In Oxford Health Plans LLC v. Sutter, 569 U.S. ____ (2013), the Supreme Court all but ordered the federal courts to not decide whether one person can pursue arbitration on behalf of a class of other people. Dr. John Sutter had a contract with Oxford Health Plans to provide his services to people Oxford insured. In exchange, Oxford would pay him. In the contract, the parties agreed that “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey . . . .” Dr. Sutter initiated arbitration against Oxford, accusing it of failing to make full and prompt payment to New Jersey doctors under contract with Oxford. Oxford and Dr. Sutter asked the arbitrator to decide whether the arbitration would resolve the dispute only as to Dr. Sutter or as to all of Oxford’s New Jersey doctors. The arbitrator decided that the parties agreed to class arbitration. Oxford then petitioned the federal courts to vacate the arbitrator’s decision, taking its petition all the way to the Supreme Court.
According to the Supreme Court, Oxford did itself in by its own actions. Here, the court ruled, Oxford took on the obligation of class arbitration by submitting the class issue to the arbitrator. Hence the courts could vacate the arbitral decision only if the arbitrator exceeded his powers. He did not, because he arrived at his decision by construing the arbitration clause. The court pointed out that had Oxford not submitted the issue to the arbitrator, the availability of class arbitration might be a so-called “question of arbitrability” to be decided by a court.
At first blush, it may appear that the way to cope with the Oxford decision is for the party opposed to class arbitration to refuse to submit the class issue to the arbitrator and to argue that the court should decide this “question of arbitrability.” If only it were that simple. The First, Third, Sixth, and Seventh Circuits (if not others) recently held that the question of whether an arbitration may proceed as a class or consolidated dispute is a question to be put first to an arbitrator, not to a court. Likewise, district courts in the Second and Fourth Circuits have done the same, and the Fifth Circuit drew the same conclusion as to a clause that, as many arbitration clauses do, called for arbitration under the rules of the American Arbitration Association.
Under this caselaw, an arbitrator decides the class issue, and his decision stands so long as it appears to be an interpretation of the arbitration clause. The only exception would be if the parties agree that they did not agree to class arbitration, as they did when the Supreme Court vacated an arbitral award in Stolt-Nielsen S.A. v. Animalfeeds International Corp., 130 S. Ct. 1758 (U.S. 2010). Expect few parties seeking class arbitration to make that concession.
What a terrible bargain a party turns out to have made once it is found to have agreed to class arbitration. It is not clear any class member is bound to the result of the class arbitration besides the one prosecuting the case, as Justice Alito noted in his concurrence in Oxford, because they did not agree that someone else could prosecute their claims. So if a respondent wins a class arbitration, it has not won any peace against anyone except the lone person who prosecuted the arbitration. And if it loses the arbitration, then it could be liable for an entire class’s worth of damages. And when that happens, as more than one court has pointed out, the respondent faces an award far more likely to bankrupt it than an individual award might, and it has little – if any – chance of review to correct error in the award. So it seems that in class arbitration the respondent has nothing to gain and everything to lose, and it probably drafted the arbitration clause.
Even when a party drafts an arbitration clause to explicitly disclaim class arbitration, there is no certainty that it will be spared class arbitration. The Federal Arbitration Act’s 9 U.S.C. § 10(a)(4) constrains the arbitrators somewhat, as a court will vacate their award if they “exceeded their powers.” And “precisely because arbitration is a creature of contract, the arbitrator[s] cannot disregard the lawful directions the parties have given them.” Edstrom Indus. v. Companion Life Ins. Co., 516 F.3d 546 (7th Cir. 2008). Consider an arbitration clause that seemingly excludes class arbitration, such as the one in AT&T Mobility LLC v. Conception, 131 S. Ct. 1740 (U.S. 2011), which clause limited a consumer to bringing a claim only in his “individual capacity, and not as a plaintiff or class member in any purported class or representative proceeding.” That language seems to give a plain, lawful direction against class arbitration.
Now consider this possible language in an arbitration clause: “The arbitrator exceeds his powers by ordering class, consolidated, or any other form of multi-petitioner arbitration without the express, written consent of the respondent, and the arbitrator exceeds his power if he orders any form of multi-petitioner arbitration beyond the terms and conditions the respondent gives in its express, written consent.” By repeating the language from the Act’s § 10, the contract cannot be clearer about when and how an arbitrator exceeds his power.
But if an arbitrator concluded that this language evidenced an agreement to class arbitration, would a court not accept his decision? Some courts have left the door open to the possibility that they will “vacate an award when the arbitrators’ interpretation was so wacky that it was no interpretation at all.” Prostyakov v. Masco Corp., 513 F.3d 716 (7th Cir. 2008). But the Supreme Court might not be one of those courts. To use the words of the Oxford opinion: under § 10(a)(4), “the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all.” “So long as the arbitrator was arguably construing the contract . . . a court may not correct his mistakes under § 10(a)(4). . . . The potential for those mistakes is the price of agreeing to arbitration. . . . The arbitrator’s construction holds, however good, bad, or ugly.”
Do not confuse “arguably construing” with “arguably correct.” The latter is an end; the former is a means. If the arbitrator notes that the sun shines during an Alaskan summer night, would the Supreme Court not accept that the arbitrator construed the contract when he decided “night” meant “day”? With a standard as forgiving as “arguably construed,” it is impossible to rule out the possibility that a federal court will confirm any award so long as the arbitrator claims to interpret the contractual language. Perhaps the respondent’s best tactic would be to insist that the arbitrator not explain himself when he rules on the class issue.
The issue of class arbitration has been reviewed in the Supreme Court at least four times in the last ten years. Perhaps it should be taken up a fifth time, this time to ensure that a court decides whether non-parties agreed that someone else would prosecute their claims and whether the party defending the dispute agreed to face a class in arbitration.
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