Supreme Court Rules in Oxford Health Plans Case

June 10, 2013

Today, the Supreme Court issued its opinion in Oxford Health Plans, LLC v. Sutter, that casts some doubt on an oft-recited interpretation of Stolt-Nielson, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010).  In Stolt-Nielson, the Court held:  “a party may not be compelled under the [Federal Arbitration Act] to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  Id. at 684.  Since then, many have argued, with success, that, pursuant to Stolt-Nielson, an arbitration provision that does not expressly permit class arbitration has the same effect as an arbitration provision that expressly prohibits class arbitration.

In Oxford, the Supreme Court considered whether an arbitrator’s decision that interpreted an arbitration provision with no express reference to class arbitration to permit class arbitration, was subject to vacatur under Section 10(a)(4) of the Federal Arbitration Act (“FAA”).  For a unanimous Court, Justice Kagan wrote that the arbitrator’s interpretation could not be vacated.

The underlying claims had been filed as a class action in New Jersey state court.  The complaint alleged that Defendant Oxford Health Plans, LLC had failed to make full and prompt payments to physicians in its plan pursuant to the terms of the agreements between the physicians and the plan.  Those agreements contained the following arbitration provision:

No civil action concerning any dispute arising under the 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 parties to the arbitration agreed that the arbitrator should decide the issue of class-wide arbitrability.  The arbitrator responded to this charge by considering the language of the arbitration provision.  He determined that the parties’ agreement to class arbitration was apparent on the face of the arbitration agreement, because the clause sends to arbitration all those claims that it forbids in court, including class claims.  Oxford, at 2.   After Stolt-Nielson, Oxford sought reconsideration of the decision on class arbitration, and the arbitrator reaffirmed that the provision clearly evidenced the parties intent that disputes could be arbitrated on a class-wide basis.  Id. at 3

Oxford also moved to vacate the arbitrator’s decision, not once, but twice—first, before Stolt-Nielson, and then again after that decision in 2010.  The District Court denied Oxford’s motions and the Third Circuit affirmed both times.  The June 10 Supreme Court decision relates to certiorari of the second motion to vacate.

The Supreme Court held that because the parties had agreed that the issue of class-wide arbitrability was for the arbitrator to decide, the Court’s review was limited solely to whether the decision could be vacated for the limited reasons provided in Section 10 of the FAA.  The Court could not conclude that the arbitrator exceeded his authority.  In Stolt-Nielson, class arbitration could not be permitted because there was not “any contractual basis for ordering class procedures.”  Oxford, at 6, citing Stolt-Nielson, 559 U.S. at 668-69, 673.  In addition, the parties in Stolt-Nielson had stipulated that they had never reached agreement on class arbitrationId.  Therefore, the Stolt-Nielson arbitral panel’s decision could not  have been based on a determination of the parties’ intent.  Oxford, at 7, citing Stolt-Nielson, 559 U.S. at 673.  To the contrary, in Oxford, there was no such stipulation and the arbitrator specifically considered the contractual language and explained his interpretation that the agreement evidenced the parties’ intent to allow class arbitration, directly from the agreement’s text.  Oxford, at 5-6.  In order to vacate the arbitrator’s decision then, the Court would have had to determine that the interpretation was wrong, not that he had exceeded his authority, which the Section 10 of the FAA does not permit.  Id. at 7.  Thus, the arbitrator’s decision stood.

The Court’s opinion attempts to stay neutral on whether the Court agrees with the arbitrator’s interpretation, though without much success.  The opinion is not short on references to how wrong an arbitrator’s decision may be without any recourse.  See, e.g., Oxford, at 4 (arbitral decision must stand, regardless of a “court’s view of its (de)merits”); 5 (“sole question for us is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong”); 7 (vacatur allowed “only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly”); and 8 (“convincing a court of [an arbitrator’s] error—even his grave error—is not enough”).   Citing concerns about absent class members’ authorization, the concurrence (Justices Alito and Thomas) quite clearly states a belief that the Oxford arbitrator was wrong:  “If we were reviewing the arbitrator’s interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred ‘an implicit agreement to authorize class-action arbitration . . . from the fact of the parties’ agreement to arbitrate.’”  Oxford concurrence, at 1 (citations omitted).

The Court also suggests, in a footnote, that it might deem the question of whether an arbitration agreement permits class arbitration a “gateway” issue of arbitrability, which would be decided in the first instance by a court.  See Oxford, at 5, n.2.  However, given the parties’ agreement to have the issue decided by the arbitrator in this case, it was not something on which the Court could opine.  Id.

All in all, a slightly hopeful decision for consumers or others whose contracts’ arbitration provisions do not (yet) contain express class arbitration waivers.  If they can convince their arbitrators to take the view of the Oxford arbitrator in the face of broad arbitration provisions, which do not specifically prohibit class arbitration, they may be able to obtain some redress on a class-wide basis, even in the face of Stolt-Nielson.

 

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