Varela vs Lamps Plus Inc

Lamps Plus, Inc. vs. Varela: Case Analysis

In the case Lamp, Inc. v. Varela, the petitioner, Frank Varela, sued Lamps Plus after disclosing 1,300 employees’ tax information after a phishing attack. Frank filed a class action complaint for negligence against his employer, breach of contract, and invasion of privacy after Lamps Plus released employee personal identifying information after a phishing attack. Mr. Varela was miffed after fraudulent income tax returns were filed in his name. Lamps Plus strategy in the legal suit was to compel the arbitration on an individual basis relying on the arbitration provision. The district court denied the request for individual arbitration and instead authorized a class arbitration that was affirmed in the Ninth Circuit. Lamps Plus petitioned this decision to the supreme court, Lamps Plus, Inc., et al. v. Varela, No. 17-988 (S.Ct. 4/24/19) (587 U. S., 2019). Frank’s employment contract had an arbitration agreement as a requirement for his employment. After filling the suit against Lamps Plus, the defendant relied on this agreement as the foundation of a motion to compel bilateral arbitration.

The district court found the agreement to be a one of adhesion and ambiguous in whether it permitted class arbitration. Consequently, it allowed the arbitration to proceed on a class-wide basis. After the appeal to the Ninth Circuit arguing that Lamps Plus had not agreed to class arbitration, the court affirmed and ruled that class arbitration could proceed (“Lamps Plus Inc. v. Varela,” 2018). Under California law, it is to understand the ambiguity against the plaintiff when it is a contract of adhesion. The petition to the supreme court resulted in a ruling that reversed and remanded the ninth circuit arguing that under the “Federal Arbitration Act,” an ambiguous agreement cannot provide the required contractual foundation for the conclusion that the parties were in agreement to submit class arbitration (“Lamps Plus Inc. v. Varela,” 2018). The chief justice delivered this ruling of the supreme court as a 5 – 4 majority, with a dissenting opinion from Justice Ruth Ginsburg, that was joined by justices Stephen Breyer, Sotomayor, and Elan Kagan.

The dissenting opinion by Justice Ruth Ginsburg held that arbitration is not a matter of consent but rather coercion. She argued that there was irony in agreements between parties where one had vastly uneven bargaining power, such as that of an employer and employee. Consequently, the defendant, in this case, Lamps Plus, benefited with an even greater power of bargain that was applied as coercion. Justice Sotomayor’s dissenting opinion held that the majority in the court arrived at its reversal of the ninth circuit judgment without first agreeing that the contract was ambiguous, invading the California law by invoking prevention unnecessarily (“Lamps Plus Inc. v. Varela,” 2018). Justice Kagan’s dissenting opinion held that the Federal Arbitration Act required enforcement of arbitration agreements following court terms and did not make the contact law federal law. Even under the FAA, state laws govern the interpretation of the arbitration agreements as long as it treats other types of law similarly.

The ruling and dissenting rulings in the supreme court were divided along party lines, with the majority of Republican-appointed judges reversing the ninth circuit ruling and the democratically appointed justices dissecting this ruling. This means that the interpretation of arbitration cases is determined by state laws and depends on whether the state votes favor the democratic or republican party. The reversal of the ninth circuit meant that Mr. Varela would have to choose an alternative option for resolving the conflict with Lamps Plus, which gave the defendant a bargaining advantage compared to resolving the issue through a court of law (Alexander, 2016). Consequently, this might lower ethical compliance in the business environment due to ambiguity in interpreting arbitration laws across states.

The compensation of Mr. Varela would be lower and in terms that would most likely favor the employer compared to the compensation he would have got through the court. However, this approach compromises the ethical perception of Lamps Plus among employees and might limit talented employees from seeking employment with the company (Alexander, 2016). As Flagstar bank we are headquartered in Michigan, the use of arbitration clauses might be effective since the state arbitration laws are not similar to those of California but offering admissible contracts in such cases is essential to prevent the emergence of civil suits by the employees. Ensuring optimum cyber security is also critical to avoid phishing customer, company, or employee data.