Amicus Curiae Brief — Lamps Plus, Inc., et al., Petitioners v. Frank Varela

No. 17-988

IN THE

~uprenre Oinurt nf tqe ,niteu ~tates

__________

LAMPS PLUS, INC., LAMPS PLUS CENTENNIAL, INC.,

LAMPS PLUS HOLDINGS, INC.,

Petitioners,

v.

FRANK VARELA,

Respondent.

__________

On Writ of Certiorari

to the United States Court of Appeals

for the Ninth Circuit

__________

BRIEF OF CONTRACT LAW SCHOLARS AS

AMICI CURIAE IN SUPPORT OF RESPONDENT

_________

MATTHEW A. SELIGMAN

Counsel of Record

Benjamin N. Cardozo

School of Law

55 Fifth Avenue, Rm. 933

New York, NY 10023

(212) 790-0349

matthew.seligman@yu.edu

September 6, 2018

QUESTION PRESENTED

Did the court of appeals err in interpreting the arbitration agreement in this case, which contained no

express term addressing class arbitration, to authorize such proceedings?

ii

TABLE OF CONTENTS

QUESTION PRESENTED ........................................... i

TABLE OF CONTENTS .............................................. ii

TABLE OF AUTHORITIES ....................................... iii

INTEREST OF AMICI CURIAE ................................. 1

SUMMARY OF ARGUMENT ...................................... 1

ARGUMENT ................................................................ 2

I. STATE CONTRACT LAW GOVERNS THE SCOPE AND

CONTENT OF THE PARTIES’ AGREEMENT TO

ARBITRATE. ............................................................. 2

II. STATE CONTRACT LAW PROVIDES RULES OF

INTERPRETATION THAT DETERMINE THE CONTENT

OF THE PARTIES’ AGREEMENT. ............................... 7

III.STATES SENSIBLY ADOPT RULES OF CONTRACT

INTERPRETATION THAT CONSTRUE AMBIGUOUS

ARBITRATION AGREEMENTS AGAINST THEIR

DRAFTERS TO PERMIT CLASS PROCEEDINGS. .......... 9

CONCLUSION ........................................................... 16

APPENDIX: Amici and University Affiliations

iii

TABLE OF AUTHORITIES

Cases

Am. Express Co. v. Italian Colors Rest.,

570 U.S. 228 (2013) ................................................. 2

Am. First Fed. Credit Union v. Soro,

359 P.3d 105 (Nev. 2015)....................................... 11

Andrews v. Blake,

69 P.3d 7 (Ariz. 2003) ............................................ 11

Arthur Andersen LLP v. Carlisle,

556 U.S. 624 (2009) ................................................. 2

AT&T Mobility LLC v. Concepcion,

563 U.S. 333 (2011) ............................................6, 15

Baxley v. Nationwide Mut. Ins. Co.,

430 S.E.2d 895 (N.C. 1993) ................................... 11

Berlangieri v. Running Elk Corp.,

76 P.3d 1098 (N.M. 2003) ...................................... 11

Beveridge v. Savage,

830 N.W.2d 482 (Neb. 2013) ................................. 11

BNSF Ry. Co. v. Box Creek Mineral Ltd. P'ship,

420 P.3d 161 (Wyo. 2018) ...................................... 12

Boggs v. Camden-Clark Mem'l Hosp. Corp.,

693 S.E.2d 53 (W. Va. 2010) .................................. 12

Cappo Mgmt. V, Inc. v. Britt,

711 S.E.2d 209 (Va. 2011) ..................................... 12

Carter v. Four Seasons Funding Corp.,

97 S.W.3d 387 (Ark. 2003)..................................... 11

Citibank (S.D.), N.A. v. Hauff,

668 N.W.2d 528 (S.D. 2003) .................................. 12

iv

Cotter Corp. v. Am. Empire Surplus Lines Ins.

