On June 10th, the Supreme Court issued a unanimous opinion in
Oxford Health Plans v. Sutter, No. 12-135, that will be
viewed by some as increasing the risk of class proceedings in
arbitration. The sweep of the case, however, will likely be much
more limited for several reasons.
In Oxford, the Supreme Court rejected a defendant's
request to vacate an arbitrator's ruling that interpreted an
expansive arbitration clause to permit the plaintiff to proceed on
a class basis before the arbitrator. The arbitrator reasoned that
this agreement referred to arbitration "the same universal
class of disputes" that could be brought as a "civil
action . . . before any court," including class proceedings.
The Supreme Court's decision reflects at least a temporary
unwillingness to extend its prior decision three years earlier in
Stolt-Nielsen S.A. v. Animalfeeds Int'l Corp., 559
U.S. 662 (2010). Stolt-Nielsen stands for the proposition that an
arbitrator may apply class proceedings only if the parties have
authorized them, and not when the parties stipulated that the
agreement was silent as to whether class arbitration proceedings
Three facts in particular limit the sweep of the Court's new
decision in Oxford Health. First, the Court emphasized
that the defendant failed to argue below that the arbitrator should
not be deciding whether class proceedings were permissible. In
fact, the defendant twice asked that the arbitrator resolve this
issue. Therefore, the Court rested its decision on the significant
deference owed to an arbitrator, explaining that it may vacate an
arbitrator's decision "only if 'the arbitrator acts
outside the scope of his contractually delegated
authority'" by "issuing an award that 'simply
reflects his own notions of economic justice' rather than
'drawing its essence from the contract.'" Thus, the
"sole question" before the Court was "whether the
arbitrator (even arguably) interpreted the parties' contract,
not whether he got its meaning right or wrong."
The Court had little trouble concluding that it had.
Distinguishing its prior decision in Stolt-Nielsen by
noting that the parties there stipulated that they had not
consented to class proceedings in arbitration, the Oxford
court found that the arbitrator "did construe the contract
(focusing, per usual, on its language) and did find an agreement to
permit class arbitration." The Court explained that even if it
found that the arbitrator misapprehended the parties' intent,
there was no basis to overturn the arbitrator's decision, for
the FAA "permits courts to vacate an arbitral decision only
when the arbitrator strayed from his delegated task of interpreting
a contract, not when he performed that task poorly."
Of particular importance, the Court noted that the standard of
review of the arbitrator's decision may have been different if
the defendant had argued below that it presented a "question
of arbitrability," since such questions are typically reviewed
de novo. Because the defendant had not challenged the arbitrability
of the propriety of class-wide arbitration, the Court declined to
address whether the availability of class arbitration is a question
of arbitrability or an even whether the arbitrator had the
authority to bind absent class members.
Second, the Supreme Court made clear that it was not endorsing
the substance of the arbitrator's ruling, explaining
"[n]othing 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." Defendants
seeking to avoid class arbitration will find support in Justice
Alito's concurrence, which stated that if the Court "were
reviewing the arbitrator's interpretation of the contract de
novo, we would have little trouble concluding that he improperly
inferred 'an implicit agreement to authorize class-action
arbitration . . . from the fact of the parties' agreement to
arbitrate.'" In addition, Justice Alito also explained
that because absent class members were not a party to the
arbitration, they were likely not bound by the arbitrator's
interpretation of the contract.
Third, the parties' underlying agreement in Oxford
obviously did not expressly state that class proceedings in
arbitration were not available. Had it done so, there is little
doubt that the class action waiver provision would have been
enforced. For the reasons stated above, this does not mean that
class proceedings in arbitration are appropriate in the absence of
a class waiver provision. It simply makes clear that the whole
dispute likely would have been avoided had an explicit class waiver
provision been included from the outset.
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