The U.S. Supreme Court will review whether an arbitrator exceeded his powers by inferring an agreement to arbitrate class claims from contract language that made no mention of such claims.

The justices granted certiorari on Dec. 7 in Oxford Health Plans v. Sutter, No. 12-135, two years after ruling that arbitrators cannot force a party to arbitrate on a class basis without a contractual basis for concluding that the party agreed to do so.

Since the decision in Stolt-Nielsen v. Animal Feeds International, 130 S. Ct. 1758 (2010), federal circuits have split over the issue, with the Second and Third Circuits upholding arbitral decisions compelling arbitration of class claims and the Fifth Circuit reversing.

The new case involves claims that thousands of New Jersey doctors were reimbursed late and sometimes too little for their services as primary care physicians to Oxford Health Plans’ insureds.

Dr. John Ivan Sutter sued in 2002 in Essex County Superior Court, alleging Oxford had a practice of improperly denying, underpaying and delaying claims for reimbursement.

Oxford moved to compel arbitration based on a contract provision stating: “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.”

The court granted the motion over Sutter’s objection, ordering that the arbitrator was to decide all procedural issues, including those relating to class certification.

The arbitrator, William Barrett, of Butzel Long in New York, decided the agreement on its face expressed the parties’ intent to authorize class arbitration. Under his analysis, the lawsuit preclusion was so broad that it encompassed all conceivable court actions, including class actions, which were thus included as part of the “all such disputes” that had to be arbitrated. Barrett suggested that to read the clause differently would require an express carve-out for class arbitration.

Oxford asked the federal court in Newark to vacate Barrett’s decision on the ground that he exceeded his powers and manifestly disregarded the law. U.S. District Judge Joseph Greenaway Jr. denied the motion on Oct. 31, 2005, allowing the class arbitration to proceed.

After the Stolt-Nielsen ruling, Oxford asked Barrett to reconsider, but he stuck with his original construction, distinguishing the case.

Oxford returned to federal court, where Chief Judge Garrett Brown Jr. denied its renewed motion to vacate and granted Sutter’s cross-motion to confirm Barrett’s decision.

The U.S. Court of Appeals for the Third Circuit affirmed last April 3 in a precedential opinion. “We are satisfied that the arbitrator endeavored to interpret the parties’ agreement within the bounds of the law, and we cannot say that his interpretation was totally irrational,” Circuit Judge Julio Fuentes wrote for the panel. “Nothing more is required under §10(a)(4) of the Federal Arbitration Act.”

Arbitration decisions cannot be overturned by courts simply because the arbitrator was mistaken about the facts or the law. The Act specifies only four grounds for vacating an award: fraud or corruption in procuring it; an arbitrators’ “evident partiality or corruption”; arbitral misbehavior that prejudices a party’s rights; or action by an arbitrator in excess of his or her powers.

Oxford argued that Barrett went beyond his authority because there was no contractual basis for arbitrating class claims. Fuentes disagreed, distinguishing the cases on the basis that the arbitrator here articulated a contractual basis for his decision, while in Stolt-Nielsen, the parties stipulated their contract was “silent” concerning class arbitration. Thus, there was clearly no agreement on the issue, which “left no room for inquiry regarding the parties’ intent, and any inquiry into that settled question would have been outside the [arbitration] panel’s assigned task,” said Fuentes.

The Stolt-Nielsen arbitrators compelled class arbitration based on the parties’ failure to contractually preclude it and on arbitral decisions in other cases that allowed it. The Supreme Court held they “impermissibly assumed the power of a common law court to fashion a rule of decision,” Fuentes wrote.

He rejected the idea that Stolt-Nielsen established a bright-line rule that class arbitration is only allowed when it is mentioned in the agreement. As Justice Samuel Alito wrote in the 5-3 decision, “We have no occasion to decide what contractual basis may support a finding that the parties agreed to authorize class-action arbitration.”

Oxford further argued that Sutter’s opposition to arbitration in state court should have indicated to Barrett that he did not contemplate class-wide arbitration and was tantamount to the stipulation in Stolt-Nielsen.

Fuentes found that argument “lacks force” because Sutter’s position in the state court was “not conclusive or even particularly probative of the meaning of a clause drafted solely by Oxford.” In addition, Sutter’s position varied at different points.

Oxford’s attorney, Seth Waxman of Wilmer Cutler Pickering Hale & Dorr in Washington, D.C., says “the case presents an important question that the court left unresolved in Stolt-Nielsen. We look forward to explaining our position to the Supreme Court.” Waxman, who was retained for the high court appeal, represented one of four groups of prevailing petitioners in Stolt-Nielsen.

Eric Katz, representing Sutter and the class, says the court should affirm because the arbitrator got it right, but even if he didn’t, that is not sufficient basis to overturn Barrett’s decision. A reversal would be contrary to the deferential standard for reviewing arbitral awards and would lead to a flood of appeals by those disappointed with arbitral outcomes, he says.

Katz says Oxford wants the Supreme Court to require the “magic words, ‘class action,’” in order to arbitrate class claims but “you’re never going to see that” because “these are contracts of adhesion.”

What is at stake, he says, is the ability of physicians to provide quality health care to the citizens of New Jersey, as well as the ability of employees and consumers to bring claims that are subject to arbitration and too small to pursue on an individual basis.

Katz, of Mazie Slater Katz & Freeman in Roseland, says he expects many amici on both sides.

On Dec. 7, the court allowed two, the U.S. Chamber of Commerce and DRI—The Voice of the Defense Bar, to file briefs in support of Oxford.