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Case Watch: For Arbitrators

Arbitrator Can Interpret Contract Text to Allow Class Actions, Court Says

The Third Circuit Court of Appeals recently upheld an arbitrator’s interpretation of a broad arbitration provision as allowing for the possibility of class-action arbitration.  While the provision at issue did not expressly allow for or prohibit class-action arbitration, the appellate court found that the arbitrator’s interpretation was permissible and did not violate Supreme Court precedent.  Sutter v. Oxford Health Plans LLC, ____ F.3rd ____, 2012 WL 1088887 (C.A.3 (N.J.)

Sutter contracted to provide medical services through Oxford’s managed-care network in exchange for reimbursement based on established rates.  Disputes arising under the contract were to be resolved through binding arbitration:

No civil action concerning any dispute arising under this Agreement will be instituted before any court, and in all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.

At some point during the contract, Sutter claimed that Oxford failed to properly reimburse him for services and filed a complaint in the New Jersey courts on behalf himself and a class of service providers.  Oxford moved to compel arbitration, and the New Jersey Superior Court agreed.  The court directed that an arbitrator was to decide all procedural issues.

The parties disagreed on whether the contract permitted class-action arbitration, and so they submitted the question to an arbitrator.  The arbitrator looked at the plain text of the arbitration provision, which he found to be broader than usual, and determined that the phrase, “No civil action concerning any dispute arising under this Agreement” encompassed any conceivable court action, including class actions.  He then noted that the rest of the provision required that all such disputes were to be settled by arbitration and concluded that the parties’ intention was to allow for class arbitration.  To avoid this conclusion, the arbitrator said, would require that the contract contain language that expressly carved out class actions from the otherwise broad scope of the arbitration provision.

Oxford filed a motion to vacate the arbitration award, arguing that the arbitrator had exceeded the scope of his powers and manifestly disregarded the law.  The district court denied Oxford’s motion.  Oxford appealed, relying upon the Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 130 S.Ct. 1758 (2010), which generally held that arbitrators may not direct class arbitration where the arbitration agreement was silent on that subject.

The Third Circuit Court of Appeals began its analysis in Oxford by restating the four exclusive bases for vacating an arbitration award set out in Section 10 of the Federal Arbitration Act (FAA).  Oxford’s appeal relied upon Section 10(a)(4), which applies when an arbitrator “decides an issue not submitted to him, grants relief in a form that cannot be rationally derived from the parties’ agreement and submission, or issues an award that is so completely irrational that it lacks support altogether.”  The court noted that in Stolt-Nielsen as in Oxford the contract made no express reference to class-action arbitration.  However, the Stolt-Nielsen parties had stipulated that they had no agreement related to class actions, whereas the Oxford parties had no such stipulation.  Further, the arbitrators in Stolt-Nielsen had based their determination on principles of common law, while the Oxford arbitrator based his decision on provisions of the contract.  These facts distinguish Oxford, the court said:

The arbitration clause … is not “silent” in the way [it was] in Stolt-Nielsen… the parties dispute whether or not they intended to authorize class arbitration … . [T]he arbitrator ... made first resort to the text of the arbitration clause … [and] reasoned… that the … first phrase … is broad enough to include class actions… . Thus, its second phrase … sends all conceivable civil actions —including class actions — to arbitration… “All such disputes” must go to arbitration.

The court went on to say that the Oxford arbitrator had relied on the breadth of the arbitration contract language, and noted that his method of arbitral examination was not proscribed under Stolt-Nielsen.  Stolt-Nielsen had rested on the parties’ stipulation that they had no agreement as to class action.  Therefore, the court said, Stolt-Nielsen could not stand for the proposition that the arbitrator was prohibited from examining the contract language and further from inferring the parties’ consent in construing the arbitration contract language in this instance:

We are satisfied that the arbitrator endeavored to interpret the parties’ agreement within
the bounds of the law, and we cannot say that his interpretation was totally irrational.  Nothing more is required under Section 10(a)(4) of the Federal Arbitration Act.

Note to Georgia Arbitrators:  The Oxford decision refines the Stolt-Nielsen holding.  It authorizes the arbitrator to interpret the parties’ contract language as part of a dispute and to determine whether class actions are permitted.  The appeals court clearly states that such a textual examination does not require the parties to have expressly used the phrase “class actions” in their drafting.  The arbitrator may construe the contract language to give effect to an interpretation even in the absence of language directly referencing class actions.



John Allgood is of counsel at Ford & Harrison.  For more than 20 years he has arbitrated and mediated cases in commercial, employment, construction and securities law, as well as in real estate and anti-trust matters.  An adjunct professor of ADR at Emory University School of Law, he was a member of the U.S. Olympic Committee panel of arbitrators during the 1996 and 1998 Olympic Games.

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