U.S. Supreme Court Considers Arbitration Clauses and Class Actions Next Year

Alerts / December 19, 2012

The Supreme Court recently granted certiorari to consider Oxford Health Plans' appeal of a ruling compelling class arbitration with its providers over the insurer's payment practices. In Oxford Health Plans LLC v. Sutter, a key question the Supreme Court will consider is: what contractual basis supports a finding that the parties agreed to class arbitration?

Two years ago, in Stolt-Nielsen S.A. v. Animalfeeds Int. Corp., the Supreme Court held that parties may not be compelled under the Federal Arbitration Act (FAA) to submit to class arbitration in the absence of specific evidence that they agreed to do so. 130 S.Ct. 1758 (2010). In Stolt-Nielsen, the majority held that class-based arbitrations were not permitted unless the parties expressed a clear intent to engage in such an arbitration: "[T]he differences between bilateral and class-action arbitration are too great for arbitrators to presume, consistent with their limited powers under the FAA, that the parties' mere silence on the issue of class-action arbitration constitutes consent to resolve their dispute in class proceedings." Id. at 625.

In Oxford Health Plans LLC v. Sutter, the lower courts found a contractual basis for class arbitration. The parties had entered a 1998 Primary Care Physician Agreement (the "Agreement") which provided that any disputes between the parties be submitted to arbitration. 675 F.3d 215, 217 (3d Cir. 2012). The Agreement did not expressly address class arbitration. Rather, it contained a broad clause regarding arbitration:

No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration. . . .

Id. at 222. The arbitrator interpreted this clause as allowing class arbitration, holding that the phrase "all such disputes" included all conceivable court actions, including class actions.

Oxford filed a motion to vacate the arbitrator's ruling in district court, arguing that the arbitrator had exceeded its powers under 9 U.S.C. § 10(a). Oxford also argued that the arbitrator ignored the Supreme Court's recent decision in Stolt-Nielsen. The district court rejected Oxford's motion to vacate, and the Third Circuit affirmed the district court. The Third Circuit expressly distinguished the arbitration clause at issue in Oxford from the one in Stolt-Nielsen, noting that the arbitration clause in Oxford was not "silent" regarding class arbitration.

The message from this litigation is clear. Regardless of which way the Supreme Court rules in Oxford, a party that wishes to limit class action exposure should provide in its arbitration clauses that (1) all disputes, regardless of type, must be arbitrated; and (2) arbitrations may only proceed individually and not on a class or collective basis.

If you have any questions about the material presented in this Alert, please contact any member of BakerHostetler's Class Action Defense Team or your regular BakerHostetler contact.

Authorship Credit: Ernest E. Vargo and Ruth E. Hartman


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