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6/10/13: Supremes Back Class Arbitration

This morning the U.S. Supreme Court reversed its recent course of reining in class actions.  It deferred to an arbitrator’s determination, and allowed a class arbitration.

The unanimous court, in an opinion by Associate Justice Elena Kagan, held that its seminal case of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010)(available here), didn’t apply in today’s decision, Oxford Health Plans LLC v. Sutter, No. 135 (available here).

Stolt-Nielsen held that “Imposing class arbitration on particular parties who have not agreed to authorize class arbitration is inconsistent with the Federal Arbitration Act.”

But Oxford Health Plans is different, Kagan writes, because petitioner Oxford “misreads Stolt-Nielsen:  We overturned the arbitration decision there because it lacked any contractual basis for ordering class procedures, not because it lacked, in Oxford’s terminology, a ‘sufficient’ one. “ (Emphasis is the Court's.)

In other words, the Oxford Health Plans arbitrator did his job. The Court declined to overturn the determination that the parties indeed could be sent to class arbitration.

Stolt-Nielsen involved an international shipping case where the surprising arbitral tribunal determination that big commercial parties could be sent to a class arbitration over pricing was met at the Supreme Court with an equally surprising decision:  the arbitrators had exceeded their FAA mandate in the case, and the Court would step into the ADR proceeding and overrule the class process determination.

“The contrast with this case is stark,” writes Kagan in today’s decision.  "In Stolt-Nielsen, the arbitrators did not construe the parties’ contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role.”

The Oxford Health Plans opinion says that this tribunal was much more careful.  “Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration,” it states. “So to overturn his decision, we would have to rely on a finding that he misapprehended the parties’ intent. But [FAA] §10(a)(4) bars that course: 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.”

Federal Arbitration Act Section 10(a)(4) states
(a) In any of the following cases the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration—
. . .
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
In Oxford Health Plans, Kagan concludes, “Stolt-Nielsen and this case thus fall on opposite sides of the line that §10(a)(4) draws to delimit judicial review of arbitral decisions. “

The opinion includes more strong language backing the finality of arbitrator decisions—a point that worried some practitioners in the wake of Stolt-Nielsen.  “…[C]onvincing a court of an arbitrator’s error—even his grave error—is not enough,” wrote Kagan.  “So long as the arbitrator was ‘arguably construing’ the contract—which this one was---a court may not correct his mistakes under §10(a)(4).” (Relying on 531 Eastern Associated Coal Corp. v. United Mine Workers, 531 U.S. 57, 62 (2000)(available here).

Associate Justice Samuel Alito wrote a five-paragraph concurring opinion, in which he was joined by Associate Justice Clarence Thomas.  Alito cautions that courts should “pause before concluding that the availability of class arbitration is a question the arbitrator should decide,” rather than the courts themselves. 

Alito emphasizes the need for consent to the class process—citing “absent members of the plaintiff class” who didn’t have the opportunity to speak to whether they believe the contract authorizes a tribunal decision on class processes.

Alito warns that “[c]lass arbitrations that are vulnerable to collateral attack allow absent class members to unfairly claim the ‘benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one.’” (Citation omitted.)

But Alito notes at the outset of his concurrence that Oxford had consented to the arbitrator’s authority to decide whether class processes apply, so he concurred in the Court's decision because the consent defense was unavailable.

--Russ Bleemer, Editor, Alternatives