In 2010, the United States Supreme Court's decision in Stolt-Nielsen v. AnimalFeeds ("Stolt-Nielsen") vacated an arbitration panel's decision to require class arbitration, because the contract between the parties provided no basis to conclude those parties agreed to submit themselves (and their disputes) to class arbitration. The decision sparked more than a little discussion about the continued viability of class arbitration. (For this blog's 2010 take on Stolt-Nielsen, click here). After all, how many arbitration clauses have you seen with language like "The parties agree that the arbitrator shall have the authority to conduct class arbitration"?
On June 10th, Oxford Health Plans v. Sutter (Oxford) revisited the issue of whether an arbitration agreement authorized class arbitration, and upheld an arbitrator's decision to conduct class arbitration. As is often the case with U.S. Supreme Court jurisprudence, those issues that were not before the Court were as significant as those that were considered and addressed. At the very least, Oxford provides a little context for the Stolt-Nielsen decision, as well as some practice pointers for drafters and practitioners.
Prior to Stolt-Nielsen, a "silent" arbitration agreement could be construed as allowing class arbitration. In 2002, the South Carolina Supreme Court concluded in Bazzle-Lackey v. Green Tree Financial that "class-wide arbitration may be ordered when the arbitration agreement is silent if it would serve efficiency and equity, and would not result in prejudice." In other words, even though the parties did not explicitly authorize class arbitration in their agreement, a tribunal could order same.
Stolt-Nielsen seemingly put that notion to rest, ruling that an implicit agreement to authorize class arbitration could not be inferred from an agreement to arbitrate. Stolt-Nielsen presented one unique fact that was of particular import in that case (and subsequently in Oxford Health Plans): the parties stipulated that they had reached "no agreement" on class arbitration. As a result, the arbitration panel simply could not discern any intent of the parties to agree to class arbitration, and its decision simply reflected its own policy preference. To paraphrase Gertrude Stein, "there was no there, there" upon which an arbitrator could order class arbitration.
Oxford Health Plans
Oxford Health Plans successfully compelled arbitration after Sutter (a pediatrician) filed a putative class action in New Jersey Superior Court. The parties agreed that an arbitrator would decide whether their contract authorized class arbitration. The arbitrator interpreted the parties' contract and concluded that it did authorize class arbitration.
Oxford Health Plans sought to vacate the arbitrator's decision (on two separate occasions) pursuant to Section 10(a)(4) of the Federal Arbitration Act, which allows "a federal court to set aside an arbitral award 'where the arbitrator exceeded [his] powers.'"
Because an arbitration award cannot be vacated "so long as an arbitrator 'makes a good faith effort' to interpret a contract," the district court, the 3rd Circuit Court of Appeals, and a unanimous Supreme Court upheld the arbitrator's decision. Justice Kagan, writing for the Court, distinguished Stolt-Nielsen by simply pointing out that the Oxford Health Plans arbitrator had interpreted the parties' contract, while the Stolt-Nielsen panel had been denied the opportunity to construe that contract. Section 10(a)(4) provides that the "arbitrator's construction holds, however good, bad, or ugly."
In a footnote, Justice Kagan noted that because the parties had agreed that the arbitrator would decide the class arbitration question, the "question of arbitrability" was not before the Court. (As discussed in more detail here and here, gateway questions of "arbitrability" are "presumptively for courts to decide.") As a result, the Supreme Court has still "not yet decided whether the availability of class arbitration is a question of arbitrability." Significantly, a court reviews an arbitrator's arbitrability decision "de novo absent 'clear and unmistakeabl[e]' evidence that the parties wanted an arbitrator to resolve the dispute."
When drafting an arbitration agreement, to the extent that both parties intend to submit their disputes to class arbitration, that intention should be explicit. Likewise, characterizing the question of the availability of class arbitration as one of "arbitrability" may give a reviewing court more discretion. Finally, Justice Alito's concurring opinion, much like his majority opinion in Stolt-Nielsen, provides ample fodder for the party trying to avoid class arbitration.