An arbitrator's interpretation of a contract must be followed regardless of its merits, the U.S. Supreme Court ruled Monday.

The high court's unanimous ruling in Oxford Health Plans L.L.C. v. Sutter concerned Dr. John Sutter, who had agreed to provide medical care to Oxford's network members, with Oxford agreeing to pay for those services at prescribed rates.

Several years after signing his contract, Dr. Sutter filed suit against Oxford in state court in New Jersey on behalf of himself and a proposed class of other New Jersey physicians, charging Oxford failed to make “full and prompt” payment to the doctors in violation of their agreement and state laws, according to the ruling.

Oxford, now a unit of Minnetonka, Minn.-based UnitedHealth Group Inc., moved to compel arbitration of Dr. Sutter's claims, and the New Jersey court referred the suit to an arbitrator.

However, the arbitrator ruled that the contract provided for class arbitration.

Meanwhile, the Supreme Court ruled in 2010 in Stolt-Nielsen S.A. v. AnimalFeeds International Corp. that under the Federal Arbitration Act, a party cannot be compelled to submit to class arbitration “unless there is a contractual basis for concluding that the party agreed to do so.”

Oxford asked the arbitrator to reconsider his decision. The arbitrator then issued a new opinion stating that Stolt-Nielsen had no impact on this case because the Oxford agreement authorized class arbitration.

Oxford sought to have the arbitrator’s ruling overturned, but the 3rd U.S. Circuit Court of Appeals in Philadelphia ruled against Oxford, holding the arbitrator had articulated a “contractual basis for his decision” and that Oxford’s objections to the ruling were “simply dressed-up arguments that the arbitrator interpreted its argument erroneously.”

The high court agreed with the 3rd Circuit.

“Nothing we say in this opinion should be taken to reflect any agreement with the arbitrator’s contract interpretation, or any quarrel with Oxford’s contrary ruling,” the high court ruled. “All we say is that convincing a court of an arbitrator’s error — even his grave error — is not enough. So long as the arbitrator was ‘arguably construing’ the contract — which this one was — a court may not correct his mistakes” under the Federal Arbitration Act.

“In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract means, including whether its terms approved class arbitration,” said the Supreme Court.

”The arbitrator did what the parties requested. He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still Oxford does not get to rerun the matter in a court.”

Under the Federal Arbitration Act “the question for a judge is not whether the arbitrator construed the parties’ contract correctly, but whether he construed it at all. “Because he did and therefore did not ‘exceed his powers,’ we cannot give Oxford the relief it wants.”

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Commenting on the ruling, Matthew R. Korn, an associate with law firm Fisher & Philips L.L.P. in Columbus, S.C., who was not involved in the case, said the Oxford contract was drafted in 1998, and many firms since that time have adjusted their contracts to explicitly exclude class arbitration.

However, Mr. Korn said the ruling raises the important issue of “how you draft an arbitration clause to best protect your company but at the same time avoid undue scrutiny” of the contract. This ruling “reminds us of that issue by showing if you don’t carefully draft your agreement, someone reviewing it may not know what was intended” when the agreement was drafted, Mr. Korn said.

Jerrold J. Ganzfried, a Washington-based partner with law firm Holland & Knight L.L.P., said the ruling could impact the “drafting of contracts in general and the arbitration clauses in particular.”

Mr. Ganzfried, whose firm submitted an amicus brief on behalf of Chicago-based DRI-the Voice of the Defense Bar, said that as a result of this ruling, “a defendant opposing a claim for class action arbitration will be more likely to have at the outset a judicial determination of whether that question is arbitratable, rather than consenting to submit that question to an arbitrator.”