The United States Supreme Court’s term ended late last month, marking the close of a session where the Court confronted key issues in arbitration that will have real world implications for how businesses and their counsel utilize arbitration agreements.
- Most recently, on June 20, 2013, the Court decided American Express Co. v. Italian Colors Restaurant, holding that class action waivers in dispute resolution clauses are applicable to federal statutory claims. Specifically, the Court held that a waiver of class arbitration cannot be defeated under the Federal Arbitration Act (FAA) on the basis that the individual arbitration of claims is too expensive for any individual claimant in light of the small size of the individual claims (known as the “effective vindication” theory). The Court extended its reasoning from its earlier decision in AT&T Mobility v. Concepcion, which allowed for class action waivers in arbitration agreements at the state level.
- Just two weeks earlier, on June 10, 2013, the Court decided Oxford Health Plans LLC v. Sutter, which addressed the questions of whether — and if so, how — courts may review an arbitrator’s determination that the parties intended to authorize the use of class proceedings, even where the arbitration agreement does not expressly address class arbitration. Here, the Court upheld the lower court’s decision to maintain the arbitrator’s ruling, determining that the overarching test for Section 10(a)(4) challenges is not whether the arbitrator’s decision was correct or erroneous, but whether the arbitrator was “arguably construing” the contract.
- Also, on June 10, 2013, the Court granted certiorari in BG Group v. Argentina, relating to an arbitration brought under a bilateral investment treaty between Argentina and the United Kingdom. Under the treaty, claimants were obligated, before bringing a claim in arbitration, to first bring the claim before Argentinean courts. Here, BG Group ignored this treaty precondition and immediately turned to arbitration, where it was eventually awarded US$185 million in damages. Argentina requested that the district court vacate the award under the FAA because the arbitral panel had exceeded its powers by ignoring the treaty precondition; the court rejected the request. Later, the US Court of Appeals for the DC Circuit reversed, ruling that the court, not the arbitration panel, should decide whether BG was permitted to submit its dispute directly to the arbitration panel. By taking cert., the Supreme Court will address the fundamentally important questions of whether a court or an arbitration panel should decide if the preconditions to arbitration have been satisfied, and when, in such a case, a reviewing court may determine that an arbitration panel has exceeded its power.
Overall, these cases demonstrate, in the domestic realm, the paramount importance the Court places on enforcing arbitration agreements and arbitrator rulings. With this in mind, parties should be sure to make informed choices when including arbitration clauses in contracts. Clear and precise arbitration clauses can eliminate unintended consequences in the future.
Internationally, briefing, and ultimately the Court’s decision, in the BG Group case is much anticipated. Depending on which way the Court goes, parties seeking to give more autonomy to arbitration panels may find the United States more hospitable, or dramatically less so, as an arbitration forum.