Co.,

90 P.3d 814 (Colo. 2004) (en banc) ........................ 11

Dalton v. Cellular S., Inc.,

20 So. 3d 1227 (Miss. 2009) ................................... 11

Daphne Auto., LLC v. E. Shore Neurology Clinic,

Inc.,

245 So. 3d 599 (Ala. 2017) ..................................... 11

Dean Witter Reynolds Inc. v. Byrd,

470 U.S. 213 (1985) ............................................. 3, 6

DirectTV, Inc. v. Imburgia,

136 S. Ct. 463 (2015) ........................................... 7, 8

Donahue v. Ledgends, Inc.,

331 P.3d 342 (Alaska 2014) ................................... 11

Donegal Mut. Ins. Co. v. Baumhammers,

938 A.2d 286 (Pa. 2007) ......................................... 12

Ellsworth v. Am. Arbitration Ass'n,

148 P.3d 983 (Utah 2006) ...................................... 12

Fed. Nat'l Mortg. Ass'n v. Hafer,

351 P.3d 622 (Idaho 2015) ..................................... 11

First Options of Chi., Inc. v. Kaplan,

514 U.S. 938 (1995) ......................................2, 3, 6, 7

Ga. Farm Bureau Mut. Ins. Co. v. Smith,

784 S.E.2d 422 (Ga. 2016) ..................................... 11

Hall St. Assoc., LLC v. Mattel, Inc.,

552 U.S. 576 (2008) ................................................. 3

Haviland v. Simmons,

45 A.3d 1246 (R.I. 2012) ........................................ 12

Hueble v. S.C. Dep't of Nat. Res.,

785 S.E.2d 461 (S.C. 2016) .................................... 12

v

James B. Nutter & Co. v. Estate of Murphy,

88 N.E.3d 1133 (Mass. 2018) ................................ 11

Kindred Nursing Ctrs. Ltd. P’ship v. Clark,

137 S. Ct. 1421 (2017) ............................................. 6

Koga Eng'g & Constr., Inc. v. State,

222 P.3d 979 (Haw. 2010) ..................................... 11

Ky. Emp'rs' Mut. Ins. v. Ellington,

459 S.W.3d 876 (Ky. 2015) .................................... 11

Liggatt v. Emp'rs’ Mut. Cas. Co.,

46 P.3d 1120 (Kan. 2002) ...................................... 11

Lopez v. Muñoz, Hockema & Reed, LLP,

22 S.W.3d 857 (Tex. 2000) ..................................... 12

MAMSI Life & Health Ins. Co. v. Callaway,

825 A.2d 995 (Md. 2003)........................................ 11

Mastrobuono v. Shearson Lehman Hutton, Inc.,

514 U.S. 52 (1995) .......................................... passim

McMinn v. City of Okla. City,

952 P.2d 517 (Okla. 1997) ..................................... 11

Md. Arms Ltd. P’ship v. Connell,

786 N.W.2d 15 (Wisc. 2010) .................................. 12

Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc.,

473 U.S. 614 (1985) ................................................. 6

Mont. Health Network, Inc. v. Great Falls

Orthopedic Assocs.,

353 P.3d 483 (Mont. 2015) .................................... 11

Northstar Founders, LLC v. Hayden Capital

USA, LLC,

855 N.W.2d 614 (N.D. 2014).................................. 11

vi

Oxford Health Plans LLC v. Sutter,

569 U.S. 564 (2013) ............................................. 4, 5

Peak v. Adams,

799 N.W.2d 535 (Iowa 2011) ................................. 11

People v. Yamat,

714 N.W.2d 335 (Mich. 2006) ................................ 11

Powerine Oil Co. v. Superior Court of L.A.,

118 P.3d 589 (Cal. 2005) ......................................... 9

Prejean v. Guillory,

38 So. 3d 274 (La. 2010) ........................................ 11

Prima Paint Corp. v. Flood & Conklin Mfg. Co.,

388 U.S. 395 (1967) ................................................. 3

Ramirez v. Health Net of the Ne., Inc.,

938 A.2d 576 (Conn. 2008) .................................... 11

Rent-a-Center, West, Inc. v. Jackson,

561 U.S. 63 (2010) ............................................... 2, 6

Roach v. BM Motoring, LLC,

155 A.3d 985 (N.J. 2017) ....................................... 11

Sandquist v. Lebo Auto., Inc.,

376 P.3d 506 (Cal. 2016) ....................................... 10

Scherk v. Alberto-Culver Co.,

417 U.S. 506 (1974) ................................................. 3

Southwick v. City of Rutland,

35 A.3d 113 (Vt. 2011) ........................................... 12

Sprague v. Safeco Ins. Co. of Am.,

276 P.3d 1270 (Wash. 2012) .................................. 12

Staffing Specifix, Inc. v. Tempworks Mgmt.

