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SUPREME COURT OF THE UNITED STATES
_________________
No. 17–988
_________________
LAMPS PLUS, INC., et al., PETITIONERS
v. FRANK VARELA
on writ of certiorari to the united states
court of appeals for the ninth circuit
[April 24, 2019]
Chief Justice Roberts delivered the opinion of
the Court.
The Federal Arbitration Act requires courts to
enforce covered arbitration agreements according to their terms.
See 9 U. S. C. §2. In
Stolt-Nielsen S. A. v.
AnimalFeeds Int’l Corp.,
559 U.S.
662 (2010), we held that a court may not compel arbitration on
a classwide basis when an agreement is “silent” on the availability
of such arbitration. Because class arbitration fundamentally
changes the nature of the “traditional individualized arbitration”
envisioned by the FAA,
Epic Systems Corp. v.
Lewis,
584 U. S. ___, ___ (2018) (slip op., at 8), “a party may not
be compelled under the FAA to submit to class arbitration unless
there is a contractual basis for concluding that the party
agreed to do so,”
Stolt-Nielsen, 559 U. S., at
684 (emphasis in original). We now consider whether the FAA
similarly bars an order requiring class arbitration when an
agreement is not silent, but rather “ambiguous” about the
availability of such arbitration.
I
Petitioner Lamps Plus is a company that sells
light fixtures and related products. In 2016, a hacker
impersonating a company official tricked a Lamps Plus em- ployee
into disclosing the tax information of approximately 1,300 other
employees. Soon after, a fraudulent federal income tax return was
filed in the name of Frank Varela, a Lamps Plus employee and
respondent here.
Like most Lamps Plus employees, Varela had
signed an arbitration agreement when he started work at the
company. But after the data breach, he sued Lamps Plus in Federal
District Court in California, bringing state and federal claims on
behalf of a putative class of employees whose tax information had
been compromised. Lamps Plus moved to compel arbitration on an
individual rather than classwide basis, and to dismiss the lawsuit.
In a single order, the District Court granted the motion to compel
arbitration and dismissed Varela’s claims without prejudice. But
the court rejected Lamps Plus’s request for individual arbitration,
instead authorizing arbitration on a classwide basis. Lamps Plus
appealed the order, arguing that the court erred by compelling
class arbitration.
The Ninth Circuit affirmed. 701 Fed. Appx. 670
(2017). The court acknowledged that
Stolt-Nielsen prohibits
forcing a party “to submit to class arbitration unless there is a
contractual basis for concluding that the party
agreed to do
so” and that Varela’s agreement “include[d] no express mention of
class proceedings.” 701 Fed. Appx., at 672. But that did not end
the inquiry, the court reasoned, because the fact that the
agreement “does not expressly refer to class arbitration is not the
‘silence’ contemplated in
Stolt-Nielsen.”
Ibid. In
Stolt-Nielsen, the parties had
stipulated that their
agreement was silent about class arbitration. Because there was no
such stipulation here, the court concluded that
Stolt-Nielsen was not controlling.
The Ninth Circuit then determined that the
agreement was ambiguous on the issue of class arbitration. On the
one hand, as Lamps Plus argued, certain phrases in the agreement
seemed to contemplate “purely binary claims.”
Ibid. At the
same time, as Varela asserted, other phrases were capacious enough
to include class arbitration, such as one stating that “arbitration
shall be in lieu of any and all lawsuits or other civil legal
proceedings relating to my employment.”
Ibid. The Ninth
Circuit followed California law to construe the ambiguity against
the drafter, a rule that “applies with peculiar force in the case
of a contract of adhesion” such as this.
Ibid. (quoting
Sandquist v.
Lebo Auto., Inc., 1 Cal. 5th 233, 248,
376 P.3d 506, 514 (2016)). Because Lamps Plus had drafted the
agreement, the court adopted Varela’s interpretation authorizing
class arbitration. Judge Fernandez dissented. In his view, the
agreement was not ambiguous, and the majority’s holding was a
“palpable evasion of
Stolt-Nielsen.” 701 Fed. Appx., at
673.
Lamps Plus petitioned for a writ of certiorari,
arguing that the Ninth Circuit’s decision contravened
Stolt-Nielsen and created a conflict among the Courts of
Appeals. In opposition, Varela not only disputed those contentions
but also argued for the first time that the Ninth Circuit lacked
jurisdiction over the appeal, and that this Court therefore lacked
jurisdiction in turn. We granted certiorari. 584 U. S. ___
(2018).
II
We begin with jurisdiction. Section 16 of the
FAA governs appellate review of arbitration orders. 9
U. S. C. §16. Varela contends that the Ninth Circuit
lacked statutory jurisdiction because section 16 permits appeal
from orders
denying motions to compel arbitration,
§16(a)(1)(B), but not orders
granting such motions,
§16(b)(2). Brief for Respondent 9–12; see also
post, at 3
(Breyer, J., dissenting). This argument is beside the point,
however, because Lamps Plus relies for jurisdiction on a different
provision of section 16, section 16(a)(3).
