“Class-wide Arbitration” Revisited: The Supreme Court Weighs In (Again) With Oxford Health Plans LLC v. Sutter

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In a March post on this blog, my colleague John Aromando previewed the then up-coming oral argument before the Supreme Court in Oxford Health Plans LLC v. Sutter, discussing the possible implications of that case on class-wide arbitration and, in particular, the proper reading of the Supreme Court’s earlier decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp.  On Monday, the Supreme Court issued a unanimous opinion in Oxford Health that construes Stolt-Nielsen narrowly while, like Stolt-Nielsen, leaving an important question unanswered.

Oxford Health gave the Supreme Court the opportunity to address a question left open by Stolt-Nielsen. In Stolt-Nielsen, the Court had held that the Federal Arbitration Act bars class arbitration unless parties affirmatively agreed to allow it.  However, the Court did not resolve in that case whether the parties’ consent to class arbitration must be express or whether it could be implied from the contract.  This issue was squarely presented in Oxford Health, as the arbitrator found that the contract implicitly – rather than expressly – authorized class arbitration.  Oxford Health challenged the arbitrator’s conclusion, arguing that Stolt-Nielsen allowed the court, not the arbitrator, to determine whether an arbitrator had a “sufficient” contractual basis for finding that the parties had authorized class arbitration.

The Supreme Court disagreed with Oxford Health.  The Court emphasized the deferential judicial review of an arbitrator’s decision, noting that a court may overturn an arbitral determination only if the arbitrator acts outside the scope of his authority. According to the Court, therefore, the “sole question” in the case was whether the “arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”  The Court found that the arbitrator had in fact engaged in contract interpretation, noting that Oxford Health itself had agreed to put the issue of the proper construction of the contract before the arbitrator.  As such, the Court concluded, “the arbitrator’s construction holds, however good, bad, or ugly.”

In reaching this conclusion, the Court distinguished Stolt-Nielsen by construing it narrowly.  Acknowledging that Stolt-Nielsen permits classwide arbitration only if the parties agree to such proceedings, the Court nevertheless observed that in Stolt-Nielsen the parties had entered an unusual stipulation stating that they had never reached an agreement as to class arbitration.  Thus, according to Oxford Health, the court in Stolt-Nielsen “found not that [the panel] had misinterpreted the contract, but that [the panel] had abandoned their interpretive role.”

However, the Court also expressed a caveat that may well limit the impact of Oxford Health, much like Stolt-Nielsen.  In footnote 2, the Court observed that it would have faced a different issue if it had been presented with the argument that the availability of class arbitration is a “question of arbitrability.” Such questions, the Court observed, are reviewed de novo, not with deference.  However, the Court declined to resolve whether the propriety of class arbitration is a “question of arbitrability” because Oxford Health had waived that argument by agreeing that the arbitrator should determine whether the contract authorized class arbitration.

Oxford Health is notable for several reasons.  First, it re-emphasizes the importance of express class arbitration waivers.  Absent such express waivers, companies run the risk of an unreviewable arbitration determination permitting class arbitration.  Second, it unanimously reaffirms the narrow reading of Stolt-Nielsen that the First Circuit had adopted in  Download Fantastic Sams v FSRO Assoc  There, as explained in more detail in another post by my colleague John Aromando, the First Circuit had concluded that Stolt-Nielsen does not require express contract language authorizing class arbitration, and that it is up to the arbitrator to determine whether the contract implicitly authorizes class procedures.  Third, and perhaps most importantly, Oxford Health calls into question the First Circuit’s further holding in Fantastic Sams – namely, that the availability of class arbitration is not a gateway “question of arbitrability” that deserves de novo review.  That question yet awaits its day in the Supreme Court.