Is Class Action Arbitration Available Under Agreement Covering Civil Actions?

by Sherman & Howard L.L.C.
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In a much-anticipated case the U.S. Supreme Court reached a decidedly unremarkable conclusion on June 10, 2013. The gist of the U.S. Supreme Court's new decision on class action arbitration agreements is old hat-courts may overturn an arbitrator's decision under the Federal Arbitration Act only if the arbitrator acts outside the authority granted in the agreement. Here, the arbitrator's decision itself is the interesting part. The arbitrator interpreted the following language: "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 . . . ." The arbitrator (twice) found this language permitted the contractor to bring a class action. As summarized by the Supreme Court, the arbitrator reasoned (a) the agreement sent to arbitration the same set of "disputes" that it barred the parties from bringing as civil actions; (b) class action is one possible "form" of civil action; therefore, (c) class arbitrations can be maintained. The Supreme Court carefully avoided endorsing the arbitrator's reasoning; after all, the arbitrator does shift, without explanation, from the substance of the dispute (i.e. whether a health plan failed to pay the claimant for his services under the contract) to the "form" of civil actions barred from court. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013).  In drafting an arbitration agreement, if you want to avoid class action arbitration, be clear about forbidding class actions or preserve arbitrability questions for the court. Here the contracting parties failed to do either.

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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