Section 16(a)(3) provides that an appeal may be
taken from “a final decision with respect to an arbitration that is
subject to this title.” We construed that provision in
Green
Tree Financial Corp.-Ala. v.
Randolph,
531 U.S.
79 (2000), a case where, as here, the District Court had issued
an order both compelling arbitration and dismissing the underlying
claims. We held that such an order directing “the parties to
proceed to arbitration, and dismiss[ing] all the claims before [the
court], . . . is ‘final’ within the meaning of §16(a)(3),
and therefore appealable.”
Id., at 89.[
1]
Varela attempts to distinguish
Randolph
on the ground that the appeal here was taken by the party who
sought an order to dismiss the claim and compel arbitration, Lamps
Plus. He claims the company “lacked standing to appeal the
dismissal,” because the District Court’s order “provided precisely
the relief Lamps Plus sought.” Brief for Respondent 13, 15.
But Lamps Plus did not secure the relief it
requested. It sought an order compelling
individual
arbitration. What it got was an order rejecting that relief and
instead compelling arbitration on a classwide basis. We have
explained—and will elaborate further below—that shifting from
individual to class arbitration is a “fundamental” change,
Stolt-Nielsen, 559 U. S., at 686, that “sacrifices the
principal advantage of arbitration” and “greatly increases risks to
defendants,”
AT&T Mobility LLC v.
Concepcion,
563 U.S.
333, 348, 350 (2011). Lamps Plus’s interest in avoiding those
consequences gives it the “necessary personal stake in the appeal”
required by our precedent.
Camreta v.
Greene,
563 U.S.
692, 702 (2011).[
2]
III
The Ninth Circuit applied California contract
law to conclude that the parties’ agreement was ambiguous on the
availability of class arbitration. In California, an agreement is
ambiguous “when it is capable of two or more constructions, both of
which are reasonable.” 701 Fed. Appx., at 672 (quoting
Powerine
Oil Co. v.
Superior Ct., 37 Cal. 4th 377, 390, 118 P.3d
589, 598 (2005)). Following our normal practice, we defer to the
Ninth Circuit’s interpretation and application of state law and
thus accept that the agreement should be regarded as ambiguous.
See,
e.g.,
Expressions Hair Design v.
Schneiderman, 581 U. S. ___, ___ (2017) (slip op., at
7).[
3]
We therefore face the question whether,
consistent with the FAA, an ambiguous agreement can provide the
necessary “contractual basis” for compelling class arbitration.
Stolt-Nielsen, 559 U. S., at 684. We hold that it
cannot—a conclusion that follows directly from our decision in
Stolt-Nielsen. Class arbitration is not only markedly
different from the “traditional individualized arbitration”
contemplated by the FAA, it also undermines the most important
benefits of that familiar form of arbitration.
Epic Systems,
584 U. S., at ___ (slip op., at 8); see
Stolt-Nielsen,
559 U. S., at 686–687. The statute therefore requires more
than ambiguity to ensure that the parties actually agreed to
arbitrate on a classwide basis.
A
The FAA requires courts to “enforce
arbitration agreements according to their terms.”
Epic
Systems, 584 U. S.
, at ___ (slip op., at 5)
(quoting
American Express Co. v.
Italian Colors
Restaurant, 570 U.S. 228, 233 (2013)). Although courts may
ordinarily accomplish that end by relying on state contract
principles,
First Options of Chicago, Inc. v.
Kaplan,
514 U.S.
938, 944 (1995), state law is preempted to the extent it
“stands as an obstacle to the accomplishment and execution of the
full purposes and objectives” of the FAA,
Concepcion, 563
U. S., at 352 (internal quotation marks omitted). At issue in
this case is the interaction between a state contract principle for
addressing ambiguity and a “rule[ ] of fundamental importance”
under the FAA, namely, that arbitration “is a matter of consent,
not coercion.”
Stolt-Nielsen, 559 U. S., at 681
(internal quotation marks omitted).
“[T]he first principle that underscores all of
our arbitration decisions” is that “[a]rbitration is strictly a
matter of consent.”
Granite Rock Co. v.
Teamsters,
561 U.S.
287, 299 (2010) (internal quotation marks omitted). We have
emphasized that “foundational FAA principle” many times.
Stolt-Nielsen, 559 U. S., at 684; see also,
e.g.,
Howsam v.
Dean Witter Reynolds, Inc.,
537 U.S.
79, 83 (2002);
First Options, 514 U. S., at 943;
Mastrobuono v.
Shearson Lehman Hutton, Inc.,
514 U.S.
52, 57 (1995);
Volt Information Sciences, Inc. v.
