Sutter v. Oxford Health Plans, L.L.C., No. 11-1773; Third Circuit; opinion by Fuentes, U.S.C.J.; filed April 3, 2012. Before Judges Fuentes, Chagares and Pogue, Chief Judge, U.S. Court of International Trade, sitting by designation. On appeal from the District of New Jersey. [Sat below: Judge Brown.] DDS No. 03-8-5875 [20 pp.]
Oxford Health Plans, L.L.C., and Dr. John Ivan Sutter are parties to a primary care physician agreement that contains a broad arbitration clause. Neither the arbitration clause nor any other provision of the agreement makes express reference to class arbitration.
When a dispute arose regarding Oxford’s alleged failure to make prompt and accurate reimbursement payments to participating physicians, Sutter filed a complaint on behalf of himself and a class of health-care providers alleging, inter alia, breach of contract. Oxford moved to compel arbitration. Sutter opposed the motion and urged the court either to refuse to enforce the clause or to certify the class before sending the claims to arbitration.
The court granted Oxford’s motion to compel arbitration and ordered that all procedural issues, including those of class certification, be resolved by the arbitrator. The arbitrator construed the broad text of the clause to authorize class arbitration.
Oxford filed a motion to vacate the award in the district court, arguing that the arbitrator had exceeded his powers by ordering class arbitration. The motion was denied; a panel of the Third Circuit affirmed.
After Stolt-Nielsen S.A. v. AnimalFeeds International Corp. , 130 S.Ct. 1758 (2010), held that an arbitral panel had exceeded its authority by allowing class arbitration when the parties had reached no agreement on the issue, Oxford moved before the arbitrator for reconsideration of his clause construction award. He distinguished Stolt-Nielsen and reaffirmed his award. The district court confirmed the award.
On appeal, Oxford argues that the clause construction award should be vacated because the arbitrator exceeded his powers under Stolt-Nielsen .
Held: Stolt-Nielsen does not require vacatur. The arbitrator endeavored to interpret the parties’ agreement within the bounds of the law, and his interpretation was not totally irrational. Nothing more is required under 9 U.S.C. § 10(a)(4). Because he did not exceed his powers in construing the parties’ arbitration agreement to authorize class arbitration, the district court’s order is affirmed.
Under the Federal Arbitration Act, an award can be vacated only on one of four narrow grounds. An arbitrator subjects his award to judicial vacatur under 9 U.S.C. § 10(a)(4), the basis cited here, when he decides an issue not submitted to him, grants relief in a form that cannot be rationally derived from the parties’ agreement and submissions, or issues an award that is so completely irrational that it lacks support altogether. When an arbitrator makes a good-faith attempt to interpret and enforce a contract, even serious errors of law or fact will not subject his award to vacatur.
In Stolt-Nielsen , the parties stipulated that the arbitration clause “was silent” regarding class arbitration, i.e., that they had not reached any agreement on that issue. Thus, the arbitrators were unable to apply traditional principles of contract interpretation and should have identified the rule of law that governs that situation. Instead, they decided that class arbitration was permitted based on the parties’ failure to contractually preclude the procedure. The court held that in so doing, they impermissibly assumed the power of a common-law court to fashion a rule of decision and exceeded their powers within the meaning of § 10(a)(4). The court said a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that it agreed to do so.
In contrast to Stolt-Nielsen , here, the parties dispute whether they intended to authorize class arbitration. Therefore, the arbitrator was not constrained to conclude that they did not intend to authorize class arbitration or to identify a contrary default rule of New Jersey law. His decision to order class arbitration is within his authority so long as it stands on a contractual basis.
In articulating a contractual basis for his decision, the arbitrator reasoned that the clause’s first phrase, “No civil action concerning any dispute arising under this Agreement shall be instituted before any court,” is broad enough to include class actions. Thus, its second phrase, “and all such disputes shall be submitted to final and binding arbitration in New Jersey,” sends all conceivable civil actions — including class actions — to arbitration.
The court rejects Oxford’s claim that the purported examination of the parties’ intent was pretext for imposition of the arbitrator’s policy preferences. It concludes that the arbitrator performed his duty appropriately and tried to give effect to the parties’ intent and that Oxford’s allegations of pretext are simply dressed-up arguments that the arbitrator interpreted its agreement erroneously.
The court also rejects Oxford’s claim that the arbitrator relied on two grounds that Stolt-Nielsen expressly proscribed. First, it says that while the arbitrator unquestionably relied on the breadth of the arbitration agreement, Stolt-Nielsen does not proscribe such reliance but acknowledged the relevance of an arbitration agreement’s breadth to determining whether it authorizes class arbitration. Further, while Stolt-Nielsen prohibits an arbitrator from inferring consent to class arbitration from the parties’ failure to preclude that procedure, the arbitrator found that the lack of an express exclusion was corroborative of his holding that the clause authorized class arbitration; it was not the basis of that holding. Thus, he did not impermissibly infer the parties’ intent to authorize class arbitration from their failure to preclude it.
— By Judith Nallin
For appellants — Marc De Leeuw, of the N.Y. bar (Sullivan & Cromwell), P. Christine Deruelle and Edward Soto, of the Fla. bar (Weil, Gotshal & Manges) and Adam N. Saravay (McCarter & English). For appellee — Eric D. Katz (Mazie, Slater, Katz & Freeman).