Three years ago, in the first of a series of decisions addressing
class arbitration, the United States Supreme Court held in
Stolt-Nielsen, S.A. v. AnimalFeeds International Corp.
that "a party may not be compelled under the Federal
Arbitration Act to submit to class arbitration unless there is a
contractual basis for concluding that the party agreed to
do so." 130 S. Ct. 1758, 1775 (2010) (emphasis in original).
On February 27, 2013, the Supreme Court heard oral argument in
American Express Co. v. Italian Colors Restaurant, No.
12-133, on whether the Federal Arbitration Act permits courts to
invalidate arbitration agreements containing class action
waivers. On March 25, 2013, the Supreme Court will hear oral
argument in another case involving class arbitration, Oxford
Health Plans LLC v. Sutter, No. 12-135, and have the
opportunity to revisit a question facing lower courts since
Stolt-Nielsen: In what circumstances, if any, can an
arbitration agreement implicitly include an agreement to engage in
class arbitration?
Stolt-Nielsen—often cited by claimants and
respondents alike—identified problems that can arise when an
arbitration agreement does not address class arbitration. When
parties agree to arbitrate, they "forgo the procedural rigor
and appellate review of the courts in order to realize the benefits
of private dispute resolution." Id. However, the
Supreme Court acknowledged that this trade-off—which often
serves both parties' interests in one-on-one
disputes—does not translate well to disputes involving a
putative class of claimants: "the relative benefits of
class-action arbitration are much less assured, giving reason to
doubt the parties' mutual consent to resolve disputes through
class-wide arbitration." Id. In AT&T Mobility
LLC v. Concepcion, 131 S. Ct. 1740, 1752 (2011), the Court
continued to voice concern about class arbitration, observing that
"arbitration is poorly suited to the higher stakes of class
litigation." Ultimately, Stolt-Nielsen held that
"an implicit agreement to authorize class-action arbitration
... is not a term that the arbitrator may infer solely from the
fact of the parties' agreement to arbitrate," but noted
that the facts presented "no occasion to decide what
contractual basis may support a finding that the parties agreed to
authorize class-action arbitration." 130 S. Ct. at 1775, 1776
n.10.
Stolt-Nielsen requires "a contractual basis for
concluding that a party agreed" to class arbitration.
130 S. Ct. at 1775 (emphasis in original). Stolt-Nielsen
does not suggest that agreement to class arbitration can be
inferred when an arbitration agreement is silent on the subject.
Nonetheless, divining what constitutes a "contractual
basis" for concluding that parties agreed to class arbitration
has divided state and federal courts across the country. A stark
example of this division appears in the Third Circuit. In affirming
the validity of an arbitration agreement and compelling the parties
to arbitrate their dispute, a Third Circuit panel held that
"silence regarding class arbitration generally indicates a
prohibition against class arbitration." Quilloin v. Tenet
HealthSystem Philadelphia, Inc., 673 F.3d 221, 232 (3d Cir.
2012). Less than three weeks later, in the case about to be argued
to the Supreme Court, another Third Circuit panel affirmed an
arbitrator's decision to allow class arbitration where the
arbitrator's ruling "unquestionably relied on the breadth
of the arbitration agreement," which all parties agreed did
not mention class arbitration. Sutter v. Oxford Health Plans
LLC, 675 F.3d 215, 224 (3d Cir.), cert. granted, 133
S. Ct. 786 (Dec. 7, 2012).
Other courts have required affirmative indication of an intent to
allow class arbitration. For instance, the Fifth Circuit has
interpreted Stolt-Nielsen to mean that "the mere fact
that the parties would otherwise be subject to class action in the
absence of an arbitration agreement is not a sufficient basis to
conclude that they agreed to class arbitration when they entered
into an arbitration agreement." Reed v. Fla. Metro. Univ.,
Inc., 681 F.3d 630, 643 (5th Cir. 2012). The Eleventh Circuit
has similarly concluded that "nonconsensual class
arbitration" is "prohibited under
Stolt-Nielsen." Cruz v. Cingular Wireless,
LLC, 648 F.3d 1205, 1213 (11th Cir. 2011).
But the Second Circuit—which hears more arbitration cases
than any other Circuit—upheld an arbitrator's decision to
allow class arbitration when the agreement said nothing about the
issue. See Jock v. Sterling Jewelers, Inc., 646 F.3d 113,
123 (2d Cir. 2011). In other words, some federal courts, as in
Jock, have limited Stolt-Nielsen to its unique
facts—in which the parties stipulated that they had no
meeting of the minds on the question of class
arbitration—while others have applied the case more broadly.
Compare, e.g., S. Commc'ns Servs., Inc. v.
