Does broad arbitration clause encompass class actions? US Supreme Court to decide

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The U.S. Supreme Court will decide whether a broad arbitration clause can implicitly authorize class arbitration.

The Court will review a 3rd Circuit ruling upholding an arbitrator’s decision authorizing class arbitration.

The plaintiff is a doctor who provided patient care under a contract with the defendant, a New Jersey managed care network. The plaintiff filed a class action, alleging that the defendant regularly underpaid claims for reimbursement made by doctors in the network.

The trial court ordered the case to arbitration under a clause in the contract requiring the arbitration of “any dispute arising under this Agreement.” An arbitrator determined that the arbitration clause authorized class arbitration. After class-wide arbitration, the arbitrator issued an award for the plaintiff.

The defendant sued in federal court to vacate the award, arguing that the arbitrator exceeded his powers under Stolt-Nielsen S.A. v. AnimalFeeds International (130 S. Ct. 1758) by authorizing class arbitration. In Stolt-Nielsen, the U.S. Supreme Court held that that class arbitration is inconsistent with the Federal Arbitration Act unless the parties consent to it. (See “Supreme Court nixes class actions in arbitration,” Lawyers USA, April 27, 2010. Search terms for Lawyers USA’s website: Stolt-Nielsen.)

But the 3rd Circuit concluded held that Stolt-Nielsen did not establish a bright-line rule that class arbitration is allowed only when an arbitration agreement expressly provides for such procedures. Instead, the court held that class arbitration is appropriate when there is a contractual basis for concluding that the parties agreed to it.

“Stolt-Nielsen does prohibit an arbitrator from inferring parties’ consent to class arbitration solely from their failure to preclude that procedure, but the arbitrator did not draw the proscribed inference in this case. Rather, the arbitrator construed the text of the arbitration agreement to authorize and require class arbitration,” the court said.

The 2nd Circuit has reached a similar conclusion, while the 5th Circuit has overturned an arbitrator’s finding of an implied agreement for class arbitration.

The Supreme Court is expected to decide the case this term.

Oxford Health Plans v. Sutter, No. 12-135. Certiorari granted: Dec. 7, 2012. Ruling below: 675 F.3d 215 (3rd Cir. 2012).