The Supreme Court issued its decision today in the first of two arbitration-related class action cases on the 2012-13 docket. Today’s decision bucks what had been a trend in the Court’s decisions in recent years strongly favoring individual arbitration and limiting the situations in which class arbitration (private arbitration in which the plaintiffs proceed in a representative capacity on behalf of a class) can occur.
In a unanimous ruling, the Court in Oxford Health Plans LLC v. Sutter upheld an arbitrator’s decision to interpret an arbitration agreement as allowing for class arbitration, despite express reference to class arbitration in the parties’ written agreement. Writing for the Court, Justice Kagan reasoned that applicable standard of review prevents the courts from second-guessing whether the arbitrator’s interpretation of the party’s contract was the correct one and only permits review of whether the decision was based on an interpretation of the parties’ agreement. Because the arbitrator’s decision was clearly based on an analysis of contractual intent, the arbitrator’s decision could not be overturned. The fact that the arbitrator had interpreted the parties’ agreement as providing for class arbitration and the deferential standard applicable to the arbitrator’s decision distinguished Oxford Health Plans from Stolt-Nielsen S.A. v. AnimalFeeds International Corp., in which the Court had held that class arbitration cannot be compelled absent express agreement by the parties.
Important to the Court’s decision was the fact that the defendant had conceded that the arbitrator should decide the question of whether the parties had agreed to class arbitration. It was this concession that let Justice Alito to agree with the Court’s decision. However, in a concurring opinion joined by Justice Thomas, Justice Alito expressed doubt that any ruling in the class arbitration proceeding would have any preclusive effect as to absent class members, an observation that raises a serious question about whether the Oxford Health decision will be of any practical impact in other cases. He noted:
Class arbitrations that are vulnerable to collateral attack allow absent class members to unfairly claim the “benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one,” American Pipe & Constr. Co. v. Utah, 414 U. S. 538, 546– 547 (1974). In the absence of concessions like Oxford’s, this possibility should give courts pause before concluding that the availability of class arbitration is a question the arbitrator should decide.
Defendants will likely see the concurrence as a roadmap for asking the question to be addressed by a court in the first instance, as opposed to simply conceding that the arbitrator should decide the issue whether class arbitration is allowed.
There are two clear takeaways from the Oxford Health decision: 1) in drafting an arbitration provision, make sure to address the issue of whether arbitration on a class-wide basis will be allowed. Under Stolt-Nielsen, agreements that bar class arbitration will be enforced; 2) think carefully before conceding that an arbitrator, rather than a court, should make decisions about how an arbitration agreement should be interpreted.