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Oxford Health Plans, LLC v. Sutter – Supreme Court Upholds Arbitrator's Ruling That Arbitration Clause Authorizes Class Arbitration


The Supreme Court continues to uphold the right of parties to submit disputes to arbitration.  The analysis makes clear, however, that the parties have very limited ability to challenge incorrect substantive rulings by arbitrators, no matter how bad the rulings may be. 

In Oxford Health Plans, LLC v. Sutter, 569 U.S. _____ , 133 S.Ct. 2064 (June 10, 2013), the United States Supreme Court reiterated that arbitration is a matter of consent and “[a]n arbitrator may employ class procedures only if the parties have authorized them.”  However, once an arbitrator determines that class procedures apply, the parties’ ability under the Federal Arbitration Act (“FAA”) to challenge the arbitrator’s ruling is very limited. 

In Oxford, pediatrician John Sutter signed a contract with Oxford Health Plans (“Oxford”) to provide medical care to members of Oxford’s network at Oxford’s prescribed rates. Sutter later sued Oxford in New Jersey Superior Court on his own behalf and on behalf of a proposed class of New Jersey physicians under contract with Oxford, for alleged failure to promptly pay physicians for services rendered. Sutter’s contract with Oxford contained the following arbitration clause:

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.

After the state court granted Oxford’s motion to compel arbitration, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration. The arbitrator ruled that the arbitration clause authorized (indeed, required) class arbitration, as a class action is one of the possible forms of “civil action” that could be brought in court if not for the arbitration clause. This, in the arbitrator’s view, the contract evidenced the parties’ intent to allow class arbitration.

Oxford challenged the arbitrator’s ruling as exceeding his authority. Both the trial court and the Third Circuit rejected Oxford’s challenge to the ruling. After the Supreme Court decided Stolt-Nielsen v. Animal Feeds Int’l Corp. in 2010, the arbitrator reaffirmed his ruling.ii The trial court and the Third Circuit again affirmed the arbitrator’s ruling.

On certiorari, the Supreme Court also upheld the arbitrator’s ruling, noting that under the FAA, courts may vacate an arbitrator’s award
“only in very unusual circumstances,” and judicial review is limited to “whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”iii In this case, the
Court stated that it was plainly evident that the arbitrator interpreted the parties’ contract, as both his original ruling and his ruling on
reconsideration construed the arbitration clause to determine if it allowed class arbitration.

The court noted in a footnote, however, that it would have faced a different issue if Oxford had raised this as a “question of
arbitrability.”iv Reading between the lines, the opinion suggests that the Supreme Court would have decided the merits of the class
arbitration decision differently if it had the ability to do so: “Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator’s contract interpretation, or any quarrel with Oxford’s
contrary reading. All  we can say is that convincing a court of an arbitrator’s error – even his grave error – is not enough.”v

The lesson for contracting parties is that by submitting disputes to arbitration, the parties assume the risk that the arbitrator may misconstrue the contract, in which case the losing party has very limited remedies for appeal. Thus, choosing the right arbitrator becomes more important than ever. In addition, contracting parties may want to consider including appeal remedies directly in the contract, even though doing so eliminates some of the benefits of going to arbitration in the first place. As the Supreme Court stated, “The potential for [arbitrator] mistakes is the price of agreeing to arbitration. . . . The arbitrator’s construction holds, however good, bad, or ugly.”vi And what an ugly one this was.

July 01, 2013