Promotion Of Arbitration In The 21st Century

by Pepper Hamilton LLP

Originally Published in For The Defense - May 2013.  

While pundits complain about the United States Supreme Court’s diminishing docket, one area of law seems to have increased in popularity with the justices: arbitration law, and in particular the Federal Arbitration Act (FAA). By the end of the current term, the Supreme Court will have issued 50 opinions related to the act since its passage in 1925. The Court handed down 28 of those decisions before 2000 and 22 after 2000, issuing 15 of those 22 decisions since 2008, including the two currently pending before the Court, Am. Express Co. v. Italian Colors Rest., No. 12-133, and Oxford Health Plans LLC v. Sutter, No. 12-135. That means that the Court will have gone from issuing an average of less than one Federal Arbitration Act-related ruling every other year in the 20th century to approximately two each year in the 21st century, averaging three each year since 2008. The Court has a particularly arbitration-heavy 2012–2013 term with three arbitration-related cases on the docket.

The Supreme Court has unmistakably increased enforcement of the “liberal federal policy favoring arbitration” underlying the Federal Arbitration Act. The Court has overruled state courts that have continued to exhibit what the Court has called “judicial hostility” toward arbitration, it has ruled that other federal statutes do not limit the Federal Arbitration Act’s reach, and it has permitted nonparties to an arbitration agreement to seek relief under the Federal Arbitration Act, to name a few examples of the rulings. Often the Court majority has justified a decision with the simple proposition that it merely has enforced an agreement between the parties as it would any other contract. In addition, decisions have concluded that arbitration promotes efficient and streamlined resolution of these disputes. Yet, when either the contract language or the efficiencies at stake require increased judicial involvement, the Court majority appears willing to abandon these basic arbitration tenets in favor of a ruling that leads to decreased judicial involvement in arbitration matters. The decisions additionally have identified grounds to support a particular kind of arbitration—bilateral arbitration—while finding grounds to disfavor class arbitration. In a recently growing line of cases, the Court has reversed arbitrators who interpreted an arbitration agreement as making class arbitration available while also invalidating state law that prohibited class action waivers in consumer contracts. The Court opinions have justified these decisions in part on the basis that to hold otherwise would discourage rather than promote arbitration agreements.

These decisions consistently and increasingly promoting federal arbitration policy have caused some Court members to accuse the Court majority of ignoring precedent while fashioning “fantastic” holdings. Nevertheless, clearly the Court majority has distinctly supported the “liberal federal policy favoring arbitration” with growing frequency in recent years. The Court will also have ample opportunity to continue this trend in three cases this term as well as in the future because splits continue to brew among the circuit courts of appeal related to arbitration law.

A Trend Toward Vigilant Federal Arbitration Policy Support

In response to “widespread judicial hostility” to arbitration agreements prevalent at the time, Congress passed the Federal Arbitration Act in 1925. Under the Federal Arbitration Act an arbitration agreement is “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. §2. The Federal Arbitration Act reflects a “liberal federal policy favoring arbitration.” AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011). It also codifies the “fundamental principle that arbitration is a matter of contract,” which means “courts must place arbitration agreements on an equal footing with other contracts.” See id.

The Federal Arbitration Act establishes the following relationship between the state and the federal courts and arbitration. First, Section 2 imposes a duty on courts to enforce arbitration agreements according to their terms. See, e.g., Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772, 2776 (2010). Because the Federal Arbitration Act does not establish federal jurisdiction but instead requires an independent jurisdictional basis, it often falls on the state courts to enforce the substantive federal law embodied in Section 2. See Vaden v. Discover Bank, 129 S. Ct. 1262, 1272 (2009) (“Given the substantive supremacy of the FAA, but the Act’s nonjurisdictional case, state courts have a prominent role to play as enforcers of agreements to arbitrate.”). For those cases that a litigant can pursue in a federal court, under Section 3, a litigant can apply for a stay of an action “upon any issue referable to arbitration under an agreement in writing for such arbitration.” See 9 U.S.C. §3. It is typically in ruling on this stay that a court has an opportunity to carry out its duty to enforce arbitration agreements according to their terms. A litigant can appeal a decision denying a stay immediately. 9 U.S.C. §16.

