<< Back to NCLC eReports
U.S. Supreme Court