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  1. Home
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  3. SCOTUS Cites Contracts 2d in Lamps Plus v. Varela
Home SCOTUS Cites Contracts 2d in Lamps Plus v. Varela
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In the Courts

SCOTUS Cites Contracts 2d in Lamps Plus v. Varela

April 24, 2019
Image Contracts-RST 2d.jpg

In a recent five-to-four U.S. Supreme Court decision, Lamps Plus, Inc. v. Varela, No. 17-988 (April 24, 2019), Chief Justice John G. Roberts, writing for the majority, cited Restatement of the Law Second, Contracts § 206.

In that case, after a hacker tricked a company employee into disclosing the tax information of employees, an employee who had a federal-income-tax return fraudulently filed in his name brought suit against the company, alleging claims on behalf of a putative class of employees whose tax information was compromised. The U.S. District Court for the Central District of California granted the company’s motion to compel arbitration pursuant to the employee’s employment contract and dismissed the employee’s claims without prejudice, but rejected the company’s request for individual arbitration rather than classwide arbitration.

Following the company’s appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed, reasoning that, while Stolt-Nielson S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) “prohibit[ed] forcing a party ‘to submit to class arbitration unless there [was] a contractual basis for concluding that the party agreed to do so,”’ in this case, the fact that the employee’s contract ‘“[did] not expressly refer to class arbitration [was] not the ‘silence’ contemplated in Stolt-Nielson.’” The Ninth Circuit determined that the agreement was ambiguous on the issue of class arbitration, unlike in Stolt-Nielson, in which the parties had stipulated that their agreement was silent on that issue, and “followed California law to construe the ambiguity against the drafter,” the company.

After granting certiorari, the U.S. Supreme Court reversed and remanded, holding, inter alia, that the Federal Arbitration Act barred courts from compelling arbitration on a classwide basis when an agreement was “ambiguous” about the availability of such arbitration. “Neither silence nor ambiguity provide[d] a sufficient basis for concluding that parties to an arbitration agreement agreed to undermine the central benefits of arbitration itself”; benefits that class arbitration lacked. The Court explained that the Ninth Circuit reached its decision “based on California’s rule that ambiguity in a contract should be construed against the drafter, a doctrine known as contra proferentem,” but that that doctrine was triggered “only after a court determine[d] that it [could not] discern the intent of the parties.”

The Court further explained that the doctrine of contra proferentem “provide[d] a default rule based on public policy considerations,” rather than a rule for ascertaining the meaning of the parties. The court noted that Restatement of the Law Second, Contracts § 206—the Restatement’s rule for interpreting a contract against the drafter—was located under the topic “Considerations of Fairness and the Public Interest.” The Court pointed out that, in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), it “recently reiterated that courts [could] not rely on state contract principles to ‘reshape traditional individualized arbitration by mandating classwide arbitration procedures without the parties’ consent,’” but that the Ninth Circuit did just that by relying on a doctrine that did not aid in determining the meaning the parties attached to the words or the meaning a reasonable person would have attached to the words.

Read the opinion here.

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