The U.S. Supreme Court departed from the pro-arbitration stance it has taken in the past several terms in Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. ___ (June 10, 2013). Dr. John Sutter, a pediatrician, brought a putative class action lawsuit against Oxford Health Plans, a health insurance company, for Oxford’s purported failure to promptly reimburse physicians for in-network services rendered. Oxford moved to compel arbitration, relying on a provision in his contract stating that “[n]o civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration[.]” The state court granted the motion, and referred the suit to arbitration. Once in that forum, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration. The arbitrator determined that it did, relying on the language that “all … disputes” included disputes resolved through class arbitration. He thus allowed Dr. Sutter to pursue class arbitration on behalf of other allegedly aggrieved physicians.
Oxford then moved to vacate the arbitrator’s decision, claiming that the arbitrator exceeded his powers under the Federal Arbitration Act (“FAA”). The District Court, the Third Circuit Court of Appeals, and, unanimously, the U.S. Supreme Court all concluded that the arbitrator had not, in fact, exceeded his authority under the FAA. The Third Circuit based its decision on the limited scope of judicial review that the FAA allows and concluded that, so long as an arbitrator makes a good faith attempt to interpret a contract, even serious errors of law or fact will not subject his award to vacatur. Since the arbitrator had endeavored to give effect to the parties’ contractual intent and articulated a contractual basis for his decision, the arbitrator’s decision – that class arbitration could proceed – could not be set aside. The Supreme Court affirmed: because the parties bargained for the arbitrator’s construction of their agreement, an arbitral decision even arguably construing or applying the contract must stand, regardless of the court’s view of its merits. Only if the arbitrator acts outside the scope of his or her contractually delegated authority – issuing an award that reflects his or her own notions of justice rather than drawing its essence from the contract – may a court overturn the determination.
Although the Court sided with the employees in this decision, Sutter does not mark as much a departure from recent precedent as it may appear at first blush. Arbitration law has always been a matter of contractual construction, and courts have paid great deference to arbitrators’ interpretations of those contracts. Questions of arbitrability are still questions for the court, but once disputes are squarely within the province of the arbitrator, the arbitrator is empowered to interpret the contract before him. Here, the arbitrator concluded, in reasoned fashion, that “all…disputes” included class disputes. The decision likely would have been affirmed even if he had concluded that the same language excluded class arbitration, because Oxford stipulated that the decision of arbitrability was for the arbitrator. In the words of the Court, “[t]he arbitrator’s construction holds, however good, bad, or ugly.”
The take-home for employers is arbitration clauses must be drafted unambiguously. If the intent is to prohibit class arbitration, employers should be sure that their arbitration contracts unambiguously state as much. Where, as in Sutter, there is ambiguity as to class arbitration, parties will be bound with the arbitrator’s decision as to whether employees can proceed with arbitrating their claims on behalf of themselves and a class, thus dramatically increasing the cost of litigation and potential exposure.