Thomas, 829 F. Supp. 2d 1324 (N.D. Ga. 2011) (affirming
arbitrator's decision that class arbitration is available under
arbitration agreement that does not mention class arbitration),
with, e.g., Porter v. MC Equities, LLC, No. 1:12
CV 1186, 2012 WL 3778973 (N.D. Ohio Aug. 30, 2012) (compelling
individual, rather than class, arbitration where arbitration
agreement made no mention of class arbitration). Most state courts
have consistently read Stolt-Nielsen to prohibit class
arbitration absent overt evidence that the parties agreed to
arbitrate claims collectively. See, e.g., Hill v.
Garda CL Nw. Inc., 281 P.3d 334 (Wash. Ct. App. 2012);
Anderson v. Maronda Homes, Inc. of Fla., 98 So. 3d 127
(Fla. Dist. Ct. App. 2012) (per curiam); Kinecta Alt. Fin.
Solutions, Inc. v. Super. Ct., 140 Cal. Rptr. 3d 347 (Cal. Ct.
App. 2012); Bandler v. Charter One Bank, No. 451-7-03
Rdcv., 2010 WL 3617115 (Vt. Super. Ct. Aug. 2, 2010), rev'd
on other grounds, 2012 VT 83 (Oct. 5, 2012).
In Oxford Health Plans, the Supreme Court may provide
more guidance to lower courts on this issue. In 1998, Ivan Sutter,
a New Jersey doctor, signed a contract under which Oxford Health
Plans (a health insurer) would give Dr. Sutter preferred access to
its members and he would provide services to those members at
prescribed rates. See Sutter, 675 F.3d at 217. The
contract required the parties to arbitrate any disputes, but
"neither the arbitration clause nor any other provision of the
agreement makes express reference to class arbitration."
Id. In 2002, Dr. Sutter filed suit, accusing Oxford
of "improperly denying, underpaying, and delaying
reimbursement of physicians' claims for the provision of
medical services." Id. After the court ordered the
parties to arbitrate, the arbitrator ruled that the arbitration
clause authorized class arbitration and subsequently certified a
class of physician-claimants. See id. at 217-18. Both the
federal district court in New Jersey and the Third Circuit affirmed
the arbitrator's decisions. See id. at 218 (citing
Sutter v. Oxford Health Plans, LLC, No. 05-cv-2198, 2005
WL 6795061 (D.N.J. Oct. 31, 2005), aff'd, 227 F.
App'x 135 (3d Cir. 2007)). The parties then began arbitration
on the merits. See id. In 2010, Oxford asked the
arbitrator to reconsider his interpretation of the arbitration
clause in light of Stolt-Nielsen. See id. When
the arbitrator confirmed his earlier ruling that class arbitration
was proper, Oxford again sought judicial review. See id.
Both the district court and the Third Circuit again affirmed the
arbitrator's decision. See id. at 217-18. The Supreme
Court granted Oxford's petition for certiorari in December
2012. Oral argument is scheduled for March 25, 2013.
As the Supreme Court has recognized, parties choose arbitration
because it is faster and less expensive than litigation. But a long
procedural prologue can negate those benefits. In the wake of
Stolt-Nielsen, many arbitrations are delayed by motion
practice while the parties argue whether they agreed to class
arbitration. These arguments drag on because most arbitration
organizations recognize the risks of class arbitration and
expressly provide for judicial review of the arbitrator's
threshold decision on whether class arbitration is available.
See, e.g., Am. Arb. Ass'n Supp. R. for Class Arb. 3
("The arbitrator shall stay all proceedings following the
issuance of the Clause Construction Award for a period of at least
30 days to permit any party to move a court of competent
jurisdiction to confirm or to vacate the Clause Construction
Award."); JAMS Class Action P. R. 2 ("The Arbitrator
shall set forth his or her determination with respect to the matter
of clause construction in a partial final award subject to
immediate court review."). If a court grants review, the party
that receives an adverse decision in the reviewing court will then
often appeal. As a result, parties spend considerable time and
resources arguing about the ground rules for the arbitration before
they get to the merits.
The benefits of arbitration come at the cost of forgoing "the
procedural rigor and appellate review of the courts."
Stolt-Nielsen, 130 S. Ct. at 1775. That may be a fair
exchange in theory, but not if the benefits prove illusory and the
costs are amplified by "the higher stakes of class
arbitration" and the risk of defending a class arbitration to
which a party did not consent. Concepcion, 131 S. Ct. at
1752. The Supreme Court's decision in Oxford Health
Plans may provide additional guidance on what constitutes a
"contractual basis" for finding that parties agreed to
class arbitration. Such guidance would benefit parties,
arbitrators, and lower courts.
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