Oxford Health Plans LLC v. Sutter: SCOTUS Issues Decision on Arbitrator's Power to Order Class Arbitration

In Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662 (2010), the Supreme Court held that an arbitrator "may employ class procedures only if the parties have authorized them." The Supreme Court yesterday released its decision in Oxford Health Plans LLC v. Sutter, ___ U.S. ___ (6/10/13), in which it considered whether an arbitrator exceeded his authority by finding that the parties' agreement authorized class arbitration, even though it did not mention class arbitration.  Justice Kagan wrote the opinion for a unanimous Court. 

John Sutter filed a putative class action in state court against Oxford Health Plans, alleging that it failed to make full payment to him and other physicians, in violation of their agreements and state law. The court granted Oxford’s motion to compel arbitration, relying on the following clause in their contract: 

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 parties agreed that the arbitrator should decide whether the contract authorized class arbitration, and he determined that it did. He reasoned that the arbitration clause sent to arbitration “the same universal class of disputes” that it barred the parties from bringing “as civil actions” in court, including class claims.  

Oxford moved in federal court to vacate the arbitrator’s decision on the ground that he had “exceeded [his] powers” under §10(a)(4) of the FAA. The District Court denied the motion, and the Third Circuit Court of Appeals affirmed.  

Oxford asked the arbitrator to reconsider his decision on class arbitration after the Supreme Court issued Stolt-Nielsen. He issued a new opinion holding that Stolt-Nielsen had no effect. Unlike in Stolt-Nielsen, the arbitrator explained, the parties here disputed the meaning of their contract; he had therefore been required “to construe the arbitration clause in the ordinary way to glean the parties’ intent,” and had “found that the arbitration clause unambiguously evinced an intention to allow class arbitration.” 

Oxford made a renewed motion in district court to vacate the arbitrator’s decision under the FAA. The district court again denied the motion, and the Third Circuit again affirmed. The Supreme Court granted certiorari to address a circuit split on whether §10(a)(4) allows a court to vacate an arbitral award in similar circumstances. It held unanimously that it does not.  

The Court focused on the limited scope of review allowed in such circumstances. A party arguing that an arbitrator has "exceeded his powers" bears a heavy burden: 

“It is not enough . . . to show that the [arbitrator] committed an error—or even a serious error.” Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision “even arguably construing or applying the contract” must stand, regardless of a court’s view of its (de)merits... [T]he sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.

Slip op. at 4-5 (citations omitted). 

The Court then held that the arbitrator had twice done what the parties requested and what the law required. "He considered their contract and decided whether it reflected an agreement to permit class proceedings. That suffices to show that the arbitrator did not 'exceed[ ] [his] powers.'" Slip op. at 6. 

The Court distinguished Stolt-Nielsen on grounds that the parties there had entered into an "unusual stipulation that they had never reached an agreement on class arbitration." Given that stipulation, the arbitrators in Stolt-Nielsen could not have concluded that the parties' agreement authorized class arbitration. "So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role." Slip op. at 6-7. 

The Court then addressed Oxford's argument that the arbitrator had misinterpreted the arbitration agreement: 

We reject this argument because, and only because, it is not properly addressed to a court. 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). 

Slip op. at 8.  

In his concurring opinion, Justice Alito, joined by Justice Thomas, points out that the Court's opinion "follows directly from petitioner’s concession and the narrow judicial review that federal law allows in arbitration cases." He goes on to state that if the Court were reviewing the arbitrator's decision de novo, "we would have little trouble concluding that he improperly inferred '[a]n implicit agreement to authorize class-action arbitration . . . from the fact of the parties' agreement to arbitrate.'"  Slip op. at 1. 

I have to admit that I am surprised by the result here.  I thought that the Court would extend Stolt-Nielsen and invalidate the arbitrator's decision to allow class arbitration. And I certainly did not think that an opinion affirming the arbitrator's decision would be a unanimous one. All very interesting. 

The opinion is available here.