Fenwick Employment Brief - June 2013: U.S. Supreme Court Upholds Classwide Arbitration, Finding Arbitrator “Arguably” (Even if Incorrectly) Construed Agreement

In Oxford Health Plans LLC v. Sutter, the United States Supreme Court affirmed an arbitral decision allowing the plaintiff to proceed with classwide arbitration even in the absence of express language to that effect in the arbitration clause. The decision follows the Court’s trend in recognizing and enforcing the bargain two parties reach through an arbitration agreement, including the finality of arbitral rulings subject to very limited review.

In reaching its decision, the Court recognized the limited role courts play in reviewing arbitral rulings and awards under Section 10(a)(4) of the Federal Arbitration Act (“FAA”): “the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Here, although the arbitration clause was silent on the subject, the arbitrator concluded that a class action “is plainly one of the possible forms of civil action that could be brought in court” such that “on its face, the arbitration clause . . . expresses the parties’ intent that class arbitration be maintained.” The Court refused to vacate that conclusion: “So long as the arbitrator was arguably construing the contract — which this one was — a court may not correct his mistakes under [the FAA]. …The arbitrator’s construction holds, however good, bad, or ugly.”

The Court’s general deference to the arbitral decision is founded in the concept that the parties “bargained for” the arbitrator’s construction “and so far as the arbitrator’s decision concerns the construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.” That deference, shown through a series of decisions giving parties increased latitude to design the terms of arbitration and increased enforcement of that bargain, stands in stark contrast to the California Supreme Court’s continued scrutiny and attempts to reign in arbitration agreements, particularly in the consumer and employment contexts, at the state level. Further developments from both courts are sure to come.

As a practical matter, this decision provides a powerful example of the fact that arbitrations have the potential for the full range of “good, bad, or ugly” outcomes. In this instance, the arbitrator allowed the plaintiff to seek classwide arbitration over Oxford’s strenuous objections that such class treatment was never the parties’ intent. While the Court did not take a position — either way — on the arbitrator’s construction of the arbitration clause, the outcome certainly begs the question of what parties should do to avoid Oxford’s predicament. An obvious option would be to expressly disallow classwide arbitration. That strategy, however, invokes other considerations, especially in the employment context in California: Would the disallowance operate as a waiver of class (or even representative) actions generally or would the parties retain the right to bring such actions in court? Would such a waiver violate public policy or otherwise be unconscionable? There is much debate over these issues, and the “right” answer for any organization is neither crisp nor clear; employers should tread cautiously in this area, with appropriate guidance from legal counsel.

Topics:  Arbitration, Arbitration Agreements, Class Action, Contract Interpretation, Oxford Health v Sutter, SCOTUS

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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