December 8, 2012

Blankley on the Newest Class Arbitration Case to Reach the Supreme Court

By Paul Kirgis

Friend of the blog Kristen Blankley (Nebraska) weighs in on the Supreme Court’s next duel with the Second Circuit over class arbitration:

The Supreme Court today granted cert in the Second Circuit case of Oxford Health Plans, LLC v. Sutter, No. 12-135.  The Sutter case is a direct response to the Supreme Court’s 2010 decision in Stolt-Nielsen regarding class actions.  Broadly speaking, the Stolt-Nielsen Court held that an arbitration agreement that is “silent” on the issue of class action arbitrations cannot be read to allow such a procedure.  In Stolt-Nielsen, the Court found that the arbitrator had “exceeded powers” by reading into a silent arbitration agreement the ability to proceed as a class action.

The Sutter case is a strikingly similar case to Stolt-Nielsen in that the arbitrator in the Sutter case likewise interpreted a “silent” arbitration clause to allow a class action procedure.  The district court and ultimately the Second Circuit confirmed the arbitrator’s ruling.  The reviewing courts wrangled with the Stolt-Nielsen decision, and ultimately distinguished it on its facts.  The Second Circuit relied on the arbitrator’s finding that the arbitration clause at issue in Sutter was broader than the arbitration clause in Stolt-Nielsen, and perhaps the broadest arbitration clause that the arbitrator had ever seen.  The Second Circuit reasoned that Stolt-Nielsen did not provide a “bright line” rule, but simply required a contractual basis for the finding that a class action procedure was warranted under the contractual language.  675 F.3d 215, 222 (3d Cir. 2012).

This is a case that I’ve been watching, and I’m somewhat glad to see that the Supreme Court has taken up the case.  The Court will be forced to decide more squarely whether a “silent” arbitration agreement under any circumstances can constitute a contractual basis for a class action arbitration.  Given the trend in the Supreme Court’s arbitration precedent, I predict that the Supreme Court will extend its holding in Stolt-Nielsen to cover all “silent” arbitration clauses.  Such a ruling, however, appears to divest contractual powers away from the contracting parties as the Court continues to prefer bilateral arbitration over the potential for class-wide procedures.  The Supreme Court no longer appears to be enforcing agreements to arbitrate as they are written but instead has been interpreting them in a way that favors one, specific type of arbitration.  I was excited to see courts like the Second Circuit find ways to allow class procedures in contracts in which the parties arguably agreed to such a mechanism.  Perhaps that excitement will be short-lived.

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Comments

  • [...] Profs Blog has a post on Friday’s cert. grant, as does the Consumer Law and Policy [...]

  • Alex Sinatra says:

    I believe that silent arbitration clauses should be read to allow class action arbitration. We discussed in my ADR class that allowing class action arbitration would help the “little guy” be able to pursue a claim that he otherwise might not be able to bring, due to lack of financial resources, time, etc. I ordinarily do not agree with reading into a provision something that is not explicitly stated within, but in situations such as these, I think that more harm will be done in disallowing class action arbitration, than in allowing it.

  • Willie Gillis Jr. says:

    I do not think that class action suits should be allowed to go to arbitration. It is private and hides from the public the corporate-wrongs in question. One of the last bastions the little guy has is to withdraw his financial support for a company. How can he know which corporations to support or not support if the corporations can hide behind arbitration?

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