By Richard M Haggerty and Michael P. Daly

Emphasizing the limited nature of review allowed by Section 10 of the Federal Arbitration Act, the Supreme Court of the United States unanimously upheld an arbitrator’s decision to allow class-wide arbitration where the parties had delegated the interpretation of their agreement to the arbitrator and their agreement did not expressly preclude class-wide arbitration.

In Oxford Health Plans LLC v. Sutter, respondent John Sutter, a pediatrician, brought claims on behalf of himself and a proposed class of New Jersey physicians against petitioner Oxford Health Plans LLC (Oxford).  Sutter alleged that Oxford, a health insurance company, had violated its agreement with the doctors by failing to make full and prompt payment for the medical services they provided.  Oxford responded to the complaint by moving to compel individual arbitration, citing the following language in its contract with Sutter:

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, pursuant to the rules of the American Arbitration Association with one arbitrator.  

After the state court granted Oxford’s motion, the parties agreed that the arbitrator should decide whether the contract authorized arbitration on a class-wide basis.  Focusing on the text of the contract, the arbitrator found that the intent was “to vest in the arbitration process everything that is prohibited from the court process” and that a putative class action “is plainly one of the possible forms of a civil action that could be brought in a court.”  Oxford then filed a federal action to vacate the arbitrator’s ruling pursuant to Section 10(a)(4) of the Federal Arbitration Act, which allows a court to set aside an arbitral award “where the arbitrator[] exceeded his powers.”  The district court denied Oxford’s motion and the United States Court of Appeals for the Third Circuit affirmed.

In the interim, the Supreme Court issued its decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), which held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Id. at 684.  In Stolt-Nielsen, the parties had stipulated that they had never reached an agreement on whether class-wide arbitration was available.  Oxford immediately sought reconsideration in light of Stolt-Nielsen.  The arbitrator found Stolt-Nielsen to be inapposite because, unlike in that case, the parties here disputed the meaning of the contract as it related to the availability of class-wide arbitration and had agreed in the proceeding itself to present that issue for decision by the arbitrator.  Oxford again asked the federal court to vacate this second decision.  The district court again denied Oxford’s motion and the Third Circuit again affirmed.

On Monday, the Supreme Court affirmed as well.

Writing for the unanimous Court, Justice Kagan noted that “the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got it right or wrong.”  The Court explained that Oxford, in arguing that the arbitrator did not have a sufficient contractual basis for his decision, misread the holding in Stolt-Neilsen:

In Stolt-Nielsen, the arbitrators did not construe the parties’ contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration.  

In order to overturn the arbitrator’s decision, the Court “would have to rely on a finding that he misapprehended the parties’ intent.”  Section 10(a)(4) of the FAA, however, “bars that course.”  As Justice Kagan explained, a court may vacate an arbitral decision only when the arbitrator “strayed from his delegated task of interpreting a contract, not when he performed that task poorly.”  That is true, she said, even if the court disagrees with the arbitrator’s decision:

Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration. The arbitrator did what the parties requested: He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still, Oxford does not get to rerun the matter in a court. 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. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants.  

Justice Alito, joined by Justice Thomas, filed a short concurrence agreeing that, because Oxford had conceded that the arbitrator should interpret the contract on the question whether class-wide arbitration was intended, the decision should stand.  He pointed out, however, that the absent class members never conceded that the arbitrator should construe the contractual language and “[w]ith no reason to think that the absent class members ever agreed to class arbitration, it is far from clear that they will be bound by the arbitrator’s ultimate resolution of this dispute.”

The Court’s holding is narrow, applying only in cases where: (1) the parties’ arbitration agreement does not expressly preclude class-wide arbitration; and (2) the parties delegate to the arbitrator, either in their agreement or by stipulation, the question of whether the parties agreed to class-wide arbitration.  The most significant part of the decision may therefore be footnote 2 of Justice Kagan’s majority opinion, which previews that the result may well have been different had the parties not delegated that issue to the arbitrator.   

 
Source: Class Action Alert