Justices Uphold Class Arbitration Decision

WASHINGTON (CN) - A health insurer that consented to letting an arbitrator assess the possibility of class status has no basis to then fight the decision, the Supreme Court ruled Monday.

Dr. Ivan Sutter sued Oxford Health Plans in 2002, claiming that it had failed to make prompt and accurate reimbursement payments to participating physicians.

Oxford moved to compel arbitration, as required by the parties' contract, and both sides agreed to let the arbitrator determine whether the contract likewise authorized class arbitration.

When the arbitrator determined that class arbitration was indeed possible, Oxford condemned this decision as an abuse of his powers.

A federal judge in New Jersey nevertheless refused to vacate the decision, and arbitration proceeded after the 3rd Circuit affirmed.

Oxford tried again in 2010 when the Supreme Court ruled on a similar issue presented in Stolt-Nielsen S.A. v. AnimalFeeds International Corp.

After the arbitrator concluded that Stolt-Nielsen had no effect on the case, the 3rd Circuit again shot down Oxford's appeal.

The Supreme Court took up the case in December, only to likewise support the class arbitration determination on Monday.

"The sole question for us is whether the arbitrator (even arguably) interpreted the parties' contract, not whether he got its meaning right or wrong," Justice Elena Kagan wrote for the unanimous court (parentheses in original).

Ultimately the arbitrator's decisions show that "they are, through and through, interpretations of the parties' agreement," according to the ruling.

Kagan also chided Oxford for its misreading of Stolt-Nielsen, in which the court found that an arbitration panel exceeded its powers under Section 10(a)(4) of the Federal Arbitration Act when it ordered a party to submit to class arbitration.

"We overturned the arbitral decision there because it lacked any contractual basis for ordering class procedures, not because it lacked, in Oxford's terminology, a 'sufficient' one," according to the ruling.

"The contrast with this case is stark," Kagan added. "In Stolt-Nielsen, the arbitrators did not construe the parties' contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators' decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration. So to overturn his decision, we would have to rely on a finding that he misapprehended the parties' intent. But §10(a)(4) bars that course: It permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly. Stolt-Nielsen and this case thus fall on opposite sides of the line that §10(a)(4) draws to delimit judicial review of arbitral decisions." (Parentheses in original.)

The opinion concludes with the justices refusing to consider Oxford's claim that the arbitrator "badly misunderstood the contract's arbitration clause."

"Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator's contract interpretation, or any quarrel with Oxford's contrary reading," Kagan wrote. "All we say is that convincing a court of an arbitrator's error - even his grave error - is not enough. So long as the arbitrator was 'arguably construing' the contract - which this one was - a court may not correct his mistakes under §10(a)(4). The potential for those mistakes is the price of agreeing to arbitration. ... The arbitrator's construction holds, however good, bad, or ugly.

"In sum, Oxford chose arbitration, and it must now live with that choice."

In a concurring opinion that put the merits of this issue on the table, Justices Samuel Alito and Clarence Thomas found that the decision to order class arbitration was erroneous.

"Unlike petitioner, absent members of the plaintiff class never conceded that the contract authorizes the arbitrator to decide whether to conduct class arbitration. It doesn't," Alito wrote, joined by Thomas. "If we were reviewing the arbitrator's interpretation of the contract de novo, we would have little trouble concluding that he improperly inferred '[a]n implicit agreement to authorize class-action arbitration ... from the fact of the parties' agreement to arbitrate.'"

"It is true that they signed contracts with arbitration clauses materially identical to those signed by the plaintiff who brought this suit," Alito added. "But an arbitrator's erroneous interpretation of contracts that do not authorize class arbitration cannot bind someone who has not authorized the arbitrator to make that determination."

Here, however, Oxford "consented to the arbitrator's authority by conceding that he should decide in the first instance whether the contract authorizes class arbitration," the opinion states.

"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," Alito added. "But because that argument was not available to petitioner in light of its concession below, I join the opinion of the court."

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