Supreme Court Upholds Class Arbitration Decision in Sutter

Yesterday, the United States Supreme Court unanimously held that a court must accept an arbitrator’s decision to allow or disallow class arbitration based upon the terms of the disputing parties’ agreement.  In Oxford Health Plans LLC v. Sutter, No. 12-135 (June 10, 2013), a group of physicians sued a healthcare insurer, Oxford Health Plans, over a number of medical payments in New Jersey state court.  After Oxford compelled the dispute to arbitration, both parties agreed the arbitrator had the authority to determine whether the parties’ contract provided for class arbitration.  Despite that the arbitration agreement did not expressly allow or disallow class arbitration, the arbitrator determined the text of the parties’ agreement was intended to allow for class arbitration.

Next, Oxford filed a motion to vacate the arbitrator’s decision to allow class arbitral proceedings.  Because the parties agreed to allow the arbitrator to consider whether class arbitration was permitted under the contract and the arbitrator based his decision on the text of the parties’ contract, the New Jersey court refused to vacate the arbitrator’s decision and arbitral proceedings began.

During arbitration, the U.S. Supreme Court decided Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010). In that case, the high court held 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.”  During arbitration, Oxford asked the arbitrator to reconsider his decision to allow for class arbitration based upon the decision in Stolt-Nielsen.  According to the arbitrator, the case did not apply to the parties’ dispute because the agreement allowed for class arbitration.

Following the arbitrator’s final decision, Oxford again filed a motion to vacate and argued the arbitrator exceeded his authority pursuant to Section 10(a)(4) of the Federal Arbitration Act.  Once again, the New Jersey court refused to vacate the decision.  On appeal, the Third Circuit agreed.  According to the Supreme Court,

The Court of Appeals first underscored the limited scope of judicial review that §10(a)(4) allows: So long as an arbitrator “makes a good faith attempt” to interpret a contract, “even serious errors of law or fact will not subject his award to vacatur.” 675 F. 3d 215, 220 (2012). Oxford could not prevail under that standard, the court held, because the arbitrator had “endeavored to give effect to the parties’ intent” and “articulate[d] a contractual basis for his decision.” Id., at 223–224. Oxford’s objections to the ruling were “simply dressed-up arguments that the arbitrator interpreted its agreement erroneously.” Id., at 224.

Because the Circuit Courts were split regarding the issue of class arbitration, the Supreme Court granted certiorari in the case.   In a brief opinion written by Justice Kagan, the high court held:

In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration. The arbitrator did what the parties requested: He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still, Oxford does not get to rerun the matter in a court. Under §10(a)(4), the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants. We accordingly affirm the judgment of the Court of Appeals.

Despite the court’s holding, a concurring opinion joined by Justices Alito and Thomas suggests that it may be procedurally impossible to conduct class arbitrations.

This case is especially important in Texas and other states within the Fifth Circuit because it overruled a previous holding in Reed v. Florida Metropolitan Univ., Inc., 681 F.3d 630 (5th Cir. 2012) that said parties must explicitly agree to engage in class arbitration.

We would love to hear your thoughts on the Supreme Court’s decision in Sutter.