Servs, Inc.,

913 N.W.2d 687 (Minn. 2018) ............................... 11

vii

State Farm Mut. Auto. Ins. Co. v. Desfosses,

536 A.2d 205 (N.H. 1987) ...................................... 11

State Farm Mut. Auto. Ins. Co. v. Koshy,

995 A.2d 651 (Me. 2010) ......................................... 11

State v. Smith,

71 N.E.3d 368 (Ind. 2017) ..................................... 11

Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp.,

559 U.S. 662 (2010) ....................................4, 5, 9, 10

Swire Pac. Holdings, Inc. v. Zurich Ins. Co.,

845 So. 2d 161 (Fla. 2003) ..................................... 11

Triarch Indus., Inc. v. Crabtree,

158 S.W.3d 772 (Mo. 2005) .................................... 11

Twin City Fire Ins. Co. v. Del. Racing Ass'n,

840 A.2d 624 (Del. 2003) ....................................... 11

United States v. Seckinger,

397 U.S. 203 (1970) ............................................... 12

Valley Forge Ins. Co. v. Swiderski Elecs., Inc.,

860 N.E.2d 307 (Ill. 2006) ..................................... 11

Village of Ilion v. County of Herkimer,

18 N.E.3d 359 (N.Y. 2014) ...................................... 11

Volt Info. Scis., Inc. v. Bd. of Trs. of Leland

Stanford Junior Univ.,

489 U.S. 468 (1989) ........................................ passim

West v. Shelby Cty. Healthcare Corp.,

459 S.W.3d 33 (Tenn. 2014) .................................. 12

World Harvest Church v. Grange Mut. Cas. Co.,

68 N.E.3d 738 (Ohio 2016) .................................... 11

ZRZ Realty Co. v. Beneficial Fire & Cas. Ins. Co.,

241 P.3d 710 (Ore. 2010) ....................................... 12

viii

Statutes

9 U.S.C. § 4 ................................................................... 2

Other Authorities

Sup. Ct. R. 37.6............................................................. 1

Rules

11 Williston on Contracts § 32:12 .............................. 13

2 Farnsworth, Contracts § 7.11 (rev. 2018)............... 13

5 Corbin on Contracts § 24.27 (rev. 2018) ................ 13

Charles J. Goetz & Robert E. Scott, Enforcing

Promises: An Examination of the Basis of

Contract,

89 Yale L.J. 1261 (1980) ........................................ 14

H.R. Rep. No. 68-96 (1924) .......................................... 3

Ian Ayres & Robert Gertner, Filling Gaps in

Incomplete Contracts: An Economic Theory of

Default Rules,

99 Yale L.J. 87 (1989) ............................................. 13

J. H. Verkerke, Legal Ignorance and

Information-Forcing Rules,

56 Wm. & Mary L. Rev. 899 (2015)........................ 13

Restatement (Second) of Contracts § 206 (1981) ...... 13

INTEREST OF AMICI CURIAE 1

Amici curiae listed in the Appendix are contract law

scholars. Their interest is in the sound development of

federal law regarding the interpretation and application of the Federal Arbitration Act with due regard to

settled principles of state contract law. They submit

this brief to clarify for the Court the role of state contract law rules of interpretation in defining the scope

and content of parties’ contractual agreement.

SUMMARY OF ARGUMENT

I. The Federal Arbitration Act directs courts to enforce arbitration agreements under generally applicable state contract law. That rule requires courts to determine the content of agreements to arbitrate, like

any other contract, according to state contract law.

II. That requirement applies with equal force with

respect to the interpretation of ambiguous agreements

to arbitrate. Accordingly, state contract law supplies

rules of contract interpretation to resolve those ambiguities in order to determine the content of the parties’

agreement to arbitrate.

III. Universally accepted and widely applicable contract law supports the court of appeals’ interpretation

of the arbitration agreement in this case. That consensus, which directs courts to interpret an ambiguous

1 Pursuant to Supreme Court Rule 37.6, counsel for amici cu-

riae states that they authored this brief in its entirety and that

none of the parties or their counsel, nor any other person or entity

other than amici and their counsel, made a monetary contribution

intended to fund the preparation or submission of this brief. All

parties have consented to the filing of this brief.

2

contract term against the interest of the drafting party,

is accepted by every State, this Court, the leading treatises, and prominent scholarship. Under that interpretative rule, courts sensibly construe ambiguous arbitration clauses to authorize class proceedings.

ARGUMENT

I. STATE CONTRACT LAW GOVERNS THE SCOPE AND

CONTENT OF THE PARTIES’ AGREEMENT TO

ARBITRATE.

The Federal Arbitration Act authorizes the federal

courts to issue “an order directing that . . . arbitration

proceed in the manner provided for in [the parties’]

agreement.” 9 U.S.C. § 4 (emphasis added). That statutory command reflects Congress’s determination that

“arbitration is simply a matter of contract between the

parties.” First Options of Chi., Inc. v. Kaplan, 514 U.S.

938, 943 (1995). See also Am. Express Co. v. Italian

Colors Rest., 570 U.S. 228, 233 (2013) (“This text reflects the overarching principle that arbitration is a

matter of contract.”); Rent-a-Center, West, Inc. v. Jackson, 561 U.S. 63, 67 (2010) (“The FAA reflects the fundamental principle that arbitration is a matter of contract.”); Volt Info. Scis., Inc. v. Bd. of Trs. of Leland

Stanford Junior Univ., 489 U.S. 468, 479 (1989) (arbitration agreements are “a matter of consent, not coercion.”). And this Court has recognized that the FAA

does not “purport[] to alter background principles of

state contract law regarding the scope of [arbitration]

agreements.” Arthur Andersen LLP v. Carlisle, 556

U.S. 624, 630 (2009).

