority’s dubious reasoning “would never have graced the pages of the U. S. Reports save that this case involves . . . class proceedings.”  Justice Kagan noted that “[t]he heart of the majority’s opinion lies in its cataloging of class arbitration’s many sins….  [and that its] opinion likewise has more than a little in common with this Court’s efforts to pare back class litigation,” citing Comcast Corp. v. Behrend, 569 U. S. 27 (2013), and Wal-Mart Stores, Inc. v. Dukes, 564 U. S. 338 (2011).”  No matter the language of the contract or the “the neutral and commonplace default rule that would construe that contract against the drafting party….  the majority will prohibit class arbitration.”  Well and truly stated.