Board of Trustees of Leland Stanford Junior Univ.,
489 U.S.
468, 479 (1989);
Mitsubishi Motors Corp. v.
Soler
Chrysler-Plymouth, Inc.,
473 U.S.
614, 626 (1985).
Consent is essential under the FAA because
arbitrators wield only the authority they are given. That is, they
derive their “powers from the parties’ agreement to forgo the legal
process and submit their disputes to private dispute resolution.”
Stolt-Nielsen, 559 U. S., at 682. Parties may generally
shape such agreements to their liking by specifying with whom they
will arbitrate, the issues subject to arbitration, the rules by
which they will arbitrate, and the arbitrators who will resolve
their disputes.
Id., at 683–684. Whatever they settle on,
the task for courts and arbitrators at bottom remains the same: “to
give effect to the intent of the parties.”
Id., at 684.
In carrying out that responsibility, it is
important to recognize the “fundamental” difference between class
arbitration and the individualized form of arbitration envisioned
by the FAA.
Epic Systems, 584 U. S.
, at ___
(slip op., at 8); see also
Concepcion, 563 U. S., at
349, 351;
Stolt-Nielsen, 559 U. S., at 686–687. In
individual arbitration, “parties forgo the procedural rigor and
appellate review of the courts in order to realize the benefits of
private dispute resolution: lower costs, greater efficiency and
speed, and the ability to choose expert adjudicators to resolve
specialized disputes.”
Id., at 685. Class arbitration lacks
those benefits. 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.”
Concepcion, 563 U. S., at 348. Indeed, we
recognized just last Term that with class arbitration “the virtues
Congress originally saw in arbitration, its speed and simplicity
and inexpensiveness, would be shorn away and arbitration would wind
up looking like the litigation it was meant to displace.”
Epic
Systems, 584 U. S.
, at ___ (slip op., at 8). Class
arbitration not only “introduce[s] new risks and costs for both
sides,”
ibid., it also raises serious due process concerns
by adjudicating the rights of absent members of the plaintiff
class—again, with only limited judicial review. See
Concepcion, 563 U. S., 349; see also
Stolt-Nielsen, 559 U. S., at 686 (citing
Ortiz
v.
Fibreboard Corp.,
527 U.S.
815, 846 (1999)).
Because of these “crucial differences” between
individ- ual and class arbitration,
Stolt-Nielsen explained
that there is “reason to doubt the parties’ mutual consent to
resolve disputes through classwide arbitration.” 559 U. S., at
687, 685–686. And for that reason, we held that courts may not
infer consent to participate in class arbitration absent an
affirmative “contractual basis for concluding that the party
agreed to do so.”
Id., at 684. Silence is not enough;
the “FAA requires more.”
Id., at 687.
Our 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.”
Concepcion, 563 U. S., at
348.
This conclusion aligns with our refusal to infer
consent when it comes to other fundamental arbitration questions.
For example, we presume that parties have
not authorized
arbitrators to resolve certain “gateway” questions, such as
“whether the parties have a valid arbitration agreement at all or
whether a concededly binding arbitration clause applies to a
certain type of controversy.”
Green Tree Financial Corp. v.
Bazzle,
539 U.S.
444, 452 (2003) (plural- ity opinion). Although parties are
free to authorize arbitrators to resolve such questions, we will
not conclude that they have done so based on “silence
or
ambiguity” in their agreement, because “doing so might too often
force unwilling parties to arbitrate a matter they reasonably would
have thought a judge, not an arbitrator, would decide.”
First
Options, 514 U. S., at 945 (emphasis added); see also
Howsam, 537 U. S., at 83–84. We relied on that same
reasoning in
Stolt-Nielsen, 559 U. S., at 686–687, and
it applies with equal force here. Neither silence nor ambiguity
provides a sufficient basis for concluding that parties to an
arbitration agreement agreed to undermine the central benefits of
arbitration itself.[
4]
B
The Ninth Circuit reached a contrary
conclusion based on California’s rule that ambiguity in a contract
should be construed against the drafter, a doctrine known as
contra proferentem. The rule applies “only as a last resort”
when the meaning of a provision remains ambiguous after exhausting
the ordinary methods of interpretation. 3 A. Corbin, Contracts
§559, pp. 268–270 (1960). At that point,
contra proferentem
resolves the ambiguity against the drafter based on public policy
factors, primarily equitable considerations about the parties’
relative bargaining strength. See 2 E. Farnsworth, Contracts §7.11,
pp. 300–304 (3d ed. 2004); see also 11 R. Lord, Williston on
Contracts §32:12, pp. 788–792 (4th ed. 2012) (stating that
application of the rule may vary based on “the degree of
sophistication of the contracting parties or the degree to which
the contract was negotiated”); Restatement (Second) of Contracts
§206, pp. 80–81, 105–107 (1979) (classifying
contra
proferentem under “Considerations of Fairness and the Public
Interest” rather than with rules for interpreting “The Meaning of
Agreements”); 3 Corbin, Contracts §559, at 270 (noting that
contra proferentem is “chiefly a rule of public policy”).