Against the background of state contract law, the

FAA’s “basic purpose” is “to ‘ensure judicial

3

enforcement of privately made agreements to arbitrate.’” First Options, 514 U.S. at 945 (quoting Dean

Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 219-20

(1985)). See also Volt, 489 U.S. at 478 (observing that

the FAA’s “passage ‘was motivated, first and foremost,

by a congressional desire to enforce agreements into

which parties had entered.’” (quoting Dean Witter, 470

U.S. at 220)). The statutory scheme therefore “simply

requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance

with their terms.” Id. (citing Prima Paint Corp. v.

Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12

(1967)). See also Scherk v. Alberto-Culver Co., 417 U.S.

506, 511 (1974) (noting that the FAA “place[s] arbitration agreements ‘upon the same footing as other contracts.’” (quoting H.R. Rep. No. 68-96 at 1-2 (1924))).

Agreements to arbitrate by class proceedings are,

just like any agreement to arbitrate, subject to state

contract law. And because arbitration agreements are,

like all contracts, founded on the bedrock of consent,

“parties are generally free to structure their arbitration

agreements as they see fit.” Volt, 489 U.S. at 479. Accordingly, they may “specify by contract the rules under which that arbitration will be conducted.” Id. See

also Hall St. Assoc., LLC v. Mattel, Inc., 552 U.S. 576,

586 (2008) (“[T]he FAA lets parties tailor some, even

many, features of arbitration by contract, including . . .

procedure and choice of substantive law.”) (internal citation omitted). Aggregate adjudication of claims is

one such procedural choice reserved for the parties:

“Class arbitration is a matter of consent: An arbitrator

may employ class procedures only if the parties have

authorized them.” Oxford Health Plans LLC v. Sutter,

4

569 U.S. 564, 565-66 (2013) (citing Stolt-Nielsen S.A. v.

AnimalFeeds Int’l Corp., 559 U.S. 662, 684 (2010)).

Because class arbitration procedures are a matter

of contract, 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. Sometimes it is

straightforward to determine that the parties had not

agreed to class arbitration. In Stolt-Nielsen, this Court

confronted a contract which the parties stipulated that

“no agreement . . . has been reached” on whether the

contract authorized class procedures. Id. at 669. Faced

with a contract that all conceded contained no agreement with respect to class arbitration, this Court held

that the arbitral panel erred in ordering such proceedings. The reason the panel erred was that it had

usurped the role of state contract law: “Rather than inquiring whether the FAA, maritime law, or New York

law contains a ‘default rule’ under which an arbitration

clause is construed as allowing class arbitration in the

absence of express consent, the panel proceeded as if it

had the authority of a common-law court to develop

what it viewed as the best rule to be applied in such a

situation.” Id. at 673-74.2 In accord with its recognition of the primacy of substantive contract law in determining the content of an agreement to arbitrate,

2 The contract at issue in Stolt-Nielsen was a “standard con-

tract” for the carriage of goods by ship “known in the maritime

trade as a charter party.” Stolt-Nielsen, 559 U.S. at 666. Accordingly, and unlike this case, maritime law therefore served as the

source of substantive law in addition to state contract law.

5

this Court rejected the panel’s attempt “simply [to] impose[] its own conception of sound policy.” Id. at 675.

Just as a party may not be bound to class arbitration absent its consent, this Court in Oxford Health recognized that a party may not escape class proceedings

when such a contractual basis for finding its consent is

present. See Oxford Health, 569 U.S. at 570-71. In that

case, the arbitrator “construe[d] the arbitration clause

in the ordinary way to glean the parties’ intent” and

“found that the arbitration clause unambiguously

evinced an intention to allow class arbitration.” Id. at

567-68. The arbitrator thus “did construe the contract

(focusing, per usual, on its language), and did find an

agreement to permit class arbitration.” Id. at 571.

Whereas in the arbitral panel in Stolt-Nielsen “abandoned [its] interpretive role,” 559 U.S. at 673-74, the

arbitrator in Oxford Health correctly relied on substantive contract law to “provide[] an interpretation of the

contract resolving the disputed issue.” 569 U.S. at 573.

This Court accordingly held that it must affirm the arbitrator’s order of class proceedings. Id.

The FAA’s foundation in state contract law, a

grounding this Court has repeatedly recognized, is consistent with this Court’s longstanding recognition of a

federal policy favoring arbitration. “There is no federal

policy favoring arbitration under a certain set of procedural rules; the federal policy is simply to ensure the

enforceability, according to their terms, of private

agreements to arbitrate.” Volt, 489 U.S. at 476. Congress’s “‘preeminent concern . . . in passing the Act was

to enforce private agreements into which parties had

entered,’ a concern which ‘requires that [the Court] rigorously enforce agreements to arbitrate.’” Mitsubishi

6

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S.

