As discussed throughpout this blog, the Supreme Court has been actively taking and deciding cases impacting the contours of class action law. In addition to hearing the Comcast and Amgen cases this year, dealing with evidentiary issues at the class certification stage, the Court also has taken review in the Standard Fire case, dealing with the limits of a named plaintiff’s ability to make representations about the putative class prior to class certification, at least in the CAFA context.
In November of this year, the Court, then, decided to review the American Express Co. v. Italian Colors Restaurant decision from the Second Circuit, which held that class arbitration waivers are not effective if they would deny plaintiff the ability to try to vindicate his or her federal statutory rights. That case presents the following question: “Whether the Federal Arbitration Act permits courts, invoking the ‘federal sustantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal-law claim.”
Now, on December 7th, the Court took certiorari in Oxford Health Plans LLC v. Sutter, on a question arising from the Court’s decision in Stolt-Nielsen v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758, 1775 (2010), in which the Supreme Court held that, under the Federal Arbitration Act, “a party may not be compelled … to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”
The question to be addressed in Oxford Health Plans is:
“Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the Second and Third Circuits have held) or exceeds those powers (as the Fifth Circuit has held) by determining that parties affirmatively ‘agreed to authorize class arbitration,’ Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract.”
In Sutter, the lower courts found a contractual basis for class arbitration, despite the fact that the contract at issue did not expressly address class arbitration. 675 F.3d 215, 222 (3d Cir. 2012). Oxford moved the district court to vacate the arbitrator’s ruling, arguing that the arbitrator had exceeded its powers under 9 U.S.C. § 10(a). The district court denied the motion, and the Third Circuit affirmed.
As Petitioner described the conflict among the circuit courts in its Petition: “The Second and Third Circuits give arbitrators effectively unfettered discretion to impose class proceedings so long as the arbitrator purports t o find an implicit “agreement” in the language of the parties’ contract—even where that language says nothing more than that the parties will resolve all disputes through arbitration, not litigation. In contrast, the Fifth Circuit recognizes that Stolt-Nielsen requires a court applying the FAA to provide meaningful review of an arbitrator’s reasoning, to ensure that there is a true contractual basis for compelling class proceeding — not including a mere broad arbitration provision. That conflict calls for review by this Court.”
The Court’s rulings in American Express and now, Oxford Health Plans, should provide further clarity on the requirements for class arbitration and whether a defendant can contractually ensure that all actions must be arbitrated, and only on an individual basis. In the meanwhile, defendants are cautioned to carefully draft their arbitration clauses to preclude class arbitration.