The Supreme Court made a unanimous limited arbitration ruling in Oxford Health Plans LLC v. Sutter, No. 12-135, on June 10, 2013 (here). The Court did not hold that class action arbitrations are permissible when an arbitration agreement is silent as to class action waiver. Rather, it narrowly held that because the parties agreed the arbitrator should decide whether their contract authorized class arbitration, and he concluded that it did, then the arbitral decision must stand. The Court stated: “Because the parties ‘bargained for the arbitrator’s construction of their agreement,’ an arbitral decision ‘even arguably construing or applying the contract’ must stand, regardless of a court’s view of its (de)merits.”
The Court made four important points.
One, under the Federal Arbitration Act (“FAA”), courts may vacate an arbitrator’s decision only in very limited circumstances. “It is not enough . . . to show that the [arbitrator] committed an error—or even a serious error.” Only if “the arbitrator act[s] outside the scope of his contractually delegated authority”—issuing an award that “simply reflect[s] [his] own notions of [economic]justice” rather than “draw[ing] its essence from the contract”—may a court overturn his determination. In other words, court are permitted to vacate an arbitral decision only when the arbitrator strays from his delegated task of interpreting a contract, not when he performs that task poorly.
Two, had Oxford not conceded that the arbitrator should decide whether the contract authorized class arbitration, the Court would have faced a different issue. As stated in Stolt-Nielsen, the Court has not yet decided whether the availability of class arbitration is a question of arbitrability. If the availability of class arbitration is a “question of arbitrability” (such as whether parties have a valid arbitration agreement or whether a binding arbitration clause applies to a certain type of controversy), it is presumed that courts decide these questions. We will stay tuned.
Three, Oxford Health is fundamentally different than Stolt-Nielson because in Stolt-Nielsen, the arbitrators neither interpreted a contract nor identified an agreement authorizing class proceedings. Rather, the parties in Stolt-Nielsen entered into a stipulation that they had never reached an agreement on class arbitration. Instead of interpreting the parties’ intent, the Stolt-Nielsen arbitrators imposed their own conception of sound policy when they ordered class proceedings (“the task of an arbitrator … is to interpret and enforce a contract, not to make public policy”).
Finally, although the Court did not agree with the arbitrator’s contract interpretation, its hands were tied. The Court stated: “so long as the arbitrator was “arguably construing” the contract—which this one was—a court may not correct his mistakes under §10(a)(4). … The potential for those mistakes is the price of agreeing to arbitration.”
Justice Alito’s concurring opinion makes an interesting class point. Absent members of the class have not conceded that the contract authorizes the arbitrator to decide whether to conduct class arbitration. Thus, the putative class may not be bound by the arbitrator’s ultimate resolution of this dispute. Justice Alito does not think the distribution of Rule 23 opt-out notices cures “this fundamental flaw in the class arbitration proceeding in this case” (the flaw may not exist for collective action opt-ins). Justice Alito stated: “… it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide on a classwide basis which arbitration procedures are to be used. In the absence of concessions like Oxford’s, this possibility should give courts pause before concluding that the availability of class arbitration is a question the arbitrator should decide.” More to come on this point as it develops too.