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Thursday, April 25, 2019

Creepy Lamps: A Commentary by Tal Kastner

Today in Lamps Plus Inc. v Varelathe Supreme Court reversed the Ninth Circuit’s ruling that an ambiguous arbitration provision in an employment agreement may be construed against the drafter to allow class-wide arbitration. Beyond the implications for those concerned with the ever-expanding presumption of enforceability of arbitration provisions, Lamps Plus promises to complicate further another fundamental project in contract law.  

As Ethan Leib and I explore in Contract Creep, forthcoming in the Georgetown Law Journal, scholars and judges widely accept that so-called “sophisticated party” transactions should be treated differently than consumer or employment transactions involving individuals. The wisdom of developing distinct doctrinal tracks in contract law for different transaction types traces to the distinctive goals of contract law in different contexts as well as empirical evidence of the distinctive ways sophisticated parties, on one hand, and individuals, on the other, are able to mobilize terms like arbitration to allocate risk.  As we argue, however, the project of developing a contract law for sophisticated parties and another track for employees or consumers overlooks a fundamental challenge—one that today’s ruling both demonstrates and exacerbates.  Specifically, we highlight the tendency of doctrine to creep between doctrinal tracks and muddy doctrinal rationales. 

In solidifying the privileged presumption of individual rather than class-wide arbitration and sidelining the principle of contra proferentem—construing an ambiguity against the drafter— today’s ruling facilitates creep in two directions.  It reinforces the trend of treating arbitration provisions—originally recognized by bespoke doctrine as a tool for sophisticated parties—as a matter of general contract law in which the employer-drafter’s consent is paramount. And framing contra proferentem as a public policy doctrine beyond the issue of consent, the ruling circumscribes the applicability of the doctrine in the context of an employee presented with a form agreement.  As we outline, this old principle of contract construction has migrated in its current form from insurance law, where its most compelling rationale is pro-consumer, into general contract law, to be applied in sophisticated party transactions. Today’s ruling further muddies the distinction between doctrinal tracks in both directions: limiting contra proferentemin the context of a form agreement drafted by a powerful repeat player, and protecting employers’ consent to arbitration without regard to transaction type. In doing so, the Court not only widens the on-ramps for transaction-specific doctrine to jump tracks but demonstrates the generalizing trend that will complicate the project of developing bespoke doctrine.

 

--TK

Posted by Ethan Leib on April 25, 2019 at 12:01 AM | Permalink

Comments

Interesting and important indeed. I didn't know of such anti drafter rule. Really weired. On the other hand, I must admit, that if the purpose of it, is ( quoting the dissenting opinion of justice Kagan ) to:

"...encourages the drafter to set out its intent in clear contractual language, for the other party then to see and agree to "

Then it does make some sense. Yet, on the other hand, in many cases ( and like this current case it seems ) the problem with contracts is the inability to predict chaotic occurrences, strictly, beyond control and premeditation of parties. Then just attitude, would be to asses and re- asses in fact the purpose of the contract as had been conceived by parties to it, and in fundamental terms, and incorporate or re- incorporate it to the contract itself.

But such blind rule or attitude, is really weired I must admit.

Thanks

Posted by: El roam | Apr 25, 2019 8:02:42 AM

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