Oxford Health Plans LLC v. Sutter: You Get What You Bargain For, Including the “Good, Bad, or Ugly”

by Orrick - Global Employment Law Group
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Ever have that feeling that your arbitrator just doesn’t understand you? You may be right, but there’s not much you can do about it. A recent unanimous ruling by the United States Supreme Court should encourage employers to review the language in their arbitration agreements to ensure clarity on the issue of class arbitration. In Oxford Health Plans LLC v. Sutter, No. 12-135, slip op. at 4-5, 8-9 (U.S. June 10, 2013), the Supreme Court reiterated that parties who agree to arbitration and ask the arbitrator to decide an issue are stuck with the “good, bad, or ugly” decision of the arbitrator. Even where, as in this case, the arbitrator makes a dubious decision that the parties’ contract allows class arbitration, Federal Arbitration Act § 10(a)(4) does not allow a court to second-guess that decision.

Sutter, a pediatrician, and Oxford Health Plans, an insurance company, entered into a contract for services that included the following arbitration clause: “[n]o 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. . . .” Id. at 1-2. Later, Sutter brought suit in state court on behalf of himself and a proposed class of other doctors alleging that Oxford Health Plans had violated their contracts and various state laws. Id. Upon Oxford Health Plans’ motion, the case was compelled to arbitration. Id. at 2. Critically, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and the arbitrator determined that, based on the terms of the clause quoted above, it did. See id. at 2, 3. Oxford Health Plans brought a motion in federal court arguing the arbitrator’s decision should be vacated on the ground that he had “exceeded [his] powers” under Federal Arbitration Act § 10(a)(4). Id.

The Supreme Court (as well as the lower courts) disagreed with Oxford Health Plans. See id. at 4. The Court stated that where the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision even arguably construing the agreement must stand, regardless of a court’s (rather dim) view of the correctness of that decision. Id. Since the parties had agreed an arbitrator should determine what their contract meant and the arbitrator concluded the contract allowed class arbitration, the Court refused to vacate the arbitrator’s decision despite not-so-subtle hints that the Court disagreed with the arbitrator’s underlying construction of the contract. See id. at 4-6, 8-9.

Notably, the Supreme Court pointed out that this ruling does not address whether the availability of class arbitration is an appropriate area for more active review by the courts where, unlike the circumstances presented in Oxford Health Plans LLC, there is no agreement that an arbitrator should determine whether the contract authorizes class arbitration. Id. at 5 n.2. That issue remains open. What this case does emphasize is that those entering into an arbitration agreement should carefully consider the language of the agreement, including the strategic decision whether to specify that the arbitrator or a court should determine threshold issues of arbitrability. Where an arbitrator interprets a contract and comes to a decision even arguably based on his interpretation of that contract, that decision will not be disturbed, even where that interpretation may very well be legally incorrect. “The potential for those mistakes is the price of agreeing to arbitration.” Id. at 8.

 

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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