Second, once a case is sent to arbitration, generally the parties cannot seek a court’s assistance until an arbitrator issues his or her final ruling or until a panel issues a final ruling. Then, to enforce an award, a party must obtain a judicial order. See 9 U.S.C. §9. Importantly, an arbitration award is not enforceable until a court orders its enforcement. The Federal Arbitration Act allows the enforcement procedure to involve a “streamlined treatment” as a motion instead of as a separate contract action. See Hall Street Associates v. Mattel, Inc., 552 U.S. 576, 583 (2008). Further, the Federal Arbitration Act acutely limits judicial review of arbitration awards. An award is presumed valid unless it can be vacated, modified, or corrected for the precise reasons prescribed in Sections 10 and 11 of the Federal Arbitration Act. While Sections 10 and 11 list a variety of specific bases to vacate, modify, or correct an award, the provisions do not include legal error as a basis.

The Federal Arbitration Act regime promotes arbitration, and without question some justices on the Supreme Court have vigilantly protected this fundamental principle recently. Indeed, since 2008, in all but one case in which the Court had the choice between sending a dispute to arbitration on the one hand or to the lower courts or to an administrative agency or was otherwise asked to invalidate an arbitration clause on the other hand, it chose arbitration or to uphold the clause. See CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012); Nitro-Lift Techs. v. Howard, 133 S. Ct. 500 (2012); Marmet Health Care Center, Inc. v. Brown, 132 S. Ct. 1201 (2012); KPMG LLP v. Cocchi, 132 S. Ct. 23 (2011); AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011); Rent-A-Center, W., Inc. v. Jackson, 130 S. Ct. 2772 (2010); 14 Penn Plaza LLC v. Pyett, 556 U.S. 247 (2009); Preston v. Ferrer, 552 U.S. 346 (2008). But see Granite Rock Co. v. Int’l. Brotherhood of Teamsters, 130 S. Ct. 2847 (2010) (ruling that an issue regarding when an agreement was ratified was for a court and not an arbitrator to decide).

The support for federal public policy promoting arbitration has manifested in a myriad of ways. Some cases took aim at precisely the kind of state law hostility to arbitration that Congress enacted the FAA to avoid. For instance, in the 2011–2012 term, in a per curiam decision the Court reversed the Supreme Court of Appeals of West Virginia, which had held unenforceable all predispute arbitration agreements that applied to claims alleging personal injury or wrongful death against nursing homes. See Marmet Health Care Center, Inc., 132 S. Ct. 1201 (2012). The state court had referred to the Supreme Court’s previous reading of the Federal Arbitration Act as “tendentious” and “created from whole cloth.” Id. at 1203. Not surprisingly, the Court found that the state court ruling was “inconsistent with clear instruction in the precedents of this Court.” Id. Quoting from precedent, the Court characterized the issue before it as simple: “when state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” Id. That rule, the Court concluded, resolved the cases from West Virginia. See id. It also reached a similar conclusion in 2008 when it found that the Federal Arbitration Act preempted state law that would have placed a dispute before a state agency instead of before an arbitrator as agreed to by the parties. See Preston, 552 U.S. 346 (2008) (holding that because the parties agreed to arbitrate all disputes relating to the contract, the Federal Arbitration Act superseded the California Talent Agencies Act).

The Court has likewise ruled at least one federal statute does not prevent the Federal Arbitration Act’s presumption in favor of arbitration. In CompuCredit Corp., the Court considered whether the Credit Repair Organizations Act reference to a consumer’s “right to sue” meant that a consumer had a right to sue in court, which the consumer could not waive in an arbitration agreement. The Court concluded that “[b]ecause the CROA [Credit Repair Organizations Act] is silent on whether claims under the Act can proceed in an arbitrable forum, the FAA requires the arbitration agreement to be enforced according to its terms.” See id. 132 S. Ct. at 673.

