Oxford Health Plans LLC v. Sutter
81 U.S.L.W. 4382, 186 L. Ed. 2d 113, 569 U.S. 564 (2013)
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Rule of Law:
Under § 10(a)(4) of the Federal Arbitration Act, a court may not vacate an arbitrator's award as long as the arbitrator was arguably construing or applying the contract, even if the arbitrator committed a grave error of fact or law.
Facts:
- Dr. John Sutter, a pediatrician, entered into a contract with Oxford Health Plans, a health insurance company, to provide medical services to its network members.
- Under the contract, Oxford agreed to pay for those services at specified rates.
- The contract contained a broad arbitration clause stating that 'No civil action concerning any dispute...shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration.'
- A dispute arose when Sutter alleged that Oxford had failed to make full and prompt payment to him and other physicians in violation of their agreements.
Procedural Posture:
- John Sutter filed a class-action lawsuit against Oxford Health Plans in New Jersey Superior Court, a state trial court.
- On Oxford's motion, the state court compelled the parties to arbitration pursuant to their contract.
- The parties agreed to submit the question of whether their contract authorized class arbitration to the arbitrator, who ruled that it did.
- Oxford filed a motion in the U.S. District Court for the District of New Jersey (a federal trial court) to vacate the arbitrator's award under § 10(a)(4) of the Federal Arbitration Act.
- The District Court denied the motion, and Oxford, as appellant, appealed to the U.S. Court of Appeals for the Third Circuit, an intermediate federal appellate court.
- The Third Circuit affirmed the District Court's decision.
- Following the Supreme Court's decision in Stolt-Nielsen, the arbitrator reaffirmed his initial decision on class arbitration, and Oxford again unsuccessfully sought vacatur in the District Court and the Third Circuit.
- The U.S. Supreme Court granted certiorari.
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Issue:
Does an arbitrator exceed his powers under § 10(a)(4) of the Federal Arbitration Act by interpreting the parties' contract to authorize class arbitration?
Opinions:
Majority - Justice Kagan
No. An arbitrator does not exceed his powers under § 10(a)(4) of the Federal Arbitration Act so long as he is arguably construing the parties' contract. The sole question for a court is whether the arbitrator interpreted the contract, not whether he did so correctly. Here, the parties bargained for the arbitrator's construction of their agreement and tasked him with determining whether it permitted class arbitration. The arbitrator based his conclusion on a textual analysis of the contract's arbitration clause. Because the arbitrator was engaged in his contractually delegated task of interpretation, his decision must stand, even if a court disagrees with it. This case is distinct from Stolt-Nielsen, where the arbitrators imposed class procedures without any contractual basis after the parties stipulated that they had no agreement on the issue. Here, the arbitrator construed the contract to find such an agreement, which is all that is required to defeat a challenge under § 10(a)(4).
Concurring - Justice Alito
No. The Court correctly concludes that the arbitrator's decision cannot be vacated under the highly deferential standard of review, especially because Oxford conceded that the arbitrator had the authority to decide the issue of class arbitrability. However, the arbitrator's interpretation of the contract was likely erroneous and improperly inferred an agreement to authorize class arbitration. A significant concern is whether absent class members, who never consented to have this arbitrator decide the question, will be bound by the resulting award. Because arbitration is a matter of consent, an arbitrator's erroneous interpretation of a contract should not bind parties who did not authorize the arbitrator to make that determination.
Analysis:
This decision powerfully reinforces the finality of arbitration awards and the extremely narrow scope of judicial review under the Federal Arbitration Act. It clarifies that Stolt-Nielsen v. AnimalFeeds applies only when an arbitrator imposes a decision with no interpretive basis, not when an arbitrator simply misinterprets a contract. By holding that even a 'grave error' in contract construction is not grounds for vacatur, the Court makes it exceedingly difficult for parties to challenge an arbitrator's substantive decisions in court. This outcome strengthens the role of the arbitrator as the final decision-maker on matters of contract interpretation that are submitted to them, solidifying the principle that parties assume the risk of an arbitrator's mistakes when they choose arbitration.
