On June 10, 2013, the U.S. Supreme Court unanimously held in Oxford Health Plans LLC v. Sutter that an arbitrator did not exceed his authority under the Federal Arbitration Act ("FAA") when he determined that a contract between doctors and a health insurance company allowed for class arbitration. The case arose when a doctor filed a class action on behalf of other physicians against Oxford for breach of contract and state law claims. Oxford moved to compel arbitration, and the parties agreed the arbitrator should decide whether the contract authorized arbitration on a class-wide basis. The arbitrator concluded that the contract authorized class arbitration.
While arbitration was proceeding, however, the Supreme Court issued its decision in Stolt-Nielsen SA v. Animal Feeds, vacating an arbitration decision that had allowed for class arbitration in a case where the Court found the parties had not, in fact, agreed to proceed on a class-wide basis. Oxford asked the arbitrator to reconsider his decision based on Stolt-Nielsen, but the arbitrator determined Stolt-Nielsen did not apply because the parties in the current case had explicitly authorized class arbitration. The Supreme Court upheld the arbitrator’s decision in the Oxford case under the standard set forth in § 10(a)(4) of the FAA, which allows for vacating an arbitrator’s decision only in rare circumstances where the arbitrator exceeds his powers, and not simply upon a showing of error.
Thus, in contrast to Stolt-Nielsen, where there was no agreement allowing for class arbitration, the Court in Oxford found that the parties had agreed to allow the arbitrator to determine whether they had agreed to class arbitration, and the arbitrator found they had done so. The Supreme Court instructed that in order to overturn the arbitrator’s decision, it would have to find that he misinterpreted the contract and the parties’ intent. But, because the FAA does not allow for that type of searching review, the Court determined it could not vacate the judgment. The Court’s opinions in both Stolt- Nielsen and Oxford suggest, however, that had Oxford not agreed that the availability of class-wide arbitration was an issue for the arbitrator to decide, his determination may have been subject to de novo review, a much less deferential standard.
This case may be particularly important for employers utilizing agreements with arbitration provisions. Employers should consider including explicit language in their agreements addressing whether class arbitration is available. If an agreement contains a general clause that does not specifically prohibit class arbitration, employers should carefully consider if they desire an arbitrator’s determination on whether the agreement provides for class-wide arbitration, as a reviewing court will have limited power to overturn the arbitrator’s decision.
Additionally, we anticipate the Supreme Court’s decision in American Express v. Italian Colors Restaurant, which is expected to clarify whether individuals can file class actions even after signing an agreement mandating arbitration, to be issued in the next few weeks.