In a rare unanimous decision on an arbitration issue, the Supreme Court yesterday upheld an arbitrator's ruling permitting the arbitration to proceed on a class-wide basis. Affirming the Third Circuit in Oxford Health Plans v. Sutter, Justice Kagan, writing for the Court, held that the arbitrator's decision would not be vacated because he acted within the scope of his authority to construe the parties' arbitration agreement, regardless of whether his decision was correct. 

In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp, the Supreme Court previously held that the Federal Arbitration Act (FAA) does not permit class arbitration when the parties' contract is silent on that issue. The parties in Sutter agreed that the arbitrator, rather than a court, should decide whether their contract was silent regarding class arbitration.

The Court declined to vacate the arbitrator's decision because the standard of judicial review under the FAA—whether the arbitrator exceeded his or her powers—is narrow. Since the arbitrator in Sutter based his decision on an interpretation of the parties' contract, he did not exceed his powers. 

Sutter should not have any widespread impact for three reasons. First, the issue in the case—Does the agreement permit class arbitration?—arises infrequently because most arbitration agreements today contain express class action waivers. The use of such express waivers was upheld by the Supreme Court in AT&T Mobility v. Concepcion

Second, even in the absence of a class action waiver, whether a contract permits class arbitration necessarily varies with the contractual language. Each case is unique. 

Third, in Sutter, the parties agreed to let the arbitrator decide the issue of class arbitration. Frequently, however, at least one party (typically the company) argues that class arbitration is a gateway issue of arbitrability for the court to decide. In Sutter, Oxford Health Plans agreed to have the arbitrator decide this issue. As indicated in Sutter, issues of arbitrability are subject to de novo review by a court. 

Ballard Spahr regularly counsels clients on how to address the issues raised in Sutter through drafting and enforcement of arbitration agreements.

The firm’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance. The firm’s Labor and Employment Group has substantial experience in designing employment arbitration programs and both compelling arbitration and enforcing class action waivers in individual and class action lawsuits.

The CFS Group also produces CFPB Monitor, a blog that focuses exclusively on important Consumer Financial Protection Bureau developments. To subscribe to the blog, use the link provided to the right.

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or  Steven W. Suflas at 856.761.3466 or suflas@ballardspahr.com, or Mark J. Levin at 215.864.8235 or levinmj@ballardspahr.com.


 

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