Oxford Health Plans v. Sutter
(United States Supreme Court, June 10, 2013)
This action arises from an arbitrator’s decision on whether a contract authorizes class arbitration and whether the arbitrator’s decision survives the judicial review allowed by §10(a)(4) of the Federal Arbitration Act (FAA).
Specifically, a physician entered into a contract with the insurer and agreed to provide medical care to members of the insurer’s network. The physician, on behalf of himself and a proposed class, sued the insurer, alleging that the insurer had failed to make full and prompt payment, in violation of agreements and state laws. The parties agreed that an arbitrator should decide whether their contract authorized class arbitration and the arbitrator found that the parties’ contract authorized such class arbitration.
Thereafter, Oxford filed a motion in federal court to vacate the arbitrator’s decision, claiming that he had exceeded his powers under §10(a)(4). In the interim, the Supreme Court decided Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U. S., 662, 130 S. Ct. 1758, 176 L. Ed. 2d 605. There, the court held that an arbitrator may employ class procedures only if the parties have authorized them. The parties in Stolt-Nielsen had stipulated that they had never reached an agreement on class arbitration and thus, relying on §10(a)(4), the Supreme Court vacated the arbitrators’ decision approving class proceedings because, in the absence of such an agreement, the arbitrators had “simply … imposed [their] own view of sound policy.”
Here, the Supreme Court rejected the insurer’s reliance on Stolt-Nielsen, noting “the contrast with this case is stark.” Specifically, it was noted that 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, the court found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Based on this distinction, the Supreme Court noted that in the subject action “the sole question … is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.”
In addressing this issue, the Supreme Court noted that under the FAA, courts may vacate an arbitrator’s decision “only in very unusual circumstances.” Further, a party seeking relief under this provision bears a heavy burden. “It is not enough … to show that the [arbitrator] committed an error — or even a serious error.” 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 a court’s view of its (de)merits.
Thus, in affirming the Court of Appeals decision, the court held that the arbitrator’s decision authorizing class arbitration survived the limited judicial review under FAA§ 10(a)(4) because the arbitrator’s decisions were interpretations of the parties’ agreement, and since he considered their contract and decided whether it reflected an agreement to permit class proceedings, the arbitrator did not “exceed his powers.”