The Court also has ruled that the Federal Arbitration Act permits nonparties to an arbitration agreement to seek a stay of court proceedings pending an arbitration. In Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009), the Court reversed the Sixth Circuit, which had held that those who are not parties to a written arbitration agreement are categorically denied interlocutory relief under the Federal Arbitration Act. See id. at 629. The Court reasoned that “[b]ecause ‘traditional principles’ of state law allow a contract to be enforced by or against nonparties to the contract” the same holds true for nonparties to an arbitration agreement. See id. at 631. Accordingly, a nonparty could move to stay court proceedings pending an arbitration under an arbitration agreement under Section 3 of the Federal Arbitration Act and could also make an interlocutory appeal of a denial of that motion. See id. at 632. By allowing nonparties the right to stay court proceedings in favor of arbitration, the decision interpreted Section 3 rights expansively and signaled support for federal policy on arbitration.

Typically, these decisions have justified holdings on the basis that they do nothing more than treat arbitration agreements the same as any other agreement. Concepcion, 131 S. Ct. at 1745; Carlisle, 556 U.S. at 624. By enforcing those agreements according to their terms and rejecting contract defenses aimed particularly at arbitration agreements as opposed to agreements generally, the decisions maintain that they follow the Federal Arbitration Act mandate to put arbitration agreements on “equal footing” with other contractual agreements. Concepcion, 131 S. Ct. at 1742; Rent-A- Center, 130 S. Ct. at 2776.

Yet, one decision has put a limit on this justification when it would have increased judicial involvement. In Hall Street Assocs. v. Mattel, Inc., the Court considered whether parties to an arbitration agreement could supplement by contract the Federal Arbitration Act’s limited judicial review grounds. In Hall Street, the parties executed an arbitration agreement, which the lower court approved and ordered, that expanded the judicial review to allow the court to vacate, modify, or correct an award for erroneous conclusions of law or for fact-finding not supported by substantial evidence. Hall Street, 552 U.S. at 579. The petitioner, based on Supreme Court precedent, characterized the argument supporting expanding judicial review as simple. Arbitration is a creature of contract, the Federal Arbitration Act is “motivated, first and foremost, by a congressional desire to enforce agreements into which parties have entered,” and so the Court should accept the parties’ agreement to expand the judicial review as a supplement to the Federal Arbitration Act judicial review procedures. Id. at 584. The Court stated, “we think the argument comes up short,” and resting a decision on such general policy grounds would beg the question, “which is whether the FAA has textual features at odds with enforcing a contract to expand judicial review following the arbitration.” Id. at 585. The Court concluded that it does, found the Federal Arbitration Act-established judicial review procedures to be “exclusive,” and rejected the notion that the parties could in an arbitration agreement expand such judicial review. Id. at 586. The decision prohibited the expansion of judicial involvement in commercial disputes subject to arbitration.

Similarly, the Court has at times identified the “streamlined” and “expeditious” nature of arbitration as the basis for its rulings. See Preston, 552 U.S. at 357. Yet, promoting efficient proceedings for parties also has its limits. In KPMG, the Court reinforced its previous holding in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985), to conclude that “when a complaint contains both arbitrable and nonarbitrable claims, the Act requires courts to ‘compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.’” KPMG, 132 S. Ct. at 26 (quoting Dean Witter, 470 U.S. at 218).

These two decisions demonstrate that the Court will defer to less judicial involvement when relying on the parties’ arbitration agreement or the efficiencies at stake would lead to more court intervention. The overriding theme is that the FAA promotes a nationwide policy in favor of arbitration, and Supreme Court decisions in recent years have supported that policy.

