Two principles of federal arbitration law ran headlong into each other during Monday’s oral argument in Oxford Health Plans, LLC v. Sutter. On one side stands a half-century’s worth of precedent to the effect that arbitrators are entitled to significant deference when it comes to how they resolve disputes over contractual language that the parties have agreed to submit to arbitration. On the other side stands the Court’s more recent class arbitration jurisprudence, especially its 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds Corp., holding that parties must “affirmatively agree” to class arbitration – and that an arbitrator exceeds his authority under the Federal Arbitration Act (FAA) if he finds such an agreement without any textual or atextual evidence of the parties’ intent to so provide.
The question with which the Justices struggled throughout the hour-long session arises from the interaction of these two principles: When an arbitrator does at least purport to rely upon the language of the contract as proof that the parties intended to allow class arbitration, but when that same language does not appear to compel the arbitrator’s analysis, which principle yields? Ultimately, the answer may depend less on the arguments offered by counsel for the parties than on whether five Justices believe that the arbitrator’s interpretation of the relevant contractual language was not just erroneous, but manifestly implausible.
I. Petitioner’s argument
Arguing for petitioner Oxford Health Plans LLC, WilmerHale partner Seth Waxman opened by suggesting that the parties had never agreed to submit to the arbitrator the question of whether the underlying arbitration agreement authorized class-wide arbitration – and so the arbitrator’s interpretation of the contract as authorizing such proceedings was not entitled to any deference. After substantial pushback from Justices Ginsburg and Sotomayor (the latter of whom would suggest later in the argument that “there is no dispute” that Oxford had agreed to arbitrate that question), Waxman retreated to safer terrain, shifting focus to the idea that, even when an arbitrator is entitled to deference, such deference is not absolute. In this case, when the relevant contractual language apparently evinces no specific agreement with regard to class adjudication, the arbitrator’s interpretation appears unsupported by anything other than the kind of reasoning that the Stolt-Nielsen Court rejected.
Waxman nevertheless struggled somewhat in response to questions from Justices Kennedy and Kagan to offer a precise articulation of the point at which deference should cease when arbitrators resolve disputes over contractual language that the parties have agreed to submit to arbitration. But he appeared to score points with Justice Sotomayor later in the argument when he referred back to the Court’s Stolt-Nielsen decision, and the idea that the arbitrator exceeds his authority if he interprets a contractual provision that “leaves no room” for finding an agreement by the parties to authorize class arbitration as nevertheless so providing.
In effect, then, the test Waxman appeared to describe is one in which an arbitrator’s interpretation of contractual language exceeds his authority – and would therefore be subject to judicial review – if it is implausible (a term Justice Scalia would later introduce into the argument). To that end, even if Stolt-Nielsen does not compel the result in this case, it does suggest why it was implausible for the arbitrator to divine from entirely silent contractual language affirmative indicia of the parties’ agreement to authorize class arbitration.
II. Respondent’s argument
Given the focus of Petitioner’s twenty-eight-minute presentation, Roseland, N.J. class action lawyer Eric Katz, as counsel for the respondent, may not have done himself any favors in opening his argument by suggesting that Oxford could only prevail if it showed that the arbitrator either lacked the authority to interpret the relevant contractual language or did not base the arbitral award on the contract. Indeed, this position precipitated a sharp exchange between Katz and Justice Scalia over whether an arbitrator could insulate most interpretations from subsequent review simply by asserting that they are based upon the contract, even when such claims are implausible on their face. A friendly intervention from Justice Breyer – who suggested that the arbitrator’s interpretation might be given deference absent “manifest disregard” for the contractual language – appeared to steer Katz back onto his course, and the extent to which, on the facts of Sutter’s case, there was at least some basis in the relevant contractual text for the arbitrator’s decision. As Katz explained, the language may not have specifically referred to class arbitration, but so long as the arbitrator relied on ambiguity in the contract’s language – which there clearly was – that was the end of the matter, insofar as judicial review is concerned.
But perhaps the most telling set of exchanges at Monday’s argument came toward the end of Katz’s half hour, when the dialogue shifted, somewhat surprisingly, to a more wide-ranging discussion of the mechanics of class arbitration (which should not factor directly into the Court’s resolution of the question presented). Indeed, the back end of Monday’s transcript is replete with concerns expressed by at least some of the Justices – Justices Alito, Kennedy, and Scalia, in particular – over the extent to which unnamed parties to a class arbitration may never have consented thereto. To be sure, Katz (with some assistance from Justice Ginsburg) provided an effective rejoinder focusing on the right of unnamed parties to opt out of the class arbitration in favor of bilateral arbitral proceedings. But the gestalt of the back and forth was quite clear: Wherever the Justices might come down on the appropriate deference due to arbitrators in bilateral proceedings, enough of them are skeptical about class arbitration to suggest a result in this case wherein tighter reins are placed on arbitrators when it comes to whether the parties have agreed to allow such collective adjudication. The trick will be in figuring out how to ground a deference standard that is unique to class arbitration in a statute that nowhere treats class-wide adjudication differently.
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