Mandatory arbitration agreements are an important tool in managing litigation risk and cost. Oftentimes, however, the pressures of drafting an arbitration agreement palatable to all involved parties result in sparse provisions yielding less protection than desired or expected. Two recent U.S. Supreme Court decisions – Oxford Health Plans LLC v. Sutter and American Express Co., et al. v. Italian Colors Restaurant – emphasize the importance of including express class arbitration waivers in agreements, where such language is appropriate.

American Express Co., et al. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) – Cost of Individually Arbitrating Federal Claims Does Not Invalidate Express Class Arbitration Waiver

The Supreme Court on June 20, 2013, upheld an express class arbitration waiver despite respondents’ contention that the cost of individually arbitrating their claims would exceed any potential recovery.

In American Express, respondents-merchants sought to bring a federal class action lawsuit under the Sherman and Clayton Antitrust Acts, alleging that American Express had used its monopoly power to charge higher fees than competing credit cards. However, the merchants and American Express had entered into agreements that expressly required arbitration of all disputes and further provided that “[t]here shall be no right or authority for any Claims to be arbitrated on a class action basis.” The merchants argued to the Supreme Court that this express class arbitration waiver should be invalidated because the costs of proving their claims on an individual basis would be prohibitive.

Relying upon its decision in AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011),¹ the Supreme Court upheld the class arbitration waiver. The Supreme Court reasoned that the Federal Arbitration Act (“FAA”) evinced legislative intent to “rigorously enforce” arbitration agreements on their terms, whereas the Sherman and Clayton Antitrust Acts do not guarantee vindication of such claims on a class action basis. The Supreme Court also noted that the “effective vindication” exception did not apply because allegedly prohibitive costs in proving a claim do not amount to a bar on a party’s right to pursue a statutory remedy. Finally, the Supreme Court observed that arbitration’s advantage of providing speedy resolution would be eliminated if an arbitrator were required to make preliminary determinations regarding whether the costs of proving a claim were prohibitive.

Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) – Limited Judicial Review of Arbitrator’s Decision to Allow Class Arbitration

By contrast, the U.S. Supreme Court’s decision on June 10, 2013, reinforced the courts’ limited power to overturn an arbitrator’s finding that an arbitration clause authorized class arbitration.

The Supreme Court has held that a party may not be compelled to submit to class arbitration under FAA “unless there is a contractual basis for concluding that the party agreed to do so.” Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010). In Oxford Health Plans, the parties had agreed to a simple arbitration clause stating “[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 in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.”

The Oxford Health Plans parties further agreed that their arbitrator would decide whether the foregoing arbitration clause authorized class arbitration. Reasoning that the clause sent to arbitration “the same universal class of disputes” that the parties were barred from bringing as civil actions, the arbitrator found that the arbitration clause indicated an intent to authorize class arbitration.

The Supreme Court upheld the arbitrator’s determination, noting that courts may only consider whether an arbitrator has attempted to interpret an arbitration provision, as opposed to whether the arbitrator’s interpretation was correct. The Supreme Court further found that the Oxford Health Plans arbitrator had “arguably constru[ed]” the parties’ arbitration provision, and therefore his decision to authorize class arbitration could not be overturned.

Interestingly, the Supreme Court observed in a footnote that it was undecided whether the availability of class arbitration is a question of arbitrability that should be submitted to a court for determination. As noted above, the Oxford Health Plans parties had simply agreed that the arbitrator would make this determination. This suggests that where an express class action waiver is not present, any initial litigation to enforce the arbitration provision should include a request that the court determine the availability of class arbitration, rendering such decision appealable and subject to de novo review.


¹ Discussed in the firm’s September 2012 issue of Beyond Dispute.