The Court Promotes Bilateral Arbitration

A closely watched line of cases include the Court’s consideration of arbitration as it relates to class action disputes. This line of cases to date demonstrate that the Court majority seems to prefer bilateral as opposed to class action arbitration. Starting with Stolt-Nielson in 2010, by the end of the current 2012–2013 term the Court will have issued four decisions related to this narrow but significant area of arbitration law. Stolt-Nielson reversed the decision by a panel of arbitrators that found that an arbitration agreement permitted class arbitration. Stolt-Nielsen S. A. v. AnimalFeeds Int’l. Corp., 130 S. Ct. 1758 (2010). The decision stated, “because class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.” Id. at 1775. Since the agreement did not expressly permit class arbitration, the Court majority found that the arbitrators had exceeded their powers by finding one. Id. at 1770. The opinion demonstrates the majority’s distaste for class action arbitration.

In Concepcion, the Court majority signaled a preference for enforcing bilateral arbitration agreements at the expense of class action claims. In Concepcion, the Court considered whether the FAA preempted California law barring on class action waivers in consumer arbitration agreements, which was grounded in the state unconscionability doctrine. Writing for the 5–4 majority, Justice Scalia noted that typically the analysis is straightforward when a state law seeks to prohibit outright arbitration of a particular type of claim: “The conflicting rule is displaced by the FAA.” Concepcion, 131 S. Ct. at 1747. Justice Scalia highlighted, however, that the inquiry becomes “more complex” when “a doctrine normally thought to be generally applicable” such as unconscionability is “alleged to have been applied in a fashion that disfavors arbitration.” Id. State law cannot rely on the “uniqueness of an agreement to arbitrate” as a basis for finding state law generally applicable to agreements offended by the arbitration agreement. Id. The majority opinion concluded that California’s law impermissibly targeted arbitration because “requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.” Id. at 1748. The majority further stated that ruling otherwise would discourage arbitration. Id. at 1759.

Have the Decisions Gone Too Far?

The Court majority’s consistent support of arbitration—and more particularly, bilateral arbitration promotion—is not without its critics, including several United States Supreme Court justices. Indeed, in the 13 cases decided since 2008, at least one justice has dissented in all but three cases. Four cases have been decided by a 5–4 split.

For instance, in Concepcion, the four justices in the dissent argued that the majority overemphasized the negative traits of class arbitration. The dissent argued that “class arbitration is consistent with the use of arbitration” and is a form well known in California and elsewhere. Id. at 1758. The dissent pointed out that no empirical evidence supported the majority’s critiques of class arbitration or its assertion that requiring class arbitrations would discourage arbitrations generally. Id. at 1760. The dissent also pointed out that the California rule only applied to some but not all class action waivers in consumer contracts. Id. at 1756. It only applied when the waiver otherwise satisfied the general California unconscionability standards. Accordingly, the law was consistent with the FAA because it did not single out arbitration agreements.

Justice Stevens, now retired, has perhaps most vocally criticized what he characterized as the Court’s expansion of arbitration policy. For instance, in 14 Penn Plaza, Justice Stevens criticized the 5–4 majority holding that a union could agree on behalf of its members to arbitrate statutory antidiscrimination claims. 14 Penn Plaza, 556 U.S. 247 (2008). In reaching the decision, the Court majority took great pains to distinguish the holding from precedent in what it called the “Gardner-Denver line of cases,” which the majority characterized as narrowly holding that arbitration of contract-based claims did not preclude subsequent judicial resolution of statutory claims when an agreement did not authorize the arbitrators to resolve the statutory claims. Justice Stevens, in dissent, did not read this precedent so narrowly and criticized the majority for doing so. Id. at 282. In broad strokes, Justice Stevens proclaimed,

the Court has in a number of cases replaced our predecessors’ statutory analysis with judicial reasoning espousing a policy favoring arbitration and thereby reached divergent results. I dissented in those cases to express concern that my colleagues were making policy choices not made by Congress…. Today the majority’s preference for arbitration again leads it to disregard our precedent.

