The relationship between class actions and arbitration has been a recurrent issue at the Supreme Court in recent years.  The Court has appeared to substantially limit consumers’ ability to bring class actions in court against defendants with which they have an arbitration agreement, as well as to bring class arbitrations when the arbitration agreement does not expressly provide for class claims. 

In Stolt-Nielsen S.A. v. AnimalFeeds International Corp., decided in 2010, the Court held that an arbitration panel “exceeds its powers”—a basis to vacate an arbitration award under Section 10 of the Federal Arbitration Act (FAA)—by ordering class arbitration when the parties’ arbitration clause does not reflect an agreement to resolve claims on a classwide basis.  In that case, the parties had agreed that their arbitration clause said nothing at all about class arbitration, and there was no finding by the arbitrators that the law that governed the arbitration clause supplied a “default” rule in the absence of party agreement.  The Court reasoned that arbitration is based on the parties’ consent and that arbitrators cannot require class arbitration in the absence of such consent.

But Stolt-Nielsen left open important questions.  First, what if the parties’ arbitration clause is not silent on class arbitration?  Second, and equally important, who decides whether the parties’ arbitration clause permits class claims?

In Oxford Health Plans LLC v. Sutter, decided June 10, 2013, the Supreme Court addressed the (easier) first question.  In that case, a physician filed a proposed class action in New Jersey state court against Oxford Health Plans, alleging that Oxford violated its contracts and state law by failing to make prompt payments to the plaintiff and the proposed class members.  The court sent the parties to arbitration under a clause in the plaintiff’s contract with Oxford that said:

“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.”

The plaintiff continued to assert class claims before the arbitrator, and the parties submitted to the arbitrator the question of whether their arbitration clause permitted class claims.  The arbitrator interpreted the arbitration clause to permit class claims because the clause moved from litigation to arbitration all “possible forms of civil action,” including class actions.

Oxford sought to vacate this decision under the FAA.  The Supreme Court sided with the plaintiff.  Oxford had agreed that the interpretation of the arbitration clause was an issue within the arbitrator’s jurisdiction, and as long as the arbitrator’s decision was based on an interpretation of the contract—and not simply on the arbitrator’s personal view of what ought to be the result (arbitration practitioners call such a decision ex aequo et bono)—a court cannot overturn that decision.

Defendants often think of arbitration as a good way to avoid class actions.  Under Oxford Health, however, a plaintiff can still bring class claims if he or she can convince an arbitrator that the arbitration clause authorizes them.  As the facts in Oxford Health demonstrate, the arbitration clause need not say something as obvious as: “The parties hereby consent to class arbitration.”  Instead, the clause could arguably authorize class arbitration in a number of ways.  It might incorporate rules of an arbitral institution that grant arbitrators the authority to impose class arbitration, or incorporate substantive law that permits class arbitration when the parties’ arbitration agreement is silent, or it might simply be so broad as to be subject to the interpretation that it authorizes class arbitration. 

But the effect of Oxford Health may be limited.  As mentioned above, Stolt-Nielsen left open a second important question—does a court or arbitrator decide whether an arbitration clause permits class arbitration?  Oxford Health does not answer this question either because Oxford conceded the issue.  Justice Alito issued a concurrence (which Justice Thomas joined) suggesting that a court, rather than an arbitrator, should decide whether an arbitration clause permits class arbitration, primarily because there is some doubt that absent class members would be bound by the result of the arbitration. 

After Oxford Health, plaintiffs to consumer arbitration agreements will likely raise a host of arguments to arbitrators as to why an arbitration clause should be interpreted to permit classwide claims, while defendants will likely—not to mention, should—seek to convince courts that the permissibility of class arbitration is a question that the courts must decide, not the arbitrators.  We should expect to see federal cases in the near future addressing this latter issue.