Supreme Court resolves circuit split, upholds arbitrator’s determination that parties agreed to submit to class arbitration

more+
less-

Summary

The Supreme Court has issued a decision that resolves a split among the circuit courts and clarifies previous case law that some felt sounded the death knell for class arbitration. While the decision might be read as an endorsement of interpretations of arbitration clauses favoring class arbitration, it is better explained by the limited nature of the Court’s review triggered by the manner in which the insurer presented the issues.

In Oxford Health Plans LLC v. Sutter, 2013 WL 2459522 (June 10, 2013), a unanimous United States Supreme Court affirmed the Third Circuit Court of Appeals’ decision in favor of an arbitrator’s determination that the parties had agreed to submit all disputes arising out of their contract, including class actions, to arbitration. In so doing, the Court resolved a split among the circuits on the issue, and provided a measure of clarification of Stolt –Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 130 S. Ct. 1758 (2010). While some felt that Stolt-Nielsen sounded the death knell for class arbitration, Oxford Health Plans suggests that reports of the death of class arbitration might have been greatly exaggerated. However, given the limited standard of review that applied in Oxford Health Plans, it is likely too early to know what it means for the vitality of class arbitrations.

Oxford Health Plans involved a lawsuit initiated by an “in network” physician against health insurer Oxford Health Plans. The plaintiff sought to recover payments allegedly due under the provider contract, both on his own behalf and on behalf of a proposed class of other New Jersey physicians who had contracted with Oxford Health Plans. The contract contained an arbitration clause, which provided, “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 in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.” Citing to that clause, the insurer moved to compel arbitration of the physician’s claim. After the court referred the matter to arbitration, the parties agreed that the arbitrator should be the one to decide whether the contract authorized class arbitration. Analyzing the contract to divine the parties’ intent, the arbitrator found that the arbitration provision did, in fact, contemplate class arbitration.

While the arbitration proceeded, the Supreme Court issued its Stolt-Nielsen opinion, which held that a “party may not be compelled under the [Federal Arbitration Act (“FAA”)] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.” Oxford Health Plans thus requested that the arbitrator reconsider his earlier opinion in favor of class arbitration. He issued a second opinion, finding that since the parties’ contract authorized class arbitration, Stolt-Nielsen had no effect on the case. He noted that, unlike Stolt-Nielsen, where the parties had stipulated that they never reached agreement regarding class arbitration, the parties to the instant case disputed the meaning of their contract, thus requiring him to glean their intent as expressed in the contract. He confirmed his original interpretation of that contract in favor of class arbitration. After the Third Circuit affirmed that decision, Oxford Health Plans appealed to the Supreme Court.

In pursuing its appeal, Oxford Health Plans relied on §10(a)(4) of the FAA, which allows a federal court to set aside an arbitral award only where the arbitrator exceeded his powers. The Court emphasized that a “party seeking relief under that provision bears a heavy burden.” A court’s review under §10(a)(4) is thus very limited, and, as the Supreme Court explained, “the sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”

Applying that deferential standard, the Court upheld the arbitrator’s decision that the parties’ arbitration clause contemplated class arbitration. In so doing, the Court explained that the insurer’s reliance on Stolt-Nielsen was misplaced, in that the Court’s decision to overturn the arbitral decision in favor of class arbitration in that case was driven by what the Court described as the “unusual stipulation that [the parties] had never reached an agreement on class arbitration.” Consequently, the arbitration panel’s decision in favor of class arbitration was not and could not possibly have been based on a determination regarding the parties’ intent. To the contrary, the panel had instead “abandoned its interpretive role” when it found in favor of class arbitration.

By contrast, the Court noted that in Oxford Health Plans, there was no stipulation that the parties had never agreed to class arbitration, and the arbitrator’s conclusion that they had reached such an agreement was based on his interpretation of the parties’ agreement. Under the limitations on judicial review posed by §10(a)(4) of the FAA, the Court could not disturb that determination. “Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator’s contract interpretation, or any quarrel with Oxford’s contrary reading. All we say is that convincing a court of an arbitrator’s error – even his grave error – is not enough. So long as the arbitrator was ‘arguably construing” the contract – which this one was – a court may not correct his mistakes under §10(a)(4).”

As alluded to at the outset, Oxford Health Plans might be read as a revival of class arbitrations, which some viewed as all but dead in the wake of Stolt-Nielsen. While this might be true, a footnote in the Oxford Health Plans opinion suggests that the Court might have come out the other way had the permissible scope of review under §10(a)(4) not been so limited. Indeed, the Court noted:

We would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called “question of arbitrability.” Those questions – which “include certain gateway matters, such as whether parties have a valid arbitration agreement at all or whether a concededly binding arbitration clause applies to a certain type of controversy” - are presumptively for courts to decide.

In such a case, the court may review the arbitrator’s decision de novo, absent clear evidence that the parties wanted the arbitrator to resolve the dispute. The Court went on to state, “this case gives us no opportunity to do so because Oxford agreed that the arbitrator should determine whether its contract with Sutter authorized class procedures.” Thus, rather than a sweeping endorsement of interpretations of arbitration clauses favoring class arbitration, Oxford Health Plans might instead be explained by the limited nature of the Court’s review triggered by the manner in which the insurer presented the issues. Until the Supreme Court is presented with the opportunity to consider whether the availability of class arbitration is a question of arbitrability, allowing it to apply the de novo standard of review, the true significance of Oxford Health Plans will remain an open question.

Topics:  Arbitration, Arbitration Agreements, Class Action, Federal Arbitration Act, Oxford Health v Sutter, SCOTUS, Split of Authority

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.

© Saul Ewing LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »