Three years ago, in the first of a series of decisions addressing class arbitration, the United States Supreme Court held in Stolt-Nielsen, S.A. v. AnimalFeeds International Corp. that "a party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." 130 S. Ct. 1758, 1775 (2010) (emphasis in original). On February 27, 2013, the Supreme Court heard oral argument in American Express Co. v. Italian Colors Restaurant, No. 12-133, on whether the Federal Arbitration Act permits courts to invalidate arbitration agreements containing class action waivers. On March 25, 2013, the Supreme Court will hear oral argument in another case involving class arbitration, Oxford Health Plans LLC v. Sutter, No. 12-135, and have the opportunity to revisit a question facing lower courts since Stolt-Nielsen: In what circumstances, if any, can an arbitration agreement implicitly include an agreement to engage in class arbitration?
Stolt-Nielsen—often cited by claimants and respondents alike—identified problems that can arise when an arbitration agreement does not address class arbitration. When parties agree to arbitrate, they "forgo the procedural rigor and appellate review of the courts in order to realize the benefits of private dispute resolution." Id. However, the Supreme Court acknowledged that this trade-off—which often serves both parties' interests in one-on-one disputes—does not translate well to disputes involving a putative class of claimants: "the relative benefits of class-action arbitration are much less assured, giving reason to doubt the parties' mutual consent to resolve disputes through class-wide arbitration." Id. In AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1752 (2011), the Court continued to voice concern about class arbitration, observing that "arbitration is poorly suited to the higher stakes of class litigation." Ultimately, Stolt-Nielsen held that "an implicit agreement to authorize class-action arbitration … is not a term that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate," but noted that the facts presented "no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration." 130 S. Ct. at 1775, 1776 n.10.
Stolt-Nielsen requires "a contractual basis for concluding that a party agreed" to class arbitration. 130 S. Ct. at 1775 (emphasis in original). Stolt-Nielsen does not suggest that agreement to class arbitration can be inferred when an arbitration agreement is silent on the subject. Nonetheless, divining what constitutes a "contractual basis" for concluding that parties agreed to class arbitration has divided state and federal courts across the country. A stark example of this division appears in the Third Circuit. In affirming the validity of an arbitration agreement and compelling the parties to arbitrate their dispute, a Third Circuit panel held that "silence regarding class arbitration generally indicates a prohibition against class arbitration." Quilloin v. Tenet HealthSystem Philadelphia, Inc., 673 F.3d 221, 232 (3d Cir. 2012). Less than three weeks later, in the case about to be argued to the Supreme Court, another Third Circuit panel affirmed an arbitrator's decision to allow class arbitration where the arbitrator's ruling "unquestionably relied on the breadth of the arbitration agreement," which all parties agreed did not mention class arbitration. Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 224 (3d Cir.), cert. granted, 133 S. Ct. 786 (Dec. 7, 2012).
Other courts have required affirmative indication of an intent to allow class arbitration. For instance, the Fifth Circuit has interpreted Stolt-Nielsen to mean that "the mere fact that the parties would otherwise be subject to class action in the absence of an arbitration agreement is not a sufficient basis to conclude that they agreed to class arbitration when they entered into an arbitration agreement." Reed v. Fla. Metro. Univ., Inc., 681 F.3d 630, 643 (5th Cir. 2012). The Eleventh Circuit has similarly concluded that "nonconsensual class arbitration" is "prohibited under Stolt-Nielsen." Cruz v. Cingular Wireless, LLC, 648 F.3d 1205, 1213 (11th Cir. 2011).
