The United States Supreme Court unanimously held on Monday that an arbitrator did not exceed the scope of his authority by authorizing class-wide arbitration based on his interpretation of the arbitration agreement. The decision resolves a circuit split over whether Section 10(a)(4) of the Federal Arbitration Act (FAA) prohibits a court from vacating an arbitrator’s interpretation of an arbitration agreement. The Court answered in the negative -- as long as the arbitrator is “arguably construing” the arbitration agreement, a court cannot evaluate the merits of the arbitrator’s decision. By emphasizing the broad discretion that arbitrators have in interpreting agreements, the Court’s decision reinforces the benefits of including clear and precise language in an arbitration agreement.
In Oxford Health Plans, LLC v. Sutter, No. 12-135 (U.S. Jun. 10, 2013), the appellant health insurance company relied on the Court’s recent holding in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 684 (2010), to argue that the arbitrator exceeded his powers under the FAA by authorizing class-wide arbitration. In Stolt-Nielsen, the Court overturned an arbitral decision authorizing class-wide arbitration because the arbitrator based its decision on public policy, and not the terms of the underlying arbitration agreement. In Oxford, unlike in Stolt-Nielsen, the arbitrator analyzed the contract’s arbitration provisions in determining that the parties agreed to class-wide arbitration. The arbitrator did not, therefore, exceed his powers under the FAA, regardless of whether the arbitrator’s substantive interpretation of the contract was correct. Because the appellant in Oxford specifically requested that the arbitrator make a determination on whether the contract allowed class-wide arbitration, it was effectively precluded under the FAA from arguing that the arbitrator overstepped its bounds in interpreting the terms of the contract itself.
The Court emphasized that the case did not present the issue of whether the availability of class-wide arbitration constituted a threshold “question of arbitrability,” such as whether the arbitration agreement was valid or applied to a certain type of controversy, issues which are for the courts to decide. It would not be surprising if the Court accepts an opportunity to resolve this issue in the near future.
While not as far-reaching as other class action opinions issued in the 2013-2014 term, this decision is yet another example of the Supreme Court’s recent focus on class action jurisprudence. The opinion also demonstrates the wide latitude arbitrators are given under the provisions of the FAA.