614, 625–26 (1985) (quoting Dean Witter, 470 U.S. at

221). Because “arbitration agreements, like other contracts, ‘are enforced according to their terms’ and according to the intentions of the parties,” First Options,

514 U.S. at 947 (quoting Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 54 (1995)), the federal

policy favoring the enforcement of arbitration agreements requires courts to respect the arbitral procedures the parties agreed to in the contract, including

when they agree to class procedures.

This Court has recognized only a limited exception

to the rule that state contract law governs arbitration

agreements. Because “courts must place arbitration

agreements on an equal footing with other contracts,”

a state may not “rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that

enforcement would be unconscionable.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339, 341 (2011)

(citations and quotation marks omitted). That limited

exception serves to ensure equal treatment of arbitration agreements by “displac[ing] any rule that covertly

. . . disfavor[s] contracts that (oh so coincidentally) have

the defining features of arbitration agreements.” Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421,

1426 (2017). Such specific targeting to disfavor arbitration as such demarcates the limit of the FAA’s preemption of state contract law. See, e.g., Rent-a-Center,

561 U.S. at 68 (“Like other contracts, however, [arbitration agreements] may be invalidated by generally

applicable contract defenses, such as fraud, duress, or

unconscionability.”) (citation and quotation marks

omitted).

7

Beyond that limited exception, however, this Court

has consistently made clear that arbitration agreements are a matter of contract and that courts should

apply substantive state contract law to them as they

would any other contract.

II. STATE CONTRACT LAW PROVIDES RULES OF

INTERPRETATION THAT DETERMINE THE CONTENT

OF THE PARTIES’ AGREEMENT.

The general principle that state contract law governs the scope and content of a contract applies in full

force to interpreting ambiguities in an arbitration

agreement. “[T]he interpretation of a contract is ordinarily a matter of state law to which [this Court] defer[s].” DirectTV, Inc. v. Imburgia, 136 S. Ct. 463, 468

(2015) (citation omitted). See also First Options, 514

U.S. at 944 (the interpretation of arbitration agreements requires courts to “apply ordinary state-law

principles that govern the formation of contracts”) (citations omitted); Mastrobuono, 514 U.S. at 60 n.4; Volt,

489 U.S. at 474.

In accord with that principle, this Court has refused

to revisit the interpretation of arbitration agreements

under state law. In Volt, this Court confronted a contract with a choice-of-law provision designating California law to govern disputes arising from the contract.

Volt, 489 U.S. at 470. The California court, applying

state contract law, interpreted that term to “incorporate[] the California rules of arbitration,” even though

neither the choice-of-law provision nor the arbitration

clause in the contract expressly addressed those procedures. Id. This Court rejected the petitioner’s attempt

to “convince[e] [the Court] that the [lower court] erred

8

in interpreting the choice-of-law provision to mean that

the parties had incorporated the California rules of arbitration into their arbitration agreement.” Id. at 474.

It refused even to consider the merits of the lower

court’s interpretation of the contract, because “the interpretation of private contracts is ordinarily a question of state law, which this Court does not sit to review.” Id.

This Court has departed from that deference only in

circumstances not present here. In Imburgia, this

Court rejected the lower court’s interpretation of the

phrase “law of your state” to include a California statute that had been invalidated by the Court’s decision

in Concepcion. 136 S. Ct. at 471. The Court based its

holding on the “conclu[sion] that California courts

would not interpret contracts other than arbitration

contracts the same way.” Id. at 469. Because the lower

court’s “interpretation of this arbitration contract [was]

unique, restricted to that field,” id., that interpretation

was not, in the Court’s view, the application of generally applicable contract principles. The FAA therefore

preempted the lower court’s interpretation of the contract only because it arose from a legal rule that, like

the unconscionability rule in Concepcion, specifically

targeted and disfavored arbitration.

Because there is no indication that the arbitration

agreement here has been interpreted in a way different

from other contracts, its proper interpretation was rendered by reference to generally applicable state contract law.

9

III.STATES SENSIBLY ADOPT RULES OF CONTRACT

INTERPRETATION THAT CONSTRUE AMBIGUOUS

ARBITRATION AGREEMENTS AGAINST THEIR

DRAFTERS TO PERMIT CLASS PROCEEDINGS.

The FAA thus respects States’ authority to craft

generally applicable rules of contract interpretation

that apply to arbitration agreements. When the terms

of a contract contain an ambiguity, courts must employ

background rules of interpretation to determine the

content of the parties’ agreement. The court of appeals

here relied on a sensible and universally recognized

rule of interpretation: that courts interpret ambiguous

contractual terms against the interest of the drafting

party. That rule of contract law finds support in the

law of every State, in this Court’s cases, in the leading

treatises, and in the academic literature.

As the court of appeals recognized, “[i]n California,

a contract is ambiguous ‘when it is capable of two or

more constructions, both of which are reasonable.’”

