U.S. Supreme Court To Decide When Sufficient Contractual Basis Exists for Class Arbitration


[authors: Alan S. Kaplinsky, Mark J. Levin]

In another demonstration of its interest in resolving issues arising under the Federal Arbitration Act (FAA), the U.S. Supreme Court has agreed to hear a case that will decide what contractual language provides a sufficient basis for an arbitrator to order class arbitration.

In Oxford Health Plans LLC v. Sutter, 675 F.3d 215 (3d Cir. 2012), the U.S. Court of Appeals for the Third Circuit held that an arbitrator had not exceeded his power by ordering class arbitration based on a contract provision stating: “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.”

The Supreme Court granted review to resolve a question left open by its 2010 decision in Stolt-Nielsen v. AnimalFeeds International Corp., which held that under the FAA, class arbitration may not be ordered without a contractual basis for concluding that the parties agreed to authorize such arbitration. The question presented in Oxford Health’s certiorari petition was whether an arbitrator acts within his powers under the FAA by determining that the parties agreed to authorize class arbitration based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under the contract.

The question of what is a sufficient contractual basis for an arbitrator to find an agreement authorizing class arbitration has produced a split in the circuits. In its 2011 opinion in Jock v. Sterling Jewelers, Inc., the Second Circuit also sustained an arbitrator’s determination that a contract implicitly authorized class arbitration without any specific mention of class claims. But earlier this year in Reed v. Florida Metro. Univ., Inc., the Fifth Circuit held that a broad arbitration clause did not establish the parties’ agreement to authorize class arbitration.

Ballard Spahr’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com, or Mark J. Levin, 215.864.8235 or levinmj@ballardspahr.com. This is the text copy.

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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