In
today’s world, parties are often encouraged to settle legal
disputes through means of alternative dispute resolution such as
arbitration. However, in order to prevent the losing party to
an arbitration dispute from essentially requesting the court to
re-try the case, the Federal Arbitration Act (“FAA”) provides
very narrow grounds for vacatur of an arbitration award.
Section 10 of the FAA allows an arbitration award to be vacated when
the award was procured by fraud or corruption, where the arbitrator
was guilty of misconduct, misbehavior or evident partiality, or where
the arbitrator exceeded his authority.
In
Sutter v. Oxford Health Plans, Respondent John Sutter, a
pediatrician, provided medical services to the members of Oxford
Health Plans' (“Oxford”) network under a fee-for-services
contract that required binding arbitration of contractual disputes.
However, when a contractual dispute arose, Sutter joined a class
action with other physicians, alleging that Oxford failed to make
full and timely payments. The court granted Oxford’s motion
to compel arbitration and referred the claims to arbitration.
The parties agreed that the arbitrator should decide whether the
contact authorized class arbitration. The arbitrator reasoned
that the parties’ agreement barred the parties from bringing any
civil action in court and thus, the intent of the clause was to “vest
in the arbitration process everything that is prohibited from the
court process.” The arbitrator found that class actions are
clearly the type of claim that could be brought in court absent the
parties’ agreement and, therefore, the arbitration clause expressed
the parties’ intent to provide for class arbitration.
Oxford
filed a motion to vacate the arbitrator’s decision in federal court
on the grounds that the arbitrator exceeded his powers under
§10(a)(4) of the FAA. The District Court of New Jersey denied
the motion and the Court of Appeals for the Third Circuit affirmed.
While
the arbitration was pending, the United States Supreme Court held in
Stolt-Nielsen that "a party may not be compelled under
the FAA to submit to class arbitration unless there is no contractual
basis for concluding that the party agreed to do so." 559 U.S.
at 684. The parties in Stolt-Nielsen had stipulated that they
had never reached an agreement on class arbitration. Therefore,
the arbitrator had no basis for finding that the parties’ intended
for the arbitration clause to include class arbitration. The
Supreme Court vacated the arbitrator’s decision pursuant to
§10(a)(4) of the FAA because the arbitrator exceeded his powers.
In
light of Stolt-Nielsen,
Oxford requested that the arbitrator reconsider his decision allowing
class arbitration. The arbitrator issued a new opinion finding that
Stolt-Nielsen had
no effect on the case because unlike Stolt-Nielsen,
the parties disputed the meaning of their contract and agreed that
the arbitrator should interpret that meaning.
Oxford
filed another motion to vacate in federal court which the District
Court of New Jersey again denied and the Court of Appeals for the
Third Circuit affirmed. The Third Circuit held that if the
arbitrator makes a good faith attempt to interpret an agreement,
“even serious errors of law or fact will not subject his award to
vacatur.” 675 F.3d at 220.
On
certiorari, the Supreme Court affirmed the decision of the Third
Circuit reasoning that vacatur of an arbitrator’s decision only
occurs in very limited circumstances. Justice Kagan’s opinion
provided that allowing parties to take full legal and evidentiary
appeals would cast arbitration as a “prelude to a more cumbersome
and time-consuming judicial review process." Thus, parties
requesting vacatur where the arbitrator exceeds his powers under
§10(a)(4) of the FAA bear a heavy burden and must show more than
serious error. The Court found that because the parties
bargained for the arbitrator’s construction of the agreement, a
decision that even arguably construes or applies the contract must be
upheld even if the Court disagrees with the arbitrator’s
interpretation.
Oxford
argued, relying solely on Stolt-Nielsen, that the high burden
of §10(a)(4) is overcome when an arbitrator imposes class
arbitration without a sufficient contractual basis. However,
the Court disagreed with Oxford’s interpretation of Stolt-Nielsen
and noted that the arbitral decision in Stolt-Nielsen lacked
any contractual basis for class-actions because the parties entered
into a stipulation that they had never reached an agreement on class
arbitration. Thus, the arbitrator’s decision could not have
been based on the parties’ contractual intent.
In
sum, the Court stated, “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…a court may
not correct his mistakes under §10(a)(4). The potential for
those mistakes is the price of agreeing to arbitration. As we have
held before, we hold again: ‘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
lesson to be learned from Oxford
Health Plan is if a company wants to avoid class
actions/arbitrations, its agreements should include an express class
action waiver because an arbitrator’s construction of that
agreement is given substantial deference.
No comments:
Post a Comment