On June 10, 2013, the U.S. Supreme Court in Oxford Health Plans LLC v. Sutter upheld an arbitrator's determination that a physician's claim against Oxford may proceed on a class basis. The Court held that because the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, the arbitrator's decision must stand. The Court held that pursuant to § 10(a)(4) of the Federal Arbitration Act (FAA) if an arbitrator is asked to construe a contract, as long as the arbitrator makes a good faith attempt to do so, a court cannot reverse the arbitral decision—even if the court concludes that the arbitrator's interpretation of the contract is wrong. In Oxford, the Court found that the arbitrator construed the contract at issue in good faith, and therefore, it could not vacate the arbitral decision.
Respondent John Sutter, a physician who had entered a contract to provide medical care to members of Oxford's network, filed in New Jersey Superior Court a class action lawsuit against Oxford, alleging that the health insurance company failed to fully and promptly pay him and other physicians with similar contracts. Oxford moved to compel arbitration of Sutter's claims, relying on the contract's arbitration clause, which provided that:
"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."
The state court granted Oxford's motion.
Thereafter, both parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he determined that it did, reasoning that the arbitration clause prohibited the parties from bringing any civil action in court and that a class action "is plainly one of the possible forms of civil action that could be brought in a court" absent the agreement. The district court denied Oxford's motion to vacate the arbitrator's decision on the ground that he had exceeded his powers under § 10(a)(4) of the FAA. The U.S. Court of Appeals for the Third Circuit affirmed the district court's ruling.
Oxford later asked the arbitrator to reconsider his decision after the Supreme Court held in Stolt-Nielsen v. AnimalFeeds International Corp. that "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so." In response to this request for reconsideration, the arbitrator issued a new opinion, holding that Stolt-Nielsen had no effect on the case because the arbitrator had, at the request of the parties, considered the issue and concluded that the contract authorized arbitration. However, in Stolt-Nielsen, the parties stipulated that they never reached an agreement on class arbitration. The district court denied Oxford's renewed motion to vacate, and again, the Third Circuit affirmed the district court's decision.
In reaching its decision to affirm the Third Court's ruling, the Supreme Court noted that the sole question before it was "whether the arbitrator (even arguably) interpreted the parties' contract, not whether he got its meaning right or wrong." The Court then concluded that the arbitrator had considered their contract and decided whether it reflected an agreement to permit class proceedings, which according to the Court, suffices to show that the arbitration did not exceed his powers under § 10(a)(4) of the FAA.
The Court rejected Oxford's reliance on Stolt-Nielsen, noting that the Court "overturned the arbitral decision there because it lacked any contractual basis for ordering class procedures, not because it lacked, in Oxford's terminology, a 'sufficient' one." This was because the parties in Stolt-Nielsen had entered into "an unusual stipulation that they had never reached an agreement on class arbitration." The Court refused to address the merits of the arbitrator's contract interpretation because such an analysis is irrelevant under § 10(a)(4) of the FAA. As the Court said, the "arbitrator's construction holds, however good, bad, or ugly."
What This Means for Employers
The Court's limited ruling in this case was based on the parties' broad grant of power to the arbitrator to determine arbitrability of class or collective actions in an otherwise silent arbitration agreement. As a result, if an arbitration agreement is silent as to class or collective action waiver, and the agreement provides an arbitrator the power to determine arbitrability of controversies and claims arising thereunder, then an arbitrator may interpret the agreement as granting the arbitrator the power to determine whether claims may be brought as a class or collective action in arbitration. To potentially avoid any surprises, employers should review and revise their arbitration agreements to take a well-defined position on class proceedings. After the Court's decision in Oxford, employers cannot rely on the fact that an agreement may be silent on the issue of class arbitration to argue that class proceedings are barred. That said, employers may still want to proceed with caution when considering arbitration agreements that expressly waive class arbitration. Under the National Labor Relations Board's (NLRB) 2012 decision in D.R. Horton, Inc., agreements that do not permit class litigation in either a judicial or an arbitral forum violate the National Labor Relations Act (note that several courts have, however, since rejected the NLRB's controversial ruling). Finally, when claims are brought, employers seeking to enforce arbitration agreements should be aware of the consequences of agreeing to have the arbitrator decide whether an agreement authorizes class arbitration. If the arbitrator decides it does, it may be very difficult to have a court vacate that decision.