Supreme Court Rules Defendants Who Choose Arbitration in Class Action Must Live with That Choice

On June 10, 2013, the US Supreme Court affirmed the ruling of United States Court of Appeal for the Third Circuit in the matter Oxford Health Plans, LLC v. Sutter, holding that an arbitrator did not exceed his powers under Section 10(a)(4) of the Federal Arbitration Act (FAA) by finding that the parties’ arbitration agreement authorized class-wide arbitration. (See Oxford Health Plans, LLC v. Sutter, No. 12-135, Jun. 10, 2013.) The opinion is an important precedent for class-action defendants who desire to avail themselves of arbitration agreements without succumbing to class arbitration.

The matter before the Supreme Court arose from a pediatrician’s (Sutter) class-action lawsuit against Oxford Health Plans, LLC (Oxford), alleging that Oxford failed to timely pay alleged class members for medical services provided. (See id. at *1). Oxford successfully compelled arbitration, and the parties agreed that the arbitrator would decide whether the agreement contemplated class arbitration. (See id.) After the arbitrator interpreted the parties’ arbitration agreement to include class arbitration, Oxford requested that the arbitrator reconsider the holding. Oxford later moved to vacate the decision under Section 10(a)(4) of the FAA. (See id.) The United States District Court denied the motion, and the United States Court of Appeal for the Third Circuit affirmed the district court, holding that Oxford’s arguments were insufficient insomuch as they merely amounted to an argument that the arbitrator misinterpreted the agreement. (See id.)

In a 9-0 opinion authored by Justice Elena Kagan, the Supreme Court held that under Section 10(a)(4) of the FAA, a court is only empowered to overturn an arbitrator’s decision if the arbitrator “acts outside the scope of his contractually-delegated authority.” (See id, citing Eastern Assoc’d Coal Corp. v. Mine Workers, 531 U.S. 57, 62 (2000)). It is not enough that an arbitrator made even a serious error in interpreting the agreement. (Id.) The Supreme Court distinguished its ruling from the landmark 2010 case, Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 559 U.S. 662, 684 (2010). In Stolt-Nielsen, the Supreme Court held that a party cannot be compelled to class arbitration absent any contractual basis for concluding that the parties agreed to do so, and vacated the arbitrator’s ruling that class arbitration was appropriate. (Oxford Health at *3.) Unlike in that case — in which the parties stipulated that the arbitration clause did not encompass class arbitration — Oxford agreed that the arbitrator was to interpret the agreement and twice submitted the issue to the arbitrator for review. (Id at *3-*4.) “In sum,” Justice Kagan wrote, “Oxford chose arbitration, and it now must live with that choice.”

Notwithstanding its holding, the Supreme Court declined to resolve whether the availability of class arbitration is a question of arbitrability. (Id. at *5.) Although that question was not at issue, the Supreme Court acknowledged that the outcome may have been different if Oxford had argued that class arbitration raised questions of arbitrability — “gateway matters” that are presumptively for the courts to decide — instead of agreeing to submit that question to the arbitrator in the first instance. (Id.) Indeed, in a concurring opinion, Justices Samuel Alito and Clarence Thomas also went so far as to acknowledge that they likely would have found that the arbitrator incorrectly interpreted the arbitration clause if Oxford had not conceded that issue to the arbitrator. (Id. at *2.)

The Supreme Court’s ruling in this matter is an important reminder that defendants compelling arbitration should carefully weigh which legal issues are appropriate for determination by an arbitrator, in light of the heavy burdens that a party seeking judicial review of an arbitrator’s decision must overcome.

For more information on this case, please contact Anthony V. Lupo.