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June 11, 2013

The U.S. Supreme Court's Most Recent Decision On Arbitrating Class Action Disputes

Oxford Health Plans v. Sutter

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Supreme Court of the United States Courthouse

The U.S. Supreme Court issued a decision on June 10, 2013, affirming an arbitrator’s decision to require class action arbitration of claims despite no specific reference to class action in the arbitration clause at issue. See Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___  (2013).  The Oxford Health case serves as a warning to businesses using arbitration clauses requiring arbitration of “any dispute arising under this Agreement.”  If you do not want your cases resolved in class action arbitration, then expressly reject class action arbitration in your arbitration clauses.

Oxford Health Plans agreed to pay Dr. Sutter for providing medical services to members of Oxford’s managed care network.  Their contract contained a broad arbitration clause requiring arbitration of “any dispute arising under this Agreement.”  Sutter complained Oxford failed to pay him and other primary health care providers for medical services.  The parties agreed the arbitrator should decide whether their contract authorized class arbitration.  After the arbitrator decided their contract clause allowed “class arbitration,” Oxford attempted to vacate the arbitration award, arguing the arbitrator exceeded his power to arbitrate.  The district court denied Oxford's motion.

The Third Circuit and U.S. Supreme Court affirmed the district court, however, the Supreme Court appeared to disagree with the arbitrator's interpretation of the arbitration clause.  Because he was interpreting the arbitration clause, however, “the sole question...[was] whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”  This is true whether the arbitrator's construction was “good, bad, or ugly.”  The court went so far as to explain:  “Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator’s contract interpretation[.]”

The Supreme Court distinguished its decision in Oxford Health from its previous decision in Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) where it held that an arbitrator may employ class procedures only if the parties have authorized them.  It explained that in Stolt-Nielsen, the parties stipulated they had never reached an agreement on class arbitration.  Relying on §10(a)(4) of the Federal Arbitration Act, the Supreme Court vacated the arbitrators’ decision approving class proceedings because, in the absence of such an agreement, the arbitrators had “simply...imposed [their] own view of sound policy” rather than construing the arbitration agreement. (Id. at 672.)  In contrast, in Oxford Health Plans v. Sutter, the arbitrator was clearly construing the arbitration provisions.

In light of the court’s decision in Oxford Health Plans v. Sutter, if a party wants to avoid class arbitration, then it must explicitly say so in its arbitration agreement.  The arbitration clause at issue in the Oxford Health case provided as follows:

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.”

 

Based on this language, the arbitrator concluded the arbitration clause “on its face...expresses the parties’ intent that class arbitration can be maintained.”  If the arbitration clause had stated a clear intent not to arbitrate class actions, however, then it is likely that the arbitrator would not have required class action arbitration.  As the Supreme Court reiterated in Oxford Health:  “[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.”

It is possible that Oxford could have avoided class arbitration if it had framed the issue as one of arbitrability rather than arguing the arbitrator improperly construed the arbitration agreement.  The issue of whether the class arbitration is available raises “a question of arbitrability” not yet addressed by the U.S. Supreme Court.  The Oxford Health opinion acknowledged this and stated that it was a “different issue” than the one before it.  The difference could be critical.  If viewed as a “gateway” issue of arbitrability, then it is “presumptively for courts to decide” and no deference would need to be given to the arbitrator—if the issue ever reached the arbitrator.

The decision in Oxford Health Plans v. Sutter also serves as a reminder that one of the strongest benefits and detriments to arbitration is the limited scope of judicial review.  “It is not enough...to show that the [arbitrator] committed an error—or even a serious error.” (Stolt-Nielsen, 559 U.S., at 671.)  Because the parties “bargained for the arbitrator's construction of their agreement,” the Oxford Health decision explains that an arbitral decision “‘even arguably construing or applying the contract’ must stand, regardless of a court’s view of its (de)merits.”

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