Id. at 275.

Justice Stevens was again particularly critical of the majority in Rent-A- Center. 130 S. Ct. 2772 (2010). Leading up to Rent-A- Center, the Court precedent had held that challenges to an agreement to arbitrate were for the courts to decide, but challenges to an agreement as a whole that contained an arbitration clause without a direct challenge to the clause were for an arbitrator to decide. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967). This is what is referred to as the “severability” doctrine. As a result of the severability doctrine, a party may be bound by an arbitration clause in a contract that in the arbitration may be found invalid. See Rent-A- Center, 130 S. Ct. at 2787–88 (Stevens, J., dissenting). While such a notion “may be difficult for any lawyer—or any person—to accept,” this result stemmed from “a judgment that the ‘national policy favoring arbitration’ … outweighs the interest in preserving a judicial forum for questions of arbitrability.” Id.

The Rent-A- Center 5–4 Court majority took this one step further and held that when a party challenges an arbitration agreement but fails to challenge the specific provision in that agreement that directs arbitration enforceability questions to the arbitrator, then the party must submit its challenge to the arbitrator and not to a court. Rent-A- Center, 130 S. Ct. at 2772. Obviously, the Rent-A- Center decision made it that much more difficult for parties to challenge arbitration agreements in the courts.

Justice Stevens referred to the reasoning that led to this result as “fantastic” and compared it to “Russian nesting dolls.” Id. at 2786. He argued that the majority’s ruling seemed to have created “infinite layers of severability: We must always pluck from an arbitration agreement the specific delegation mechanism that would—but for present judicial review—commend the matter to arbitration, even if this delegation clause is but one sentence within one paragraph within a stand-alone agreement.” Id. at 2787. This infinite layering makes it that much more difficult to challenge arbitration agreements in the courts.

The 2012–2013 Term

The authors predict that Court decisions this term will continue to support federal arbitration policy. The Court will have heard three arbitration-related cases when the current term concludes: Nitro-Lift Techs., Italian Colors, and Oxford Health Plans. In the first case, once again the Court stepped in to prevent state courts from interfering with arbitration on state policy grounds. Italian Colors and Oxford Health Plans, both of which the Court had not yet decided as of the time of this article’s publication, revisit particularly thorny issues related to class action and arbitration.

In Nitro-Lift, which resulted in a per curiam decision, an employer demanded arbitration with two former employees, claiming that each breached separate confidentiality and noncompetition agreements, both of which contained the same arbitration clause. Nitro-Lift Techs.,133 S. Ct. 500 (2012). The former employees sued in the Oklahoma state courts, seeking a declaration that the noncompetition agreements were null and void under an Oklahoma state statute. Id. After the trial court dismissed the complaint based on the arbitration clauses, the Oklahoma Supreme Court reversed. Id. at 502. It found that an Oklahoma state court was entitled to review the validity of an employment agreement containing a noncompete clause based on an Oklahoma state statute restricting covenants not to compete. Id. The Oklahoma Supreme Court declared that its decision rested on adequate and independent state grounds, which outweighed the force of the arbitration clauses. Id.

