Friday, August 4, 2017
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Ninth Circuit Holds:
Lamps Plus Must Arbitrate Class Action by Employees
Majority of a Three-Judge Panel Says That a Contractual Proviso Binding a Warehouseman to Arbitration Extends to an Action He Has Brought on Behalf of Others Whose Tax Records Were Divulged
By a MetNews Staff Writer
Lamps Plus, in including an arbitration provision in an employment contract with a warehouseman, might only have intended to force arbitration of any disputes with that worker, but it is now faced with unwanted arbitration of a class action against it, under a ruling yesterday by the Ninth Circuit Court of Appeals.
In a memorandum decision, the majority—comprised of Judges Stephen Reinhardt and Kim Wardlaw—said that by binding employee Frank Varela to an agreement to arbitrate rather than litigating in the courts, it is now compelled to arbitrate the class action he has brought.
Varela has sued for negligence, breach of implied contract, violation of the California Consumer Records Act, violation of the California Unfair Competition Law, invasion of privacy, and negligent violation of the Credit Reporting Act. The causes of action stem from Lamp Plus giving out its 1,300 employees’ 2015 W-2 income and tax withholding statements, in response to a Feb. 11, 2016 phishing scam.
The complaint alleges that the company’s approach to securing the privacy of employee records was “lackadaisical, cavalier and reckless.”
U.S. District Judge Dolly M. Gee rejected Varela’s contention that the arbitration clause was unconscionable, but agreed with him that if it is enforceable, it applies not only to his individual claims, but also those of the class.
Supreme Court Opinion
She noted that the United States Supreme Court said in the 2010 case of Stolt-Nielsen SA. v. AnimalFeeds International Corp. that a party may not be compelled under the Federal Arbitration Act “to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Gee wrote:
“The lack of an explicit mention of class arbitration here does not constitute the ‘silence’ contemplated in Stolt-Nielsen, as die parties did not affirmatively agree to a waiver of class claims in arbitration. Indeed, such a waiver in the employment context would likely not be enforceable.”
The Ninth Circuit’s majority affirmed, saying:
“That the Agreement does not expressly refer to class arbitration is not the ‘silence’ contemplated in Stolt-Nielsen.”
Provisions of Contract
It went on to observe:
“At its outset, the Agreement contains a paragraph outlining Varela’s understanding of the terms in three sweeping phrases. First, it states Varela’s assent to waiver of ‘any right I may have to file a lawsuit or other civil action or proceeding relating to my employment with the Company.’ Second, it includes an additional waiver by Varela of ‘any right I may have to resolve employment disputes through trial by judge or jury.’ Third, ‘arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment.’ A reasonable—and perhaps the most reasonable—interpretation of this expansive language is that it authorizes class arbitration. It requires no act of interpretive acrobatics to include class proceedings as part of a “lawsuit or other civil legal proceeding[].’ Class actions are certainly one of the means to resolve employment disputes in court. That arbitration will be ‘in lieu of’ a set of actions that includes class actions can be reasonably read to allow for class arbitration.”
The opinion said that Gee was correct in finding the agreement to be ambiguous and, applying California law, resolving the ambiguity against the party that drafted it.
Judge Ferdinand Fernandez dissented, maintaining that the agreement “was not ambiguous,” and commenting:
“We should not allow Varela to enlist us in this palpable evasion of Stolt-Nielsen….”
The case is Varela v. Lamps Plus. Inc., No. 16-56085,
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