The U.S. Supreme Court on Monday unanimously upheld a Third Circuit decision that allowed an arbitrator to force arbitration on a class basis despite an agreement that was silent on the issue.
The justices, in Oxford Health Plans v. Sutter, No. 12-135, said an arbitrator who interprets a contract between the parties and does not impose his own policy views can’t be second-guessed, even if his decision is wrong.
The opinion, by Justice Elena Kagan, resolved a split among federal circuits in the aftermath of Stolt-Nielsen v. Animal Feeds International, 130 S. Ct. 1758 (2010), which held that arbitration of class claims cannot be compelled without a contractual basis for concluding the parties agreed to it.
The Second and Third Circuits have affirmed decisions compelling class arbitration while the Fifth Circuit has reversed.
The court granted certiorari in Sutter to address that split.
Plaintiff John Sutter, a Clifton pediatrician, had a contract with Oxford Health Plans to provide medical care to network members at prescribed rates. In 2002, he sued Oxford in state court over its alleged failure to pay him and other in-network providers the full contractual amount owed or to pay them timely.
Oxford moved to compel arbitration under a clause stating: "No civil action concerning any dispute 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 state 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, held the agreement on its face expressed the parties’ intent to authorize class arbitration because the lawsuit preclusion was so broad that it encompassed all conceivable court actions, including class actions. They were thus included within the "all such disputes" subject to arbitration. Barrett suggested that an express carve-out would be needed to preclude class arbitration.
Oxford asked a federal court 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. in Newark denied the motion on Oct. 31, 2005, and the U.S. Third Circuit Court of Appeals affirmed on Feb. 28, 2007.
After Stolt-Nielsen was decided in 2010, Oxford asked Barrett to reconsider, but he stuck with his original construction.
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 Third Circuit affirmed on April 3, 2012, 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," wrote Circuit Judge Julio Fuentes. "Nothing more is required under §10(a)(4) of the Federal Arbitration Act."
Fuentes distinguished Stolt-Nielsen on the ground that the parties in that case stipulated they never agreed either way on the subject of class arbitration.
In affirming, the Supreme Court stated that Oxford misread Stolt-Nielsen in arguing that courts have power to vacate a decision merely because the arbitrator misinterpreted the arbitration agreement.
The decision in Stolt-Nielsen was set aside not because it was wrong but because the arbitrators "abandoned their interpretive role" to impose their own policy choice, Kagan wrote for the court. 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."
The court did not necessarily agree with Barrett’s interpretation, Kagan pointed out. "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)," she wrote.
Justice Samuel Alito, in a concurring opinion joined by Justice Clarence Thomas, agreed with the result but questioned whether class members other than Sutter would be bound by Barrett’s resolution of the dispute unless they opted in. "[A]n arbitrator’s erroneous interpretation of contracts that do not authorize class arbitration cannot bind someone who has not authorized the arbitrator to make that determination," he wrote.
Sutter’s attorney, Eric Katz, calls the holding a major victory for not only doctors but also others who are bound by arbitration clauses with claims too small to pursue on an individual basis.
"Unless consumers and employees can band together as a class, even when forced into arbitration, a good many of the ills that go on would never be addressed," such as discrimination and consumer fraud, says Katz, of Mazie Slater Katz & Freeman in Roseland.
The holding also reaffirms the "bedrock principle" that arbitral decision are generally not reviewable by courts, he says.
Katz says he disagrees with the concurring justices’ suggestion that absent class members must opt in to be bound, contrary to the rule in class-action litigation, which binds all but those who opt out.
Barrett says he is gratified by the decision and it fits into the large body of case law on what is and is not arbitrable.
He notes a trend toward cutting down on class actions, citing Stolt-Nielsen and AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), which held a state law, classifying most collective-arbitration waivers in consumer contracts as unconscionable and thus unenforceable, pre-empted by the FAA.
Seth Waxman, of Washington, D.C.’s Wilmer Cutler Pickering Hale & Dorr, a former U.S. solicitor general, who represented Oxford in the Supreme Court appeal, was out of the office and could not be reached.
Tyler Mason, a spokesman for Oxford, says, "Class arbitrations like this one make the health-care system more cumbersome and expensive for everyone. Significantly, the Court did not decide whether plaintiffs’ claims are valid on the merits. Oxford will defend itself vigorously in the arbitration."