Supreme Court Hears Arguments In Health Care Class Arbitration Dispute

Supreme Court Hears Arguments In Health Care Class Arbitration Dispute

WASHINGTON, D.C. — The U.S. Supreme Court on March 25 heard oral arguments to address whether, in a dispute over a health insurer’s reimbursement of physicians’ claim, an arbitrator acted within his authority in determining that the dispute could proceed as a class arbitration Oxford Health Plans LLC v. John Ivan Sutter, M.D., No. 12-135, U.S. Sup.).

(Transcript available.Document #31-130403-010T.)

Question Presented

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.

Class Arbitration

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.

Vacatur Denied

In April 2005, Oxford filed a motion 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 [2010]) [enhanced version available to 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.

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.

Class Arbitration Not Considered

In arguing for Oxford, Seth P. Waxman argued that in Stolt-Nielsen v.AnimalFeeds International Corp. (130 S. Ct. 1758, 1766 [2010]), the court held that a party could not be compelled to submit to arbitration unless a contractual basis for concluding that the party agreed to do so existed and that it cannot be presumed parties have consented to class arbitration simply by agreeing to submit their dispute to an arbitrator. Yet, that is precisely what has happened in this case, Waxman said. The agreement between the parties commits the parties to submit their disputes to arbitration but says nothing about class arbitration, and there is no extrinsic evidence suggesting that the parties considered such a prospect, he added.

Justice Ruth Bader Ginsburg said that in Stolt-Nielsen, the parties stipulated that the contract said nothing on the issue of class proceeding but that there was no such stipulation in this case. The arbitrator is interpreting a term of the contract, she said. The justice then asked Waxman, isn’t the ordinary rule of arbitration that the arbitrator’s interpretation of a contract term — “right or wrong, unless it’s off the wall” — is not to be overturned?

Based on the holding of Stolt-Nielsen, if the arbitration clause in this case just said all disputes were to be arbitrated, not litigated, the arbitrator would be reversed if he found the clause indicated an actual agreement of the parties to class arbitration, Waxman responded.

Justice Antonin Scalia asked Waxman if he was saying that the deference to which a court gives an arbitrator’s statement of fact, like the deference given to a lower court’s adjudication of fact, has a limit.

Justice Elena Kagan asked Waxman whether he agreed that the court has said a number of times that the fact that an arbitrator has committed an error — even a serious error — is not enough to overturn a decision but that the arbitrator has to be doing something outside the scope of his authority. If he disagreed, Kagan asked Waxman to say what the standard should be.

Waxman said he agreed that the standard is whether an arbitrator exceeded his authority. However, in this case, the context of the question about whether an actual agreement to arbitrate as a class exists, and the court has interpreted federal law to require evidence of a contractual basis of actual agreement between the parties and has precluded, as a matter of federal law, an arbitrator from inferring such an agreement from an all-disputes clause.

Arbitration Agreed

In arguing for Sutter, Eric D. Katz said there were only two ways a losing party can vacate an arbitration award under the only standard applicable in this case —Section 10(a)(4) of the Federal Arbitration Act — and that is that the arbitrator had no authority to interpret the contract or that the award was based not on an interpretation of the contract. Oxford cannot satisfy either of those standards because Oxford does not dispute that the arbitrator interpreted the contract, Katz said, adding that Oxford has only disputed that the arbitrator interpreted the contract correctly.

Justice Scalia asked if that meant that an arbitrator could decide whatever he wanted — even something “wildly inconsistent with the agreement” — and there would be nothing the courts could do about it.

Stolt-Nielsen held that the language of the contract or any other evidence has to demonstrate that the parties agreed to class arbitration, and Stolt-Nielsen did not alter the Section 10(a)(4) standard, Katz said.

Justice Stephen G. Breyer asked if manifest disregard or totally ignoring plain law would be grounds for reversing an arbitrator.

Both sides in this case went to the arbitrator and said they wanted the arbitrator to decide the case and told the arbitrator to look at the agreement; the arbitrator applied the law and the standard he was told to apply, Katz said. The arbitrator didn’t disregard it and didn’t make a decision saying “I don’t care what you are telling me to do,” Katz added.

Further, the parties did agree to class arbitration when they were in court in 2002 and Oxford represented to the state court judge that not only were the disputes going to arbitration, but all actions regarding the disputes, Katz said.

Waxman of Wilmer Cutler Pickering Hale and Dorr in Washington represent Oxford. Katz of Mazie, Slater, Katz & Freeman in Roseland, N.J., represented Sutter.

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