The Supreme Court heard oral argument earlier today in Oxford Health Plans LLC v. Sutter, No. 12-135, on whether the Federal Arbitration Act (“FAA”) allows an arbitrator to interpret an arbitration agreement that does not affirmatively authorize class arbitration to permit use of that procedure.
For some background on Oxford, please see our prior blog post. My takeaway from the argument (transcript here) is that two competing principles under the FAA were in play. On the one hand, class arbitration is highly disfavored: The Supreme Court has previously explained—both in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. and AT&T Mobility LLC v. Concepcion—that class arbitration is not the type of arbitration envisioned by the FAA because, like jury trials and full-blown discovery, class proceedings are incompatible with the benefits of arbitration. On the other hand, courts generally review an arbitrator’s decision with a great deal of deference. In particular, review of the substance of an arbitrator’s award ordinarily is limited to whether an arbitrator exceeded his or her powers or engaged in “manifest disregard of the law.”
How will the Court balance these principles? From the argument, it’s hard to tell how the Court will rule. It seemed that most of the Justices viewed the arbitrator’s decision to be legally incorrect in light of Stolt-Nielsen. But there was considerable disagreement over whether a federal court can remedy that error. Some Justices’ questions appeared to signal that, so long as the arbitrator had been trying to interpret the language of the arbitration clause, that interpretation—even if terribly mistaken—cannot be overturned given the limited standard of review for arbitral awards. But other Justices appeared to believe that the arbitrator’s reading of the agreement was so implausible—especially in the face of Stolt-Nielsen—that it could be overturned even under a deferential standard of review, just as the Court held in Stolt-Nielsen itself. And Chief Justice Roberts discussed whether to chart a different path, noting that some of the Court’s precedents had applied de novo (that is, non-deferential) review when the issue an arbitrator has determined is whether a particular individual or entity is bound by an arbitration agreement. As questions by Justice Alito highlighted, the effect of the arbitrator’s ruling in this case did not just affect Oxford and the named plaintiff, Dr. Sutter, but also some 20,000 other physicians who Dr. Sutter purported to represent.
Businesses should watch for the Supreme Court’s decision in this case for a number of reasons. First, the case will affect those businesses that are parties to arbitration agreements that do not address class arbitration explicitly. If the Court rules against Oxford, businesses may be at a greater risk of being forced into class arbitrations to which they never intended to agree. Second, it seems likely that the Court will address the standard of review applicable to arbitral awards—an issue that could arise in a wide variety of arbitration-related settings.
At the same time, Oxford may have a limited shelf life. Going forward, most companies should be able to avoid the issues presented in this case by expressly addressing (and precluding) class arbitration in their arbitration agreements. In addition, companies may wish to consider revising any existing arbitration agreements that do not address class arbitration to make their intentions clear.