Although the rule enjoys a place in every hornbook and treatise on
contracts, we noted in a recent FAA case that “the reach of the
canon construing contract language against the drafter must have
limits, no matter who the drafter was.”
DIRECTV, Inc. v.
Imburgia, 577 U. S. ___, ___ (2015) (slip op., at 10).
This case brings those limits into focus.
Unlike contract rules that help to interpret the
meaning of a term, and thereby uncover the intent of the parties,
contra proferentem is by definition triggered only after a
court determines that it
cannot discern the intent of the
parties. When a contract is ambiguous,
contra proferentem
provides a default rule based on public policy considerations; “it
can scarcely be said to be designed to ascertain the meanings
attached by the parties.” 2 Farnsworth, Contracts §7.11, at 303.
Like the contract rule preferring interpretations that favor the
public interest, see
id., at 304,
contra proferentem
seeks ends other than the intent of the parties.
“[C]lass arbitration, to the extent it is
manufactured by [state law] rather than consen[t], is inconsistent
with the FAA.”
Concepcion, 563 U. S., at 348. We
recently reiterated that courts may not rely on state contract
principles to “reshape traditional individualized arbitration by
mandating classwide arbitration procedures without the parties’
consent.”
Epic Systems, 584 U. S., at ___ (slip op., at
8). But that is precisely what the court below did, requiring class
arbitration on the basis of a doctrine that “does not help to
determine the meaning that the two parties gave to the words, or
even the meaning that a reasonable person would have given to the
language used.” 3 Corbin, Contracts §559, at 269–270. Such an
approach is flatly inconsistent with “the foundational FAA
principle that arbitration is a matter of consent.”
Stolt-Nielsen, 559 U. S., at 684.
Varela and Justice Kagan defend application of
the rule on the basis that it is nondiscriminatory. It does not
conflict with the FAA, they argue, because it is a neutral rule
that gives equal treatment to arbitration agreements and other
contracts alike. See Brief for Respondent 18, 25–26;
post,
at 6–9 (Kagan, J., dissenting). We have explained, however, that
such an equal treatment principle cannot save from preemption
general rules “that target arbitration either by name or by more
subtle methods, such as by ‘interfer[ing] with fundamental
attributes of arbitration.’ ”
Epic Systems, 584
U. S.
, at ___ (slip op., at 7) (quoting
Concepcion, 563 U. S., at 344).
That was the case in
Concepcion. There,
the Court considered the general contract defense of
unconscionability, which had been interpreted by the state court to
bar class action waivers in consumer contracts, whether in the
litigation or arbitration context. See
id., at 341–344. The
general applicability of the rule did not save it from preemption
under the FAA with respect to arbitration agreements, because it
had the consequence of allowing any party to a consumer arbitration
agreement to demand class proceedings “without the parties’
consent.”
Epic Systems, 584 U. S.
, at ___ (slip
op., at 8) (describing the “essential insight” of
Concepcion). That, for the reasons we have explained,
“interferes with fundamental attributes of arbitration and thus
creates a scheme inconsistent with the FAA.”
Concepcion, 563
U. S., at 344; see
Epic Systems, 584 U. S.
,
at ___–___ (slip op., at 8–9). The same reasoning applies here: The
general
contra proferentem rule cannot be applied to impose
class arbitration in the absence of the parties’ consent.[
5]
Our opinion today is far from the watershed
Justice Kagan claims it to be. Rather, it is consistent with a long
line of cases holding that the FAA provides the default rule for
resolving certain ambiguities in arbitration agreements. For
example, we have repeatedly held that ambiguities about the scope
of an arbitration agreement must be resolved in favor of
arbitration. See,
e.g., Mitsubishi Motors Corp., 473
U. S., at 626;
Moses H. Cone Memorial Hospital v.
Mercury Constr. Corp.,
460 U.S.
1, 24–25 (1983). In those cases, we did not seek to resolve the
ambiguity by asking who drafted the agreement. Instead, we held
that the FAA itself provided the rule. As in those cases, the FAA
provides the default rule for resolving ambiguity here.
* * *
Courts may not infer from an ambiguous agreement
that parties have consented to arbitrate on a classwide basis. The
doctrine of
contra proferentem cannot substitute for the
requisite affirmative “contractual basis for concluding that the
part[ies]
agreed to [class arbitration].”
Stolt-Nielsen, 559 U. S., at 684.
We reverse the judgment of the Court of Appeals
for the Ninth Circuit and remand the case for further proceedings
consistent with this opinion.
It is so ordered.