The United States Supreme Court vacated this decision. The opinion first recognized the federalism questions inherent in this area, commenting that “[s]tate courts rather than federal courts are more frequently called upon to apply the Federal Arbitration Act (FAA), 9 U.S.C. §1 et seq., including the Act’s national policy favoring arbitration.” Nitro-Lift Techs., 133 S. Ct. 501. With this nod to how frequently the state courts decide Federal Arbitration Act cases, the United States Supreme Court then set a firm marker: “[i]t is a matter of great importance, therefore, that state supreme courts adhere to a correct interpretation of the legislation.” Id. at 501. The Court looked to the recent precedent that when an arbitration clause is valid, then the arbitrator, not a court, should decide whether the contract as a whole is valid. See id. The Oklahoma Supreme Court “ignored” this “basic tenet of” Federal Arbitration Act substantive law when it ruled on the validity of the underlying agreements. Id. at 501. The Court characterized the Oklahoma Supreme Court decision as exhibiting the “judicial hostility towards arbitration” that Congress designed the Federal Arbitration Act to prohibit. Id. at 503. Indeed, it found that the Oklahoma Supreme Court improperly chose to discount Supreme Court jurisprudence. Id. The Court stated that “it is well settled that the substantive law the Act created [is] applicable in state and federal courts.” Id. at 503 (alteration in original). Because the trial court found that the arbitration clause was valid and the Oklahoma Supreme Court did not hold otherwise, the United States Supreme Court held the arbitration clauses should be enforced. Id. Thus, it vacated the state supreme court decision.

The Court used this case to resend the message that it had uniformly with increasing consistency and frequency sent before: a strong national policy favors arbitration, and the state courts are not exempt from following it.

In Italian Colors, the Court will address whether the Federal Arbitration Act permits courts, invoking the “federal substantive law of arbitrability,” to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim. Italian Colors Rest. v. Am. Express Travel Related Servs. Co., 667 F.3d 204 (2d Cir. 2012), cert. granted, 133 S. Ct. 594 (U.S. Nov. 9, 2012) (No. 12-133). The Second Circuit held that the class action waiver in the agreement before it was unenforceable because it would preclude the plaintiffs from vindicating their federal statutory rights under the Sherman and Clayton Acts. Italian Colors Rest., 667 F.3d 204 (2d Cir. 2012). In reaching its decision, the Second Circuit interpreted two previous Supreme Court cases in this area—Stolt-Nielson and Concepcion—to stand “squarely for the principle that parties cannot be forced to arbitrate disputes in a class-action arbitration unless the parties agree to class action arbitration.” Id. at 213. The Second Circuit went on to state, “[w]hat Stolt-Nielson and Concepcion do not do is require that all class-action waivers be deemed per se enforceable.” Id. at 214.

The Second Circuit relied on two other previous Supreme Court opinions, Green Tree Fin. Corp.-Ala. v. Randolph, 531 U.S. 79 (2000), and Mitsubishi Motors Corp. v. Soler Chrylser-Plymouth, Inc., 473 U.S. 614 (1985), to conclude instead that a party can seek to invalidate an arbitration clause by showing arbitration “would be prohibitively expensive.” Italian Colors Rest., 667 F.3d at 217. The Second Circuit then applied this rule to the arbitration agreement: “The evidence presented by plaintiffs here establishes, as a matter of law, that the cost of plaintiffs’ individually arbitrating their dispute with Amex would be prohibitive, effectively depriving plaintiffs of the statutory protections of the antitrust laws.” Id. Perhaps anticipating future Supreme Court involvement, the Second Circuit made it clear that the holding applied to the individual waiver in the case based on its own merits and did not rule that class action waivers in arbitration agreements were per se unenforceable or even “per se unenforceable in the context of antitrust actions.” Id. at 219.

Based on the Court’s most recent decisions, it seems unlikely that it will issue a decision that will agree with the Second Circuit and find the arbitration agreement unenforceable. In the Concepcion and Stolt-Nielson decisions the Court majority found legal grounds for permitting arbitration agreements to prohibit class arbitrations while creating precedent supporting bilateral arbitration. Further, the logical conclusion that someone could draw from the Second Circuit opinion in Italian Colors Rest., 667 F.3d 204 (2d Cir. 2012), is that just as it is improper to litigate low-dollar claims bilaterally that the parties could adjudicate on a classwide basis, it is improper to arbitrate low-dollar claims bilaterally, and instead they require class proceedings. Yet, the Supreme Court majority already rejected this notion in Concepcion when it was suggested by the dissent. See Concepcion, 131 S. Ct. at 1753 (rejecting the claim that “class proceedings are necessary to prosecute small-dollar claims that might otherwise slip through the legal system.”).