But the Second Circuit—which hears more arbitration cases than any other Circuit—upheld an arbitrator's decision to allow class arbitration when the agreement said nothing about the issue. See Jock v. Sterling Jewelers, Inc., 646 F.3d 113, 123 (2d Cir. 2011). In other words, some federal courts, as in Jock, have limited Stolt-Nielsen to its unique facts—in which the parties stipulated that they had no meeting of the minds on the question of class arbitration—while others have applied the case more broadly. Compare, e.g., S. Commc'ns Servs., Inc. v. Thomas, 829 F. Supp. 2d 1324 (N.D. Ga. 2011) (affirming arbitrator's decision that class arbitration is available under arbitration agreement that does not mention class arbitration), with, e.g., Porter v. MC Equities, LLC, No. 1:12 CV 1186, 2012 WL 3778973 (N.D. Ohio Aug. 30, 2012) (compelling individual, rather than class, arbitration where arbitration agreement made no mention of class arbitration). Most state courts have consistently read Stolt-Nielsen to prohibit class arbitration absent overt evidence that the parties agreed to arbitrate claims collectively. See, e.g., Hill v. Garda CL Nw. Inc., 281 P.3d 334 (Wash. Ct. App. 2012); Anderson v. Maronda Homes, Inc. of Fla., 98 So. 3d 127 (Fla. Dist. Ct. App. 2012) (per curiam); Kinecta Alt. Fin. Solutions, Inc. v. Super. Ct., 140 Cal. Rptr. 3d 347 (Cal. Ct. App. 2012); Bandler v. Charter One Bank, No. 451-7-03 Rdcv., 2010 WL 3617115 (Vt. Super. Ct. Aug. 2, 2010), rev'd on other grounds, 2012 VT 83 (Oct. 5, 2012).
In Oxford Health Plans, the Supreme Court may provide more guidance to lower courts on this issue. In 1998, Ivan Sutter, a New Jersey doctor, signed a contract under which Oxford Health Plans (a health insurer) would give Dr. Sutter preferred access to its members and he would provide services to those members at prescribed rates. See Sutter, 675 F.3d at 217. The contract required the parties to arbitrate any disputes, but "neither the arbitration clause nor any other provision of the agreement makes express reference to class arbitration." Id. In 2002, Dr. Sutter filed suit, accusing Oxford of "improperly denying, underpaying, and delaying reimbursement of physicians' claims for the provision of medical services." Id. After the court ordered the parties to arbitrate, the arbitrator ruled that the arbitration clause authorized class arbitration and subsequently certified a class of physician-claimants. See id. at 217-18. Both the federal district court in New Jersey and the Third Circuit affirmed the arbitrator's decisions. See id. at 218 (citing Sutter v. Oxford Health Plans, LLC, No. 05-cv-2198, 2005 WL 6795061 (D.N.J. Oct. 31, 2005), aff'd, 227 F. App'x 135 (3d Cir. 2007)). The parties then began arbitration on the merits. See id. In 2010, Oxford asked the arbitrator to reconsider his interpretation of the arbitration clause in light of Stolt-Nielsen. See id. When the arbitrator confirmed his earlier ruling that class arbitration was proper, Oxford again sought judicial review. See id. Both the district court and the Third Circuit again affirmed the arbitrator's decision. See id. at 217-18. The Supreme Court granted Oxford's petition for certiorari in December 2012. Oral argument is scheduled for March 25, 2013.
As the Supreme Court has recognized, parties choose arbitration because it is faster and less expensive than litigation. But a long procedural prologue can negate those benefits. In the wake of Stolt-Nielsen, many arbitrations are delayed by motion practice while the parties argue whether they agreed to class arbitration. These arguments drag on because most arbitration organizations recognize the risks of class arbitration and expressly provide for judicial review of the arbitrator's threshold decision on whether class arbitration is available. See, e.g., Am. Arb. Ass'n Supp. R. for Class Arb. 3 ("The arbitrator shall stay all proceedings following the issuance of the Clause Construction Award for a period of at least 30 days to permit any party to move a court of competent jurisdiction to confirm or to vacate the Clause Construction Award."); JAMS Class Action P. R. 2 ("The Arbitrator shall set forth his or her determination with respect to the matter of clause construction in a partial final award subject to immediate court review."). If a court grants review, the party that receives an adverse decision in the reviewing court will then often appeal. As a result, parties spend considerable time and resources arguing about the ground rules for the arbitration before they get to the merits.
The benefits of arbitration come at the cost of forgoing "the procedural rigor and appellate review of the courts." Stolt-Nielsen, 130 S. Ct. at 1775. That may be a fair exchange in theory, but not if the benefits prove illusory and the costs are amplified by "the higher stakes of class arbitration" and the risk of defending a class arbitration to which a party did not consent. Concepcion, 131 S. Ct. at 1752. The Supreme Court's decision in Oxford Health Plans may provide additional guidance on what constitutes a "contractual basis" for finding that parties agreed to class arbitration. Such guidance would benefit parties, arbitrators, and lower courts.