Pet. App. 2a-3a (quoting Powerine Oil Co. v. Superior

Court of L.A., 118 P.3d 589, 598 (Cal. 2005)). The arbitration clause at issue in this case does not expressly

address whether class proceedings are permitted or

prohibited. See Pet. App. 9a.3 In the absence of any

3 In Stolt-Nielsen, this Court based its decision on the parties’

stipulation that the contract there was “‘silent’ with respect to

class arbitration.” 559 U.S. at 668. The Court explained that this

stipulation “did not simply mean that the clause made no express

reference to class arbitration. Rather . . . ‘[a]ll the parties agree[d]

that . . . there’s been no agreement that has been reached on that

issue.’” Id. at 668-69 (citation omitted, first alteration in original).

The arbitration clause at issue in this case is not “silent” in that

sense. It is “silent” only in the sense that it contains no “express

10

express textual indication (or any other indication) in

the contract to determine whether the parties agreed

to permit or to prohibit class arbitration, the contract

was ambiguous with respect to which set of arbitral

procedures apply. The court of appeals then properly

looked to state contract law rules of interpretation to

determine the content of the parties’ agreement.

The court of appeals accordingly relied on California’s longstanding rule of contract interpretation that

“[a]mbiguity is construed against the drafter, a rule

that ‘applies with peculiar force in the case of a contract

of adhesion.’” Pet. App. 3a (quoting Sandquist v. Lebo

Auto., Inc., 376 P.3d 506, 514 (Cal. 2016)). The court

below thus engaged in precisely the inquiry this Court

found lacking in Stolt-Nielsen: determining whether

California law “contains a ‘default rule’ under which an

arbitration clause is construed as allowing class arbitration in the absence of express consent.” Stolt-Nielsen, 559 U.S. at 673-74.

The California courts’ rule comports with the unanimous consensus among States. Every state supreme

court has adopted the principle that an ambiguous

reference” to class arbitration. The core issue in this case is

whether, in the absence of such an express textual indication, the

parties agreed to permit or to prohibit class proceedings. The

Court in Stolt-Nielsen expressly declined to address that question:

“We have no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration. Here, as noted, the parties stipulated that there was ‘no

agreement’ on the issue of class-action arbitration.” Id. at 687

n.10.

11

contract should be interpreted against its drafter.4

Those cases apply the rule to virtually every type of

4 See, e.g., Daphne Auto., LLC v. E. Shore Neurology Clinic, Inc.,

245 So. 3d 599 (Ala. 2017); Donahue v. Ledgends, Inc., 331 P.3d

342 (Alaska 2014); Andrews v. Blake, 69 P.3d 7 (Ariz. 2003); Carter

v. Four Seasons Funding Corp., 97 S.W.3d 387 (Ark. 2003); Cotter

Corp. v. Am. Empire Surplus Lines Ins. Co., 90 P.3d 814 (Colo.

2004) (en banc); Ramirez v. Health Net of the Ne., Inc., 938 A.2d

576 (Conn. 2008); Twin City Fire Ins. Co. v. Del. Racing Ass'n, 840

A.2d 624 (Del. 2003); Swire Pac. Holdings, Inc. v. Zurich Ins. Co.,

845 So. 2d 161 (Fla. 2003); Ga. Farm Bureau Mut. Ins. Co. v.

Smith, 784 S.E.2d 422 (Ga. 2016); Koga Eng'g & Constr., Inc. v.

State, 222 P.3d 979 (Haw. 2010); Fed. Nat'l Mortg. Ass'n v. Hafer,

351 P.3d 622 (Idaho 2015); Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 860 N.E.2d 307 (Ill. 2006); State v. Smith, 71 N.E.3d 368

(Ind. 2017); Peak v. Adams, 799 N.W.2d 535 (Iowa 2011); Liggatt

v. Emp'rs’ Mut. Cas. Co., 46 P.3d 1120 (Kan. 2002); Ky. Emp'rs'

Mut. Ins. v. Ellington, 459 S.W.3d 876 (Ky. 2015); Prejean v. Guillory, 38 So. 3d 274 (La. 2010); State Farm Mut. Auto. Ins. Co. v.

Koshy, 995 A.2d 651 (Me. 2010); MAMSI Life & Health Ins. Co. v.

Callaway, 825 A.2d 995 (Md. 2003); James B. Nutter & Co. v. Estate of Murphy, 88 N.E.3d 1133 (Mass. 2018); People v. Yamat, 714

N.W.2d 335 (Mich. 2006); Staffing Specifix, Inc. v. Tempworks

Mgmt. Servs, Inc., 913 N.W.2d 687 (Minn. 2018); Dalton v. Cellular S., Inc., 20 So. 3d 1227 (Miss. 2009); Triarch Indus., Inc. v.

