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WASHINGTON, D.C. - (Mealey's) In a unanimous opinion, the U.S. Supreme Court on June 10 affirmed that an arbitrator acted within his powers under the Federal Arbitration Act (FAA) in determining that parties affirmatively "agreed to authorize class arbitration" in a case involving a dispute over a health insurer's reimbursement of physicians' claims (Oxford Health Plans LLC v. John Ivan Sutter, M.D., No. 12-135, U.S. Sup. [lexis.com subscribers may access Supreme Court briefs for this case].).
(Opinion available. Document #31-130619-013Z.)
In Oxford Health Plans LLC v. John Ivan Sutter, M.D., the Supreme Court addressed the question of whether an arbitrator acts within his powers under the FAA or exceeds those powers by determining that parties affirmatively "agreed to authorize class arbitration," based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.
The case arose when Dr. Ivan Sutter filed a class action complaint against Oxford Health Plans in the Essex County, N.J., Superior Court, alleging breach of contract and violations of state law. Oxford and Sutter are parties to a "Primary Care Physician Agreement" drafted by Oxford. Under the agreement, the parties agreed that Sutter would provide primary health care services to members of Oxford's managed care network in exchange for compensation at predetermined reimbursement rates. Sutter accused Oxford of improperly denying, underpaying and delaying reimbursement of physicians' claims for the provision of medical services. The agreement also contained a broad arbitration clause. Neither the arbitration clause nor any other provision of the agreement makes express reference to class arbitration.
Oxford moved to compel arbitration of Sutter's claims, which Sutter opposed.
In 2002, the court granted Oxford's motion to compel arbitration and ordered that all procedural issues, including those of class certification, be resolved by the arbitrator. The parties submitted to the arbitrator the question of whether the arbitration clause in the agreement allowed for class arbitration. The arbitrator determined that the agreement did provide for class arbitration and subsequently entered a partial final class determination award on March 24, 2005.
In April 2005, Oxford moved in the U.S. District Court for the District of New Jersey to vacate the award, arguing that the arbitrator had exceeded its powers and manifestly disregarded the law by ordering class arbitration. The District Court denied Oxford's motion in October 2005, and a panel of the Third Circuit U.S. Court of Appeals affirmed.
Oxford again moved the District Court to vacate the award authorizing class arbitration in excess of the arbitrator's power based on the U.S. Supreme Court's decision in Stolt-Nielsen S.A. v. Animal Feeds International Corp. (130 S. Ct. 1758, 176 L. Ed. 2d 605 ), which held that an arbitral panel had exceeded its authority by allowing class arbitration when the parties had reached no agreement on the issue.
The District Court denied Oxford's motion and granted Sutter's cross-motion to confirm the award.
Oxford appealed to the Third Circuit, which affirmed the District Court's decision that the arbitrator correctly held that the agreement provided for class arbitration. Oxford then petitioned the Supreme Court.
Under the FAA, courts may vacate an arbitrator's decision "only in very unusual circumstances," Justice Elena Kagan wrote for the court, citing First Options of Chicago, Inc. v. Kaplan (514 U.S. 938, 942 ). Oxford invoked Section 10(a)(4) of the FAA, which authorizes a federal court to set aside an arbitral award "where the arbitrator exceeded [his] powers."
But "[b]ecause 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," the court said. The question is, then, whether the arbitrator interpreted the parties' contract, not whether he got the meaning wrong, the court said.
"Twice, then, the arbitrator did what the parties had asked: He considered their contract and decided whether it reflected an agreement to permit class proceedings. That suffices to show that the arbitrator did not 'exceed [his] powers,'" the court said.
Oxford misread Stolt-Nielsen, the court said, adding that it "overturned the arbitral decision there because it lacked any contractual basis for ordering class procedures, not because it lacked, in Oxford's terminology, a 'sufficient' one."
In this case, the arbitrator did construe the contract and did find an agreement to permit class arbitration, the court said. To overturn the decision, the court would have to rely on a finding that he misapprehended the parties' intent, but Section 10(a)(4) bars that course because 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," the court said.
"In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that arbitration should determine what their contract meant, including whether its terms approved class arbitration," the court said
Absent Class Members
Justice Samuel Alito wrote a concurring opinion in which Justice Clarence Thomas joined.
"Today's result follows directly from petitioner's concession and the narrow judicial review that federal law allows in arbitration cases," the justice said.
If the court were reviewing the arbitrator's interpretation of the contract de novo, Justice Alito said the court "would have little trouble concluding that he improperly inferred '[a]n implicit agreement to authorize class-action arbitration . . . from the facts of the parties' agreement to arbitrate.'"
There is "no reason to think that the absent class members ever agreed to class arbitration [and] it is far from clear that they will be bound by the arbitrator' ultimate resolution of the dispute," Justice Alito said.
Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr in Washington represented Oxford. Eric D. Katz of Mazie, Slater, Katz & Freeman in Roseland, N.J., represented Sutter.
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