This blog previously explored the Supreme Court’s June 2013 decision in American Express Co. v. Italian Colors Restaurant, in which the Court validated the credit card company’s contract with merchants mandating arbitration and eliminating the possibility of a class action (a result Justice Elena Kagan memorably described as “Too darn bad”).
Shortly before deciding the apparently contentious Italian Colors case, however, the Supreme Court unanimously decided Oxford Health Plans LLC v. Sutter. The facts leading up to this case began over a decade ago, when physician Ivan Sutter and Oxford Health Plans entered into an agreement whereby Oxford would pay Dr. Sutter for the medical services he provided to Oxford members. The agreement contained an arbitration clause prohibiting litigation of disputes in court, instead mandating arbitration.
Several years into the agreement, Dr. Sutter filed a class action on behalf of himself and other physicians in Oxford’s network, claiming that Oxford had failed to promptly and fully pay the doctors for their services. Oxford moved to compel arbitration, which request was granted by the New Jersey Superior Court. The parties then agreed that the arbitrator should decide whether their agreement authorized class arbitration.
During the course of the arbitration proceedings, the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010), holding that the Federal Arbitration Act (“FAA”) prohibits class arbitration absent contractual evidence that the parties had agreed to allow it. Meanwhile, in Sutter, the arbitrator found that the contract between Oxford and Sutter did allow for class arbitration.
Oxford then moved to vacate the arbitration award in federal court, arguing that the arbitrator had exceeded his powers under the FAA. The District Court denied the motion, and the Third Circuit affirmed, upholding the arbitrator’s decision to allow Sutter’s claim to proceed in class arbitration. The case then made its way to the Supreme Court, which unanimously affirmed, holding that the arbitrator had not exceeded the scope of his power. In fact, the arbitrator had done precisely what the parties had requested: interpret the agreement and decide whether it permitted class arbitration.
Under FAA § 10(a)(4), a Court can vacate an arbitration award only “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.” As the arbitrator did not exceed or “imperfectly execute” his powers in this case, the Supreme Court, given the limited scope of review, confirmed that the arbitrator’s decision could not be overturned-even if they thought it was wrong. (Although Oxford had relied on the Court’s decision in Stolt-Nielsen in its efforts to overturn the award, the Court rejected Oxford’s arguments, pointing out that in that case the parties had stipulated that they had never reached an agreement regarding class arbitration.) As Justice Kagan summarized: “The arbitrator’s construction holds, however good, bad, or ugly.”
The Sutter decision is a reminder that arbitration, while often considered an appealing and less expensive alternative than litigation, is not without risk. Businesses should take care to ensure their agreements set forth their arbitration procedures with specificity.