Source: http://leshawlaw.com/2013/06/6-11-supreme-court-punts-issue-class-arbitrability-guidance-judicial-review-arbitration-awards/
Timestamp: 2019-04-25 16:24:41+00:00

Document:
The Supreme Court yesterday issued an opinion in which it deferred to an arbitrator’s decision that a contract permitted class arbitration, while side-stepping the more important issue of whether it is the court or the arbitrator that makes the determination of whether class arbitration has been agreed to. The Court’s reasoning in Oxford Health Plans v. Sutter1 — that the courts were precluded from deciding the class arbitration issue because the party seeking to compel arbitration conceded that the class arbitration issue was for the arbitrator to decide — provides important lessons to attorneys drafting arbitration provisions in which class certification may be a concern and to attorneys litigating the scope of permissible judicial review of an arbitration award.
Relying on this provision, Oxford moved in the New Jersey state court to compel arbitration. The state court granted the motion, referring the dispute to arbitration. Significantly, the parties then agreed that the arbitrator should decide whether their contract authorized class arbitration. The arbitrator ruled that the contract did authorize class arbitration. In so ruling, the arbitrator relied on the text of the arbitration provision and the apparent intent of the parties.
Oxford then filed a motion in the United States District Court for the District of New Jersey in which it sought to have the arbitrator’s decision on the class issue vacated on the sole basis that the arbitrator had exceeded his powers under Section 10(a)(4) of the Federal Arbitration Act (FAA) (authorizing a federal court to set aside an arbitral award “where the arbitrator exceeded [his] powers”). The District Court denied the motion and the United States Court of Appeals for the Third Circuit affirmed the decision of the District Court.
The Supreme Court granted certiorari to resolve a split in the Circuits as to “whether §10(a)(4) [of the Federal Arbitration Act] allows a court to vacate an arbitral award in” circumstances such as this.
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. All we say is that convincing a court of an arbitrator’s error – even 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 Court thus framed the decision as one of review of an arbitration award rather than of whether a determination that class arbitration is or is not appropriate should be made by a court or an arbitrator.
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 applying or construing the contract must stand, regardless of a court’s view of if its (de)merits. Only if the arbitrator acts outside the scope of his contractually delegated authority – issuing an award that simply reflect[s] [his] own notion of [economic] justice rather than draw[ing] its essence from the contract – may a court overturn his determination.
In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration. The arbitrator did what the parties requested: He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still, Oxford does not get to rerun the matter in a court. Under §10(a)(4), the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. Because he did, and therefore did not “exceed his powers,” we cannot give Oxford the relief it wants.
It was thus Oxford’s decision to concede that the arbitrator should make the determination of the existence or non-existence of a right to class arbitration that resulted in the Court’s decision to effectively decline to weigh in on the arbitrability issue.
The Oxford Health decision provides lessons for both transactional lawyers and litigators. Transactional lawyers drafting arbitration clauses seeking to prevent class litigation should not only provide for a waiver of a right to proceed as a class (an issue the Supreme Court is likely to rule on in the near future) but should also make it clear what role, if any, an arbitrator or court will have in the event of litigation over the enforceability of the class waiver. For example, will a court or an arbitrator determine whether there is a right to proceed as a class, the appropriate members of the class and the appropriate class representative.
An important lesson that litigators will glean from the Oxford Health decision is that where a suit is brought asserting a right to a class action, they need to consider whether to simply move to compel arbitration as Oxford did, or to ask a court to determine whether class status is appropriate before sending the dispute to an arbitrator. Failure to engage in this two-step may result in the decision being made by an arbitrator.
1 ___ U.S. ___ (June 10, 2013).
2 Nitro-Lift Technologies, L.L.C. v. Howard, 568 U.S. ___ (2012) (discussed here) (holding that the Federal Arbitration Act prohibits a state court from determining whether a contract is “null and void and against public policy” when the contract contains an enforceable arbitration provision); CompuCredit Corp. V. Greenwood, 566 U.S. ___ (2011) (holding that an arbitration agreement could be enforced in a case asserting a claim under the federal Credit Repair Organizations Act (CROA) because the CROA does not expressly prohibit arbitration); AT&T Mobility v. Concepcion, 563 U.S. __ (2011) (holding that a state law that invalidated class action waivers in arbitration agreements was preempted (and therefore made invalid) by the Federal Arbitration Act); Stolt-Nielsen v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010) (holding that parties that had not signed an agreement to arbitrate could not be forced into class arbitration).
3 American Express Co. v. Italian Colors Restaurant, No. 12-133.
4 BG Group PLC v. Republic of Argentina, No. 12-138.

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