Contractual arbitration agreements are to be enforced according to their express terms, even if the effect of these agreements is to limit the ability of plaintiffs to bring class action claims, the U.S. Supreme Court has held repeatedly in recent years. In Oxford Health Plans LLC v. Sutter, No. 12-135 (June 10, 2013), the Court upheld the decision of an arbitrator who had interpreted the scope of an arbitration agreement to allow an arbitration claim to proceed on a class basis. The Court ruled that because the arbitrator had interpreted the contract language, he had not “exceeded his powers” under the arbitration agreement, which therefore required the courts to uphold the award even if the arbitrator’s interpretation was erroneous.
Plaintiff John Sutter was a pediatrician who provided medical services to members of Oxford’s health insurance network. The contract between Sutter and Oxford contained a broad arbitration agreement that provided: “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 ....”
Sutter filed a class action complaint in state court alleging that Oxford had failed to make full and prompt payments to Sutter and other doctors, in violation of their contract and state law. Oxford successfully moved to compel arbitration. The initial issue before the arbitrator was whether the arbitration could proceed as a class proceeding or only as an individual claim by Sutter. The arbitrator analyzed the language of the arbitration agreement and concluded that it evidenced an intention by the parties to permit class arbitration. Oxford sought unsuccessfully to vacate that ruling on the ground that the arbitrator had exceeded his powers.
While the arbitration remained pending, the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds Corp., 559 U.S. 662 (2010), which held that a party to an arbitration agreement could not be compelled to engage in class arbitration unless the party had affirmatively agreed to do so. Under Stolt-Nielsen, there must be is a contractual basis establishing such an agreement; it is not enough that the parties had agreed to submit all disputes to arbitration and had not expressly prohibited class arbitration. The Supreme Court vacated the decision of the arbitrator in that case, ruling the arbitration could not proceed on a class basis.
Armed with Stolt-Nielsen, Oxford requested the arbitrator reconsider his decision. However, the arbitrator still decided to allow class arbitration, distinguishing Stolt-Nielsen on the basis that the parties in that case had stipulated there was no agreement as to class arbitration. Despite the absence of any explicit reference to class arbitration in Oxford’s arbitration agreement, the arbitrator interpreted the “all such disputes” language to include class claims, and he therefore concluded that the text of the agreement authorized class arbitration. Oxford again moved to vacate the arbitrator’s decision, this time relying on Stolt-Nielsen. However, the district court and the Third Circuit Court of Appeals upheld the decision of the arbitrator, reasoning that it was based on an interpretation of the contractual language and therefore was not in excess of his powers.
Supreme Court’s Decision
The Supreme Court unanimously affirmed. It upheld the decision of the arbitrator to allow class arbitration, despite the arbitrator having interpreted the contract in a way that appeared to be inconsistent with the standard that the Court had employed in Stolt-Nielsen. Justice Elena Kagan’s opinion for the Court rested on two premises.
First, the Court emphasized that courts may vacate an arbitrator’s decision only in rare and “very unusual” circumstances. An arbitrator’s legal errors, even if they are “grave,” are not a permissible basis on which to vacate an award. Instead, the Federal Arbitration Act permits courts to vacate arbitration awards only on a few narrow grounds, including instances in which arbitrators have “exceeded their powers.” Stolt-Nielsen did not change that standard.
Second, the Court examined the conduct of the parties and the arbitrator. Crucial to the Court’s decision was the fact that Oxford had agreed that the arbitrator should decide whether the arbitration agreement authorized class arbitration (a position that was consistent with earlier Supreme Court authority). The arbitrator decided the issue against Oxford by considering the contract language and concluding that it reflected the parties’ agreement to permit class arbitration. He therefore had not exceeded his power. In the words of the Court: “The arbitrator’s construction holds, however good, bad, or ugly.”
Justice Samuel Alito filed a concurring opinion, in which Justice Clarence Thomas joined. The concurrence questioned whether a class arbitration can bind absent class members who have not affirmatively consented to arbitrating their claims.
In an extended footnote, the Court observed that whether the availability of class arbitration is to be decided by an arbitrator in the first instance or by a court, as a threshold “question of arbitrability,” remains open. Future litigants seeking to avoid class arbitration will certainly pick up on the Court’s suggestion and argue that this decision should be made by the court. Thus, Oxford Health likely will not be the Supreme Court’s last word on the subject.
In the meantime, Oxford Health makes clear that employers and other parties seeking to avoid class arbitration cannot rely confidently on arbitration agreements that are silent on the subject. Employers and others should review their arbitration agreements with a view toward incorporating express class action waivers.