It is the arbitrator’s construction of the contract which was bargained for; and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his. The arbitrator’s construction holds, however good, bad, or ugly. Oxford Health Plans, LLC v. Sutter, 569 U.S. ___, at 8 (2013)(internal quotations omitted).
On June 10, 2013, the United States Supreme Court decided Oxford Health Plans, LLC v. Sutter, 569 U.S. ____ (2013), on certiorari to the United States Court of Appeals for the Third Circuit. Justice Kagan delivered the Court’s opinion in a straight forward and relatively succinct decision which confirms that of the Third Circuit and the New Jersey District Court. At issue in this case was whether an arbitrator exceeded his powers under § 10(a)(4) of the Federal Arbitration Act (9 U.S.C. § 1, et seq.) by finding that the parties’ contract provided for class arbitration.
This issue has been a common point of discussion since the Supreme Court’s Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) was decided three years ago. In Stolt-Nielsen, the Court found that the arbitrators exceeded their powers under § 10(a)(4) by permitting class arbitration of their dispute. The arbitrators exceeded their powers not because the Court is against class arbitration, (in fact, the Court makes clear in footnote 2 of the opinion that “Stolt-Nielsen that this Court has not yet decided whether the availability of class arbitration is a question of arbitrability.”but because the Court found that the arbitrators did not interpret the parties’ contract, at all). As Justice Kagan makes very clear, the Court is not concerned with the substance of an arbitrator’s decision so long as the decision is soundly based in contract and to which the parties agreed to submit to arbitration.
Oxford argued that the Court must overturn the arbitrator’s decision because it misconstrued the contract. However, misconstruing a contract does not rise to the level of a § 10(a)(4) review, but instead shows that the arbitrator considered the contract and did not exceed his powers. Interestingly, Oxford and Sutter agreed to submit as a preliminary question whether the arbitration clause authorized class arbitration. Thus, it is undisputed that the parties agreed to have the arbitrator decide this one discreet issue before proceeding with the case. In summation, “the sole question for [the Court] is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” Oxford Health Plans, at 5.
In a separate concurring opinion, Justice Alito, joined by Justice Thomas, raised the issue of class arbitration as one of fairness. Justice Alito first recognizes that the Court’s decision follows directly from Oxford’s concession that the arbitrator decide the class issue as a preliminary matter. However, the concurrence goes on to question whether, hypothetically, an arbitrator’s decision in a similar situation should be left out of the purview of a reviewing court. Of most concern to Justice Alito is that the absent class members will unfairly benefit from the opportunity to “opt in” to the class when there is a favorable decision, but have no obligations when the decision is not.
It is a basic principle that arbitration is a creature of contract. Where, as in Oxford, the arbitrator decides that an arbitration clause contained in a contract between only two parties permits class arbitration, what of the rest of the class? According to Justice Alito, the absent class members have not submitted themselves to the arbitrator’s authority in any way, and therefore it is unclear whether they will be bound by the arbitrator’s ultimate decision.
The concurrence raises some intriguing questions regarding class arbitration. Although the concurring justices agree with the outcome of the Court’s decision, they obscure the majority’s opinion by planting what appear to be seeds of doubt. It is now settled that so long as the arbitrator is construing the contract at issue, and the parties have submitted the discrete issue of class arbitration as a preliminary matter, a court cannot reverse the arbitrator’s decision. A very limited ruling. Up next, it appears, is whether class arbitration is a question of arbitrability.
For more on arbitration in the U.S. and international arbitration, please contact Daniel E. Vielleville and Andrew S. Riccio at Assouline & Berlowe, P.A.’s Miami office.
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