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Supreme Court’s Oxford v. Sutter decision

Earlier today, the Supreme Court issued its decision in Oxford Health Plans v. Sutter.  (Click here for a copy of the decision.)  The case involved a “silent” arbitration clause, i.e., one without a class action waiver.  The parties agreed that the arbitrator should decide whether the arbitration clause permitted class action arbitration, and the arbitrator believed that the clause at issue permitted class action arbitration.  The Supreme Court held today under the very narrow judicial review permitted by the Federal Arbitration Act, the arbitrator’s decision to allow class arbitration must stand.  Under the Federal Arbitration Act, a court may not reverse an error, even a grave error, by an arbitrator.  As long as an arbitrator was arguably construing a contract, which was the case here, a court cannot reverse the arbitrator’s award under the limited review allowed by the Federal Arbitration Act.

I have posted about class arbitration earlier.  I am concerned about sending class actions into arbitration.  Class proceedings are the most procedurally complex actions and raise significant due process concerns regarding absent class members.  Also, there is a problem of collusion with class proceedings.  With the secrecy of arbitration and the lack of procedural protections in arbitration, I am concerned the risk of collusion and risk of harming absent class members may be greater in class arbitration.  Ideally, class actions should proceed in court.

Also, take a look at the clause at issue in Sutter:

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 in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.

Most likely, the drafter had in mind traditional, 2-party, bilateral arbitration.  Such language (any dispute arising under this agreement shall be submitted to arbitration) was traditionally, historically used for 2-party arbitration, and self-interested arbitrators who have a strong financial interest in hearing a complex proceeding should not be interpreting silence regarding class arbitration to allow for class arbitration.  By having a silent arbitration clause, did the parties agree to Rule 23 of the Federal Rules of Civil Procedure, or perhaps some state variation of a class action rule, or perhaps the class action rule of another country?  Does the silence in the arbitration clause mean that the parties have agreed to class action procedures allowing for opt-outs?  I dislike Concepcion for many reasons, and it is problematic to use the FAA as a shield from class action liability. However, one point from Concepcion I agree with is that changing from a bilateral arbitration to a class arbitration involves a fundamental transformation, and I don’t think mere silence should be interpreted to give rise to this fundamental transformation.  Construing silence as allowing for class procedures is very troubling.  Consider the following: if the silence in the arbitration agreement here allows for class procedures with opt-outs, I have a concern that such a proceeding may not even be arbitration under the Federal Arbitration Act.  (Imagine an agreement that says “I promise to arbitrate, but I can opt-out at any time.”  Arbitration is supposed to be binding.)  Also, arbitration clauses typically allow the parties to choose an arbitrator.  Did the absent class members choose this particular arbitrator?  There are numerous problems with construing a bilateral arbitration clause as permitting class arbitration.

I like Justice Alito’s concurring opinion in Sutter.  As explained by Justice Alito, the decision of this arbitrator in Sutter, that class arbitration is permitted, cannot bind the absent class members.  Arbitration is a matter of consent, and there is no indication absent class members have consented to the arbitrator’s authority in this case.  Whatever award is ultimately rendered by the arbitrator here, there may be serious collateral attacks by absent class members, and the entire, complex, expensive class arbitration may be all for naught.

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