Crabtree, 158 S.W.3d 772 (Mo. 2005); Mont. Health Network, Inc.

v. Great Falls Orthopedic Assocs., 353 P.3d 483 (Mont. 2015); Beveridge v. Savage, 830 N.W.2d 482 (Neb. 2013); Am. First Fed.

Credit Union v. Soro, 359 P.3d 105 (Nev. 2015); State Farm Mut.

Auto. Ins. Co. v. Desfosses, 536 A.2d 205 (N.H. 1987); Roach v. BM

Motoring, LLC, 155 A.3d 985 (N.J. 2017); Berlangieri v. Running

Elk Corp., 76 P.3d 1098 (N.M. 2003); Village of Ilion v. County of

Herkimer, 18 N.E.3d 359 (N.Y. 2014); Baxley v. Nationwide Mut.

Ins. Co., 430 S.E.2d 895 (N.C. 1993); Northstar Founders, LLC v.

Hayden Capital USA, LLC, 855 N.W.2d 614 (N.D. 2014); World

Harvest Church v. Grange Mut. Cas. Co., 68 N.E.3d 738 (Ohio

2016); McMinn v. City of Okla. City, 952 P.2d 517 (Okla. 1997);

ZRZ Realty Co. v. Beneficial Fire & Cas. Ins. Co., 241 P.3d 710

12

contract and term, extending far beyond the context of

arbitration. The rule’s longstanding and universal application has put every contracting party, especially

the sophisticated parties who are likely to be disadvantaged by it, on notice that contracts they draft lack clarity at their peril.

In accord with that unanimous consensus among

the States, this Court has long recognized “the common-law rule of contract interpretation that a court

should construe ambiguous language against the interest of the party that drafted it.” Mastrobuono, 514 U.S.

at 62 (citations omitted). The Court has further incorporated into federal law the “general maxim that a contract should be construed most strongly against the

drafter.” United States v. Seckinger, 397 U.S. 203, 210

(1970). Accordingly, under the FAA when a party

“draft[s] an ambiguous document . . . [it] cannot now

claim the benefit of the doubt.” Mastrobuono, 514 U.S.

at 63.

(Ore. 2010), modified on other grounds, 249 P.3d 111 (Ore. 2011)

(en banc); Donegal Mut. Ins. Co. v. Baumhammers, 938 A.2d 286

(Pa. 2007); Haviland v. Simmons, 45 A.3d 1246 (R.I. 2012); Hueble

v. S.C. Dep't of Nat. Res., 785 S.E.2d 461 (S.C. 2016); Citibank

(S.D.), N.A. v. Hauff, 668 N.W.2d 528 (S.D. 2003); West v. Shelby

Cty. Healthcare Corp., 459 S.W.3d 33 (Tenn. 2014); Lopez v.

Muñoz, Hockema & Reed, LLP, 22 S.W.3d 857 (Tex. 2000); Ellsworth v. Am. Arbitration Ass'n, 148 P.3d 983 (Utah 2006); Southwick v. City of Rutland, 35 A.3d 113 (Vt. 2011); Cappo Mgmt. V,

Inc. v. Britt, 711 S.E.2d 209 (Va. 2011); Sprague v. Safeco Ins. Co.

of Am., 276 P.3d 1270 (Wash. 2012); Boggs v. Camden-Clark

Mem'l Hosp. Corp., 693 S.E.2d 53 (W. Va. 2010); Md. Arms Ltd.

P’ship v. Connell, 786 N.W.2d 15 (Wisc. 2010); BNSF Ry. Co. v.

Box Creek Mineral Ltd. P'ship, 420 P.3d 161 (Wyo. 2018).

13

The leading contracts treatises confirm that principle’s universal acceptance and wide application. The

Restatement explains that “[i]n choosing among the

reasonable meanings of a promise or agreement or a

term thereof, that meaning is generally preferred

which operates against the party who supplies the

words or from whom a writing otherwise proceeds.” Restatement (Second) of Contracts § 206 (1981). This

Court has quoted the Restatement’s rationale for that

rule approvingly: “‘Where one party chooses the terms

of a contract, he is likely to provide more carefully for

the protection of his own interests than for those of the

other party. He is also more likely than the other party

to have reason to know of uncertainties of meaning.’”

Mastrobuono, 514 U.S. at 63 n.10 (quoting id., Comment a). Accord 11 Williston on Contracts § 32:12

(“Since the language is presumptively within the control of the party drafting the agreement, it is a generally accepted principle that any ambiguity in that language will be interpreted against the drafter.”) (rev.

2018); 5 Corbin on Contracts § 24.27 (rev. 2018); 2

Farnsworth, Contracts § 7.11 (rev. 2018).

