In Stolt-Nielsen S. A. v. Animal Feeds Int'l Corp., 559 U.S. 662, 684 (2010) the U.S. Supreme Court held that a party "may not be compelled under the FAA (Federal Arbitration Act, 9 USC § 10(a)(4) to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." The Circuit Courts have disagreed whether, under Stolt-Nielsen, an arbitrator’s decision as to class arbitrability can be overturned if the arbitrator interprets the agreement erroneously. Compare Jock v. Sterling Jewelers Inc., 646 F3d 113 (2nd Cir., 2011)(arbitrator’s decision to allow a putative Title VII pay and promotion class action upheld as the test was not whether the decision was legally correct, but whether she had authority to resolve the issue) with Reed v. Florida Metropolitan University Inc., 681 F3d 630 (5th Cir. 2012) (vacating the arbitrator’s decision because the arbitrator lacked a sufficient contractual basis to conclude that the parties agreed to authorize class arbitration).
On June 10, 2013, the Supreme Court of the United States decided Oxford Health Plans, LLC v. Sutter, No. 12-135, holding that, “it is not enough… to show that the (arbitrator) committed an error- or even a serious error. Because the parties ‘bargained for the arbitrator's construction of the contract agreement,’ an arbitral decision ‘even arguably construing or applying the agreement must stand, regardless of a court's view of its (de) merits.’” Thus, even if the arbitrator makes a wrong decision, the arbitrator has not "exceeded his powers" so as to permit the vacation of the decision under section 10(a)(4) of the FAA.
Oxford’s contract with Dr. Ivan Sutter for providing medical services to members of Oxford’s managed care network contained a broad arbitration clause which prohibited litigation of their disputes in court and required arbitration of all disputes. It was silent on whether class claims should be arbitrated. Sutter filed a complaint alleging that Oxford failed to pay him and other primary health care providers for medical services. The arbitrator decided that the arbitration clause authorized class arbitration because the clause was much broader than the usual arbitration clause and that, without an express prohibition of class arbitration, the broad clause must be read to include it. The arbitrator explained that the clause’s first phrase, "No civil action concerning any dispute arising under this Agreement shall be instituted before any court," includes all possible court actions. Further, he explained that because the second clause sends “all such disputes” to arbitration, the class disputes must be arbitrated. Oxford sued in federal court to vacate the arbitration award, arguing that the arbitrator exceeded his power. Both the District Court and the United States Court of Appeals for the Third Circuit denied Oxford’s motion to vacate and instead upheld the arbitrator’s decision to hear Sutter’s claim in class arbitration. The Supreme Court accepted the case for certiorari to resolve the split among the circuit courts.
Oxford argued that the arbitrator’s decision for class arbitration must be vacated under Stolt-Nielsen because Oxford and Sutter never agreed to class arbitration in their contract. Sutter argued that the Court should uphold the award because the arbitrator acted within his powers, based his decision on the terms of the agreement between the parties, and it was irrelevant if his decision was correct.
The Supreme Court affirmed, holding that the sole question under section 10(a)(4) of the FAA is "whether the arbitrator (even arguably) interpreted the parties contract, not whether he got its meaning right or wrong." This conclusion flowed from the "limited review" inherent in section 10(a)(4), which "permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly." Convincing a court of an arbitrator's error—"even his grave error"—was not enough under section 10(a)(4) to justify vacating the award. The court concluded: "the arbitrator's construction holds, however good, bad, or ugly."
This case is not the final chapter in the class arbitration story. In a footnote, the Court noted that the result might be different if Oxford had not submitted the question of arbitrability to the arbitrator twice, once even after Stolt-Nielsen flagged the issue that the question of arbitrability might be for the court to decide. Because Oxford chose arbitration and agreed with Sutter that an arbitrator should determine what that contract meant (including whether its terms approved of class arbitration), the court could not conclude that the arbitrator "exceeded his powers" under section 10(a)(4) by arriving at the wrong result.