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Arbitrary arbitration rulings occur occasionally

Some years ago, I got to see the Supreme Court in action. It was amusing to watch Justice Antonin Scalia ask a question and then, as the attorney started to answer, rephrase it. The attorney respectfully waited until the justice was done, then began answering again, when Scalia interrupted once more, because he had thought of an even punchier rephrasing. It was a demonstration of how the justice developed his famously acerbic writing style, with constant self-editing. Meanwhile, the attorney lost two minutes of his short time at the lectern.

Chief Justice John Roberts

A different lawyer responded to a tough question with an elaborate non-answer that segued into a more congenial topic. Lawyers call that kind of response tap dancing, and this lawyer was a Fred Astaire. Chief Justice John Roberts held up his hand with a puzzled look on his face. “Excuse me, counsel,” he said, “but you’re going too fast for me. I’m not sure I caught your answer. Was that a yes or a no?”

Many judges, when frustrated by a lawyer’s evasion, resort to bullying. But Roberts, the most powerful judge of all, pinned that lawyer the way a butterfly collector pins a specimen, with the absolute minimum of force.

Ever since I saw that demonstration of Roberts’ tact and skill, I’ve approached his opinions with a reservoir of good will, which leaves me feeling doubly disappointed when he stops even trying to make sense, as he did recently in a case called Lamps Plus v. Varela.

Lamps Plus bills itself as “the nation’s largest lighting retailer.” When Frank Varela went to work for the company, he signed an arbitration agreement as a condition of employment. By signing, Varela waived his right to bring any lawsuit “relating to my employment.” All employment disputes would be decided by arbitration.

“In 2016, a hacker impersonating a company official tricked a Lamps Plus employee 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,” according to Roberts’ opinion. The opinion doesn’t go into the difficulties Varela faced trying to get right with the IRS, but he wound up filing claims for negligence, breach of contract and invasion of privacy against his employer.

Varela sought compensation not just for himself but for the 1,299 other Lamps Plus employees in the same boat, too, seeking to have their claims heard in a single proceeding. Such class actions, whether in arbitration or litigation, allow many small claims, each of which might not be worthwhile pursuing on its own, to be consolidated into a proceeding with enough at stake to interest plaintiffs’ lawyers — and frighten defendants.

The arbitration agreement drafted by Lamps Plus didn’t say anything about collective proceedings. Given that silence, the California federal courts applied an age-old rule of contract interpretation, that ambiguities are construed against the drafter of a contract, holding that because class arbitration wasn’t prohibited by the agreement, it was permitted.

The Supreme Court reversed on a 5-4 vote. In his lead opinion, Roberts created a special rule applicable only to arbitration cases, which boils down to this: Ambiguity is construed against the party seeking the consolidation of claims.

Roberts pointed out that the age-old rule doesn’t actually reflect the intent of the parties, which is true, since it is resorted to only to fill gaps in an otherwise valid agreement. But the same is true of Roberts’ special rule. Throughout his opinion, he insists that “arbitration is strictly a matter of consent.” The parties must agree to the terms of their arbitration. But he didn’t claim Varela agreed to waive class arbitration. In short, Roberts’ opinion consists primarily of reasons that it’s wrong. He could have just said, “We like this policy better.”

His opinion points out that arbitration offers the advantages of “lower costs, greater efficiency and speed” when compared with federal litigation. But that only highlights a paradox. Arbitration gains those advantages by dispensing with procedural rules put in place by the Supreme Court itself. If those procedural rules contribute to just outcomes, then dispensing with them promotes injustice. But if they don’t advance the cause of justice, the court has no excuse for imposing them on ordinary litigants.

The reality is that the Supreme Court has fashioned a two-tier system of justice for business-related disputes. That’s a gift to companies that write their own contracts. Congress can revoke the gift at any time, and changes in Supreme Court personnel could produce very different results. But if you’re a business owner, you really ought to accept the gift while it’s on offer and add arbitration clauses to all your contracts.

Joel Jacobsen is an author who recently retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at legal.column.tips@gmail.com.

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