June 10, 2013

Supreme Court Affirms Commitment to Narrow Judicial Review of Arbitration Awards in Sutter Decision

By Sarah Cole

Today, the Supreme Court in Oxford Health Plans v. Sutter, http://www.scotusblog.com/case-files/cases/oxford-health-plans-llc-v-sutter/, affirmed its commitment to narrow judicial review of arbitration decisions. In Sutter, the arbitrator interpreted an arbitration agreement to permit class arbitration. Because the parties asked the arbitrator to interpret the agreement, the only question for a court, according to the Supreme Court, is whether the arbitrator interpreted the parties’ agreement, not whether the arbitrator correctly or incorrectly interpreted the agreement. In other words, as long as the arbitrator is doing his job of interpreting the contract, “the courts have no business overruling him because their interpretation of the contract is different from his.” This decision will enable arbitrators, interpreting arbitration agreements that do not contain class arbitration waivers, to order class arbitration. While this is a result that the Court dislikes, given its past negative comments about class arbitration, the decision is correct because it affirms the long-held understanding that courts should narrowly review arbitration awards and overturn them only when the arbitrator did not do his job (i.e. failed to interpret the contract). In the short term, this decision may result in more class arbitrations. Over time, however, parties will redraft their arbitration agreements to explicitly preclude class arbitrations. While this decision is a short term victory for consumers and employees not subject to class arbitration waivers, eventually this decision will lose relevance because businesses will redraft their arbitration agreements with consumers and employers to explicitly reject class arbitrations in their arbitration agreements.

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Comments

  • Kristen Blankley says:

    There are a number of things about this decision that I find fascinating. The first is the description of Stolt-Nielsen as having an “unusual stipulation” regarding the interpretation of the arbitration clause. Language like this makes me wonder whether Stolt-Nielsen has been reduced to its facts. The Court further distinguished Stolt-Nielsen by noting that the error of the arbitrator’s way was not so much in ordering class arbitration — but in relying on the wrong set of laws in coming to that determination (i.e., by relying on arbitral common law instead of NY or maritime law). I am glad to see the Court take these opportunities to limit Stolt-Nielsen in this way.

    The other aspect of the decision that is fascinating is the concurrence, which highlights a point that I’ve been pondering for years now — are absent class members bound by a class arbitration? While the concurrence does not go into great detail at this point, it sets up the question of the role of res judicata in arbitration as it relates to absent class members. I would love to see this question answered!

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