The other case on the Court docket is Oxford Health Plans, which presents the following issue, which also emanates from a circuit split:

Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively ‘agreed to authorize class arbitration,’ Stolt-Nielsen, 130 S. Ct. at 1776, based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.

Pet. Cert., at i, Oxford Health Plans, No. 12-135 (U.S. July 27, 2012).

In Oxford Health, the arbitrator ruled that an arbitration clause’s first phrase, “No civil action concerning any dispute arising under this Agreement shall be instituted before any court,” was broad enough to include class actions. Oxford Health Plans, 675 F.3d 215, 217 (3d Cir. Apr. 3, 2012). The Third Circuit, relying on Section 10 of the FAA, noted its review of the arbitrator’s decision was limited, and that the arbitrator’s order would be “within his authority so long as it stands on a contractual basis,” and the court found that it did. Id. at 223. The Third Circuit particularly “reject[ed] Oxford’s attempt to cast this case in the mold of Stolt-Nielson” because the Oxford agreement was not “silent” on class action arbitration in the same way as in Stolt-Nielson. Id. at 222.

DRI has filed an amicus brief in support of the petitioner. It argues that many arbitration agreements include the “any dispute” language involved in the Oxford Health case and are likewise “silent” on class arbitration. DRI points out that as the Fifth Circuit correctly notes under similar circumstances, “to rely on the ‘any dispute’ language of an arbitration agreement to find assent to class arbitration effectively nullifies Stolt-Nielson.” Br. Amicus Curiae of DRI 9 (U.S. Jan. 29, 2013) (No. 12-135). Drawing from previous Court decisions, the DRI amicus brief highlights how class arbitration is antithetical to the traditional benefits understood to justify arbitration.

Similar to Stolt-Nielson, the judicial review limitations of the FAA come into a headlong collision with the Court’s grounds that bar class arbitration. In Stolt-Nielson, the majority could skirt past Section 10 of the FAA because the arbitrators in that case had not grounded their order for class arbitration in language in the contract. In Oxford Health Plans, the arbitrator did find a hook for his ruling. Given that fact, the Court will have to grapple with whether Section 10 nevertheless permits it to overturn the Third Circuit ruling.


The Court’s increasingly vigilant enforcement of federal arbitration policy over the years likely means that the Court will issue more arbitration-related decisions in the future. Indeed, the circuit courts of appeal have split over other arbitration issues that the Court could resolve. For one, the Court could resolve whether or not a court can overturn an arbitrator’s decision based on manifest disregard for the law given the Hall Street decision. See, e.g., Citigroup Global Markets Inc. v. Bacon, 562 F.3d 349, 357 (5th Cir. 2009) (noting the split among the Fifth, First, Sixth, Second, and Ninth circuit courts of appeal). For another, the Court could resolve whether a court should read the typical arbitration clause language “arising under,” “arising out of,” or “arising hereunder” broadly or narrowly to include claims other than those related to interpreting an agreement and its performance. See, e.g., Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 380–82 (1st Cir. 2011) (noting circuit courts of appeal split). And to mention one more, the Court could resolve the extent of prehearing discovery that nonparties need to make available in arbitration. See, e.g., Life Receivables Trust v. Syndicate 102 at Lloyd’s of London, 549 F.3d 210, 215 (2d Cir. 2008) (noting circuit courts of appeal split).

This area of law will only continue to mature, and the Court’s promotion of federal arbitration policy sets the stage to privatize commercial disputes further. This means that practitioners seeking to enforce arbitration clauses, particularly clauses that permit bilateral arbitration only, can seek to enforce those clauses aggressively. Given the Supreme Court’s support for federal policy promoting arbitration, practitioners can likely seek to enforce arguably ambiguous clauses, too, taking advantage of that support for the federal policy.

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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