CURRENT MONTH (April 2019)
The Supreme Court Decides Lamps Plus and Deals a Blow to Class Action Arbitration
By Leslie A. Berkoff, Moritt Hock & Hamroff LLP
On April 24, 2019, the Court issued its long-awaited decision in Lamps Plus Inc. v. Varela, No. 17-988. In a 5-4 opinion, the court reversed and remanded the 9th Circuit, holding that under “the Federal Arbitration Act, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration.” The decision was the latest in a line of rulings which have allowed businesses to utilize arbitration provisions to bar both class actions in court and class-wide arbitration proceedings. The case arose from an employment dispute over the improper release by Lamps Plus of an employee’s, Frank Varela’s, personal identifiable information. Citing the contract of employment signed by Varela, Lamps Plus moved to compel bilateral arbitration; the district court found that the Agreement is a contract of adhesion and ambiguous as to class arbitration. It construed the ambiguity against the drafter, Lamps Plus, and compelled arbitration of all claims, allowing class-wide arbitration to proceed.
The opinion clearly reflects an ideologically divided court. While Chief Justice John Roberts delivered the majority opinion for the conservative members of the Court, multiple Justices, aligned with the liberal side of the Court, filed dissenting opinions (Justices Ginsburg, Breyer, Sotomayor, Kagan, and Breyer). Justice Roberts pointed to the 1925 Federal Arbitration Act, and prior rulings, as a predicate to hold that arbitration agreements must be enforced like any other contract and determine that silence in an agreement cannot be utilized to undermine the central benefits of arbitration. Since the employee and Lamps Plus had not expressly agreed to class arbitration, only individual arbitrations were allowed.
In her dissent, Justice Kagan stated that the majority had gone well beyond those previous rulings and had effectively nullified a “plain-vanilla rule of contract interpretation” which should require that an ambiguous agreement be read to favor the side that didn’t write it. “Today’s opinion is rooted instead in the majority’s belief that class arbitration ‘undermines the central benefits of arbitration itself,’” Kagan wrote. “But that policy view—of a piece with the majority’s ideas about class litigation—cannot justify displacing generally applicable state law about how to interpret ambiguous contracts.”
The ruling is a victory for Lamps Plus Inc., and businesses in general. Given the robust nature of the varying Justices’ opinions, it remains to be seen whether future cases in this area may end up with different results down the road.
Products Liability Defendants Held Liable under Maritime Law for Injuries Caused by Products that they did not Make, Sell, or Distribute
In Air and Liquid Sys. Corp. v. DeVries, 139 S. Ct. 986 (2019), Roberta G. Devries and Shirley McAfee were widows of two United States Navy sailors alleged to have developed cancer after being exposed to asbestos while working on Navy ships and in a naval shipyard. They sued multiple defendants, including manufacturers of “bare metal” ship components, or parts that were made and shipped before any asbestos-containing insulation materials were added. The bare metal defendants contended that they should not be liable because their products did not contain any asbestos materials. The United States Supreme Court, however, found that under maritime tort law, which recognizes “a special solicitude for the welfare of sailors,” a product manufacturer has a duty to warn if its product requires incorporation of a part produced by a third party, the resulting fully incorporated product is likely to be dangerous for its intended uses, and the manufacturer has no reason to believe that the product’s users would be aware of that danger. This case stands as a cautionary tale to manufacturers and those that represent them, that products liability defendants may be held liable for injuries caused by products that the manufacturer did not make, sell, or distribute, albeit in the limited maritime tort law context.