Supreme Court Decision Highlights the Danger of Allowing an Arbitrator to Decide Whether Parties Agreed to Class Arbitration

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In Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013), the Supreme Court unanimously held that where the parties to an arbitration agreement authorize the arbitrator to decide whether their agreement allows class arbitration, a court cannot disturb the arbitrator’s decision to permit class arbitration as long as the arbitrator attempted to base his or her decision on an interpretation of the contract, regardless of how erroneous that interpretation may be. It is a narrow ruling because it rests on the parties’ express agreement to allow the arbitrator, rather than a court, to decide whether the agreement permits class arbitration. The decision is a reminder to companies to ensure their arbitration agreements are clear and to consider the possible risks before conferring upon the arbitrator the power to decide whether class arbitration is permitted.

In Sutter, a doctor brought a class action against Oxford, a health insurance company, for allegedly failing to pay for medical care rendered to Oxford’s members. The parties’ contract provided that “[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 state court granted Oxford’s motion to compel arbitration and the parties agreed that the arbitrator, not the court, should decide whether their contract authorized class arbitration. The arbitrator concluded that the above-quoted language permitted class arbitration. A federal district court denied Oxford’s subsequent motion to vacate the arbitrator’s decision and the Third Circuit affirmed.

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Topics:  Arbitration, Arbitration Agreements, Class Action, Contract Interpretation, Federal Arbitration Act, Oxford Health, 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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