Class Arbitration on the Ropes Again

Last week, Professor Linda S. Mullenix, Morris & Rita Atlas Chair in Advocacy at the University of Texas School of Law, published a timely article entitled, Round Five and Down for the Count? Class Arbitration on the Ropes – Again, 6 Preview of Supreme Court Cases 270 (March 18, 2013). In her article, Professor Mullenix examines the upcoming United States Supreme Court decision in Oxford Health Plans LLC v. Sutter (No. 12-135). Oral argument regarding the case was held on Monday, March 25th.

Here is the abstract:

This article previews the issues and arguments in Oxford Health Plans LLC v. Sutter, to be argued before the U.S. Supreme Court on March 25, 2013. The primary issue the Court will address is whether an arbitrator exceeds his powers under the Federal Arbitration Act when the arbitrator concludes that the parties authorized class arbitration based on an arbitration clause that contained language broadly precluding litigation of any dispute, arising under the contract, in any court?

In Oxford Health Plans LLC, the Court for the second time during the 2012-13 Term and the sixth time in recent years again addresses the problem of class arbitration. This appeal focuses on the specific issue whether an arbitrator, under the Federal Arbitration Act, legitimately construed the broad language of the parties’ arbitration clause to conduct class arbitration, where the provision contained no specific language authorizing class arbitration. Based on its growing body of jurisprudence relating to class arbitration, Oxford’s appeal will require the Court to further clarify exactly when parties agree and consent to authorize class arbitration, based on specific contractual language in their arbitration agreement. With the increased use of arbitration clauses throughout commercial transactions, the battle over class arbitration has resulted in repeated appeals to the Court for guidance and clarification concerning the precise contract language authorizing or not authorizing class arbitration.

The professional services contract between Oxford and Sutter contained a relatively short arbitration clause. The core arbitration provision specified that “No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.” The arbitrator concluded that the arbitration clause was much broader than even the usual broad arbitration provision, because it prohibited any conceivable court action and required that all such disputes be sent to arbitration. Consequently, because a class action was plainly a form of civil action that could be brought in court, the clause must have been intended to prohibit court adjudication of class litigation, but intended to permit class arbitration. Conversely, if the arbitration clause did not authorize class proceedings, then Sutter would not be able to pursue a class action in any forum. The arbitrator subsequently certified a class in March 2005, and issued an “award” defining the class and delineating the class claims to be resolved in the arbitration.

From the defense perspective, Oxford Health Plans is significant because the appeal demonstrates the need for the Court to provide clarity for attorneys tasked with drafting arbitration provisions where a client desires to avoid class arbitration. This seems especially compelling in light of a broad and seemingly clear arbitration provision intended for bilateral arbitration of disputes. Notwithstanding multiple decisions in recent years, the repetition of this problem suggests that the Court needs to bring order to the array of possible language that might or might not authorize class arbitration. The cases demonstrate that apart from the concerted efforts of corporate attorneys to draft class-proof arbitration provisions, plaintiffs continue to find nuanced means to discern parties’ intent to agree to class arbitration.

From the plaintiffs’ perspective, the two class arbitration cases currently before the Court will have significant impact on broader questions of access to justice. In Italian Colors, the Court will determine whether to uphold the effective vindication rule which would enable class arbitration for small value claimants where the costs of arbitration might otherwise preclude redress in any forum. Similarly, in Oxford Health Plan the Court may weigh whether the broad language of an arbitration provision barring any disputes from court, coupled with a mandatory arbitration provision, is so sweeping as to effectively foreclose class resolution anywhere.

To some extent, the narrow language issues presented in these two appeals may essentially constitute a self-correcting problem. In Italian Colors, the arbitration provision was drafted years ago before the Court’s major arbitration decisions setting forth the contours of class arbitration jurisprudence. Several commentators have pointed out that successive generation arbitration clauses now include mitigating concessions to make the prospect of arbitration more palatable and fair. In a similar vein, the arbitration provision entailed in Oxford Health Plan was drafted more than a decade ago, and its broad, boilerplate language may now be a thing of the distant past.

The full text of this and other articles authored by Professor Mullenix are available for download (without charge) from the Social Science Research Network.