Arbitration/FAA/Class Actions: Supreme Court Holds Arbitrator Does Not Exceed Powers By Deciding That Class Action Was Available

Impact of the Case Likely to Be Limited Because of Parties’ Agreement

      In Oxford Health Plans LLC v. Sutter  (Sup. Ct. June 10, 2013) (Kagan, J., author, with Thomas, J., joining in concurrence by Alito, J.), the Supreme Court held that an arbitrator does not “exceed his powers” under section 10(a)(4) of the Federal Arbitration Act where the parties agreed that the arbitrator should decide whether their contract authorized class arbitration, and he determined that it did.  Because the arbitrator construed the contract, he did not “exceed his powers”, and it does not matter whether the arbitrator construed the parties’ contract correctly.

     The impact of the case is likely to be limited, because the holding turns on the fact that the parties agreed the arbitrator could decide the issue. Justice Kagan observed:  “We would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.’”  Certain such “gateway matters” are “presumptively for courts to decide.” Footnote 2.   But here the question of arbitrability was not one for the court to decide, because the parties in the case had agreed that the arbitrator would decide it.  “In sum, Oxford chose arbitration, and it must now live with that choice.”

     In their concurrence, Justices Alito and Thomas were eager to limit the scope of the opinion to the narrow facts.  They opined that absent class members, who had not explicitly agreed to arbitration, might not be bound by the arbitrator’s resolution of the dispute.  “In the absence of concessions like Oxford’s,” they admonished, “this possibility should give courts pause before concluding that the availability of class arbitration is a question the arbitrator should decide.”

     Because of Oxford’s concession, the impact of the case is also likely to be limited in the future by the drafting of the arbitration provision. The party with superior bargaining power, who is the master of the contract, can draft around the problem by not delegating arbitrability of class action decisions to the arbitrator.