Wednesday, July 17, 2013

Supreme Court Rules on Authority of Arbitrators

On June 10, 2013, in a unanimous decision, the United States Supreme Court in Oxford Health Plans LLC v. Sutter, held that as long as an arbitrator is arguably construing the contract, a determination by that arbitrator that the parties to an arbitration agreement intended to authorize class-wide arbitration survives judicial review under section 10(a)(4) of the Federal Arbitration Act (FAA). 
            This case arises out of a dispute over a contract entered into between John Sutter, a pediatrician, and Oxford Health Plans (Oxford), a health insurance company.  Pursuant to that contract Sutter was to provide medical care to individuals within Oxford’s network, and, in turn, Oxford was to pay Sutter for those services at prescribed rates.  The contract included a clause requiring arbitration of claims and prohibiting any “civil action concerning any dispute.”   The contract was silent as to whether class-wide arbitration was permitted. 
In 2002, Sutter filed a complaint against Oxford in New Jersey Superior Court on behalf of himself and a proposed class of other physicians who had similar contracts with Oxford alleging that Oxford was in breach of its provider agreements with class members in regard to payment of claims, Sutter also alleged other violations of state law.  In reliance on the arbitration clause in the contract, Oxford moved to compel arbitration.  The parties agreed to allow the arbitrator to determine whether the agreement allowed for class arbitration.  In 2003, the arbitrator determined that the parties' agreement authorized class action arbitration.   In 2005, Oxford filed a motion in federal court to vacate the arbitrator’s determination.  The District Court denied Oxford’s motion.   In 2007, the Court of Appeals for the Third Circuit affirmed.  
In 2010, the Supreme Court, in Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., held that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so.”  When Oxford requested that the arbitrator reconsider its determination in light of the Supreme Court’s decision in Stolt-Nielsen, the arbitrator issued a new opinion.  In that opinion, the arbitrator found that Stolt-Nielsen had no effect because the agreement at issue here between Sutter and Oxford authorized class arbitration and unlike in Stolt-Nielsen the parties here were disputing the meaning of their contract and, thus, his role as arbitrator was to construe the arbitration clause “in the ordinary way to glean the parties’ intent.”  In so doing, the arbitrator  “found that the arbitration clause unambiguously evinced an intention to allow class arbitration.”
Oxford then returned to federal court, the District Court again denied its motion, and the Court of Appeals for the Third Circuit again affirmed.  The Supreme Court granted certiorari to address the circuit split over whether section 10(a)(4) of the FAA allows a court to vacate an arbitration award.  Ultimately, the Supreme Court affirmed the Court of Appeals.  Under the Supreme Court’s holding in this case, when contract disputes arise between parties that have a contract with an arbitration agreement, an arbitrator, not the court, will interpret and decide the intent of that agreement. 
            Also, on June 10, 2013, the Supreme Court granted certiorari in BG Group PLC v. Republic of Argentina.  This case arises out of an arbitration award obtained by the BG Group PLC, a British investment company, against Argentina, stemming from Argentina’s 2001 economic crises.  An arbitrator with the United Nations Commission on International Trade Law issued the award in BG Group’s favor and the United States Court of Appeals for the District of Columbia Circuit vacated the $185 million award obtained by BG Group PLC.  The decision was vacated on grounds that as a precondition of arbitration, BG Group PLC and Argentina were required to have aggrieved investors first bring a claim in a court in which the investment was made 18 months before initiating arbitration.  The Supreme Court will be addressing whether in disputes such as this, involving multi-staged dispute resolution processes, if a court or an arbitrator should determine when the pre-conditions of arbitration are satisfied. 

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