Employers should review arbitration agreements in light of Supreme Court ruling

Employers should carefully check their arbitration agreements to ensure they include language excluding class-action arbitrations in light of a U.S. Supreme Court ruling last week on the issue, legal experts say.

The absence of such language was the focus of the high court's unanimous ruling in Oxford Health Plans L.L.C. v. Sutter. The court decided that an arbitrator's holding survives the limited judicial review allowed under the Federal Arbitration Act. Judicial review of a class action rather than consideration by an arbitrator is preferable, because unfavorable court opinions can be appealed.

Experts say while many firms' arbitration agreements already have such language, some older or evergreen agreements do not.

According to the recent Supreme Court ruling, Dr. John Sutter 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 sued Oxford in state court in New Jersey on behalf of himself and a proposed class of other New Jersey physicians, claiming Oxford failed to make “full and prompt” payment to the doctors in violation of their agreement and state laws.

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. 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. The arbitrator then issued a new opinion stating that Stolt-Nielsen had no effect on this case because the Oxford agreement authorized class arbitration.

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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.

Archis A. Parasharami, a partner with law firm Mayer Brown L.L.P. in Washington, said “the difficulty here for the defendant” was that the Federal Arbitration Act prescribes very limited review of arbitration awards.

Experts say the Oxford contract was drafted in 1998, and many firms since then have adjusted their contracts to explicitly exclude class arbitration.

Firms must be sure to “specifically state in their arbitration provisions that class actions were being waived,” said Robert Cocchia, a partner with law firm McKenna Long & Aldridge L.L.P. in San Diego.

Secondly, he said, “if you don't have that, particularly if you're dealing with an older contract that might not have language specifically excluding class actions, you have to very carefully consider whether or not the arbitrator can decide that issue, because typically that is an issue for a court to decide.”