The Supreme Court Upholds Class Arbitration in Oxford v. Sutter

Oxford Health Plans LLC v. Sutter, 133 S.Ct. 2064 (2013).  In Sutter v. Oxford Health Plans, LLC, 675 F.3d 215 (3d Cir. 2012), discussed here, the Third Circuit upheld an arbitrator’s interpretation of the parties’ contract that found that the contract permitted class arbitration.  The Supreme Court of the United States granted certiorari, and many commentators doubted that, given the Court’s seeming bias against class arbitration, the Third Circuit’s decision could stand.  Today, however, in a unanimous opinion by Justice Kagan (with a concurring opinion by Justices Alito and Thomas), the Supreme Court did indeed affirm the Third Circuit.

Oxford asserted that the arbitrator had “exceeded [his] powers,” a ground for review of the arbitrator’s decision that is furnished by the Federal Arbitration Act, 9 U.S.C. §10(a)(4).  Justice Kagan emphasized, however, that where an arbitrator “even arguably constru[es] or appl[ies] the contract,” his or her decision “must stand, regardless of a court’s view of its (de)merits.”  That is because the parties “bargained for the arbitrator’s construction of their agreement.”  Only where an arbitrator goes beyond his or her contractually delegated authority, such as by relying on “[his] own notions of [economic] justice,” can a court review the arbitrator’s decision about the availability of class arbitration.  Since the arbitrator here had construed the contract, he had not “exceeded his powers.”

Oxford contended that Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), which had overturned, under section 10(a)(4), an arbitration panel’s decision to compel class arbitration, required reversal here.  But Justice Kagan rightly noted that Stolt-Nielsen involved very different circumstances.  There, the arbitrators “lacked any contractual basis for ordering class procedures” (emphasis in original), especially since the parties there “had entered into an unusual stipulation that they had never reached an agreement on class arbitration.”  Here, in contrast, the arbitrator “did construe the agreement,” and did so at the request of not only plaintiff but Oxford, who twice submitted the issue to the arbitrator, including once after Stolt-Nielsen had been decided. 

The remainder of Oxford’s argument was an attempt to show that, on the merits, the arbitrator’s view of the contract was wrong.  Justice Kagan would have none of that, saying that Oxford’s contention was “not properly addressed to a court.”  Under section 10(a)(4), “the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all.  Because he did, and therefore did not ‘exceed his powers,’ we cannot give Oxford the relief it wants.” 

The Court’s ruling is the correct one, and shows intellectual integrity by a Court that is often hostile to class action treatment.  Justice Kagan said often enough that the arbitrator’s view of the contract might have been incorrect, leading readers to guess whether the Court in fact believed that the arbitrator had erred.  But the principle of extremely limited review of arbitrators’ decisions required that his ruling be allowed to stand.