That rule serves to ensure the parties’ actual agreement to the terms of the contract. The academic literature often analyzes contract rules that disfavor the

better informed, drafting party as “information-forcing

default rules.” See, e.g., J. H. Verkerke, Legal Ignorance and Information-Forcing Rules, 56 Wm. & Mary

L. Rev. 899, 906 (2015); Ian Ayres & Robert Gertner,

Filling Gaps in Incomplete Contracts: An Economic

Theory of Default Rules, 99 Yale L.J. 87, 91 (1989);

Charles J. Goetz & Robert E. Scott, Enforcing Promises: An Examination of the Basis of Contract,

14

89 Yale L.J. 1261, 1299-1300 (1980). By setting the

default rule to what the drafting party does not prefer

as a “penalty,” the law provides the drafter with an incentive to include an express term in the contract.

That express term, in turn, serves to inform the nondrafting party of the terms of the deal.

This Court has similarly recognized that sensible

rationale. In Mastrobuono, this Court grounded its interpretation of the arbitration agreement disfavoring

the drafting party by noting the information asymmetry between the parties. The Court explained that,

“[a]s a practical matter, it seems unlikely that [the nondrafting parties] were actually aware of New York’s bifurcated approach to punitive damages, or that they

had any idea that by signing a standard-form agreement to arbitrate disputes they might be giving up an

important substantive right.” Mastrobuono, 514 U.S.

at 63. In light of that likely lack of knowledge of the

background legal rule, the Court was “unwilling to impute th[at] intent” to the non-drafting party. Id.

So too with class arbitration waivers. Sophisticated

firms that draft consumer and employment contracts,

typically with the assistance of skilled counsel, are far

more likely to know the background rules of contract

law than are their consumer and employee counterparties. When those counterparties are unaware of the

background contract rules that apply to a contract that

does not expressly state whether class proceedings are

permitted or prohibited, they do not consent to the arbitration agreement to the same degree that they

would with full knowledge. That is particularly true in

the modern era where most people are aware that class

action litigation is generally available but have no

15

reason to suspect that the opposite would be true in arbitration. A default rule of interpretation that presumes the parties have agreed to class arbitration unless the contract expressly provides otherwise thus

serves to enhance contractual consent to arbitration

agreements by putting all parties on notice of the arbitral procedures they have agreed to adopt.

That rule of interpretation comports with the requirements of the FAA. This Court previously contemplated state law rules that serve to ensure that both

parties to the arbitration agreement are fully aware of

the procedures to which they are bound. In Concepcion, while holding that a blunt prohibition on class

waivers conflicts with the FAA, the Court reassured

States that they “remain free to take steps addressing

the concerns that attend contracts of adhesion—for example, requiring class-action-waiver provisions in adhesive arbitration agreements to be highlighted.” 563

U.S. at 346-47 n.6. It is difficult to see how a requirement that class waivers be highlighted would be consistent with the FAA while, as petitioners would have

it, a default rule of interpretation that requires a class

waiver to be explicitly stated in the first place would

run afoul of the FAA.

The rule’s modest result—that drafting parties are

free to draft a contract that favors their interest by prohibiting class arbitration, but if they wish to do so they

must do so explicitly by agreement—comports with the

FAA’s fundamental grounding in contract law. Just

like the common-sense requirement that parties must

expressly state an agreement to arbitrate—the default

rule is that they have not agreed to arbitration—the

sensible state contract rule that requires parties to

16

expressly waive class procedures comports with universally accepted, generally applicable rules of state

contract law and is consistent with the FAA.

CONCLUSION

The judgment of the court of appeals should be

affirmed.

Respectfully submitted,

MATTHEW A. SELIGMAN

Counsel of Record

Benjamin N. Cardozo

School of Law

55 Fifth Avenue, Rm. 933

New York, NY 10023

(212) 790-0349

matthew.seligman@yu.edu

September 6, 2018

APPENDIX

APPENDIX

University affiliations for identification purposes only.

Ian Ayres

William K. Townsend Professor & Anne Urowsky Professorial Fellow in Law

Yale Law School

Aditi Bagchi

Professor of Law

Fordham University Law School

Brian Bix

Frederick W. Thomas Professor of Law and Philosophy

University of Minnesota

Einer R. Elhauge

Carroll and Milton Petrie Professor of Law

Harvard Law School

Erik Encarnacion

Postdoctoral Fellow in Law and Philosophy

UCLA School of Law

David Hoffman

Professor of Law

University of Pennsylvania Law School

Robin B. Kar

Professor of Law and Philosophy

University of Illinois College of Law

2

Gregory Klass

Agnes N. Williams Research Professor

Georgetown University Law Center

Charles L. Knapp

Emeritus Joseph W. Cotchett Distinguished Professor of

Law

U.C. Hastings College of Law

Matthew A. Seligman

Visiting Assistant Professor of Law

Benjamin N. Cardozo School of Law

J.H. Verkerke

T. Munford Boyd Professor of Law

University of Virginia School of Law