Monday, June 10, 2013

SCOTUS OKs Class Arbitration

ScotusThe Supreme Court issued three opinions today, and among them was Oxford Health Plans LLC v. Sutter.

Here is the syllabus from the opinion:

Respondent Sutter, a pediatrician, provided medical services to petitioner Oxford Health Plans’ insureds under a fee-for-services contract that required binding arbitration of contractual disputes. He nonetheless filed a proposed class action in New Jersey Superior Court, alleging that Oxford failed to fully and promptly pay him and other physicians with similar Oxford contracts. On Oxford’s motion, the court compelled arbitration. The parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he concluded that it did. Oxford filed a motion in federal court to vacate the arbitrator’s decision, claiming that he had “exceeded [his] powers” under §10(a)(4) of the Federal Arbitration Act (FAA), 9 U. S. C. §1 et. seq. The District Court denied the motion, and the Third Circuit affirmed.

After this Court decided Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662—holding that an arbitrator may employ class procedures only if the parties have authorized them—the arbitrator reaffirmed his conclusion that the contract approves class arbitration. Oxford renewed its motion to vacate that decision under §10(a)(4). The District Court denied the motion, and the Third Circuit affirmed.

Held: The arbitrator’s decision survives the limited judicial review allowed by §10(a)(4). Pp. 4−9.

(a) A party seeking relief under §10(a)(4) bears a heavy burden. “It is not enough . . . to show that the [arbitrator] committed an error—or even a serious error.” Stolt-Nielsen, 559 U. S., at 671. Because the parties “bargained for the arbitrator’s construction of their agreement,” an arbitral decision “even arguably construing or applying the contract” must stand, regardless of a court’s view of its (de)merits. Eastern Associated Coal Corp. v. Mine Workers, 531 U. S. 57, 62. Thus, the sole question on judicial review is whether the arbitrator interpreted the parties’ contract, not whether he construed it correctly. Here, the arbitrator twice did what the parties asked: He considered their contract and decided whether it reflected an agreement to permit class proceedings. That suffices to show that he did not exceed his powers under §10(a)(4). Pp. 4−6.

(b) Stolt-Neilsen does not support Oxford’s contrary view. There, the parties stipulated that they had not reached an agreement on class arbitration, so the arbitrators did not construe the contract, and did not identify any agreement authorizing class proceedings. This Court thus found not that they had misinterpreted the contract but that they had abandoned their interpretive role. Here, in stark contrast, the arbitrator did construe the contract, and did find an agreement to permit class arbitration. So to overturn his decision, this Court would have to find that he misapprehended the parties’ intent. But §10(a)(4) bars that course: It 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. Oxford’s remaining arguments go to the merits of the arbitrator’s contract interpretation and are thus irrelevant under §10(a)(4). Pp. 6−9.

675 F. 3d 215, affirmed.

KAGAN, J., delivered the opinion for a unanimous Court. ALITO, J., filed a concurring opinion, in which THOMAS, J., joined.

I'll admit to being a bit surprised at the outcome here. The language of prior decisions on arbitration suggested that the Court thought arbitration and class actions were incompatible and that contractual language would have to explicitly allow class actions in arbitration before they could go forward. The contractual language in this case was not that clear. The arbitrator in this case interpreted this arbitration clause as allowing class actions (just one of the universe of civil actions) to proceed in arbitration:

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 with one arbitrator.

The rule on deferring to the arbitrator trumped what may be the majority of Justices' own view on class actions.


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Take a look at footnote 2. By preserving the question of whether the availability of class arbitration is a "question of arbitrability," to be decided de novo by the Court, the decision basically got all justices on board and didn't really resolve anything. Or maybe I'm being especially cynical today!


Posted by: Charles A. Sullivan | Jun 11, 2013 8:17:41 AM

I don't think you're being extra cynical, Charlie. I agree. The key here was that the Employer and employee agreed that the question was to be decided by the arbitrator. So the Employer essentially waived the arbitrability argument. Waiver doesn't always bother judges or stop them from deciding things, but where it's accomplished by affirmative agreement instead of just a failure to raise an issue, I think the Justices who might think this is an issue of arbitrability felt stuck. Justice Alito's concurrence certainly seems to say that. And his discussion of how this doesn't bind the rest of the class seems to sound a pretty cautionary note to arbitrators, judges, and parties to arbitration agreements.

Posted by: Marcia | Jun 11, 2013 1:40:19 PM

In addition to the "question of arbitrability" issue, this case is also of particular interest to labor arbitration practitioners and scholars because it seems to cement the Supreme Court's view that the judicial review standards for FAA arbitration and LMRA arbitration are inseparable. In discussing whether an arbitration award can be set aside under FAA Sec. 10(a)(4) because an arbitrator "exceeded [his or her] powers," the Court applied the Steelworkers Trilogy/Misco test that arose from LMRA jurisprudence. The Court said that as long as an arbitrator is "even arguably construing or applying the contract," a court cannot vacate his or her award if it drew its "essence" from the contract. This, of course, raises lots of the issues, including: 1) what happens when the jurisprudence of the FAA and the LMRA collide (eg. statutes of limitation for judicial review, or availability of class actions in unionized settings without explicit contractual language); and 2) how to reconcile the previously separate legal and practical foundations and precedent for FAA and LMRA arbitrations.

Posted by: Lise Gelernter | Jun 12, 2013 8:13:56 AM

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