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.; See
4/4/13, Page 8) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
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 Federal Arbitration Act 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
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
motion in October 2005, and a panel of the Third Circuit U.S. Court of Appeals
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 ) [an enhanced version of this opinion is available to lexis.com
subscribers], 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.
appealed to the Third Circuit, which affirmed the District Court's decision
that the arbitrator correctly held that the agreement provided for class
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
) [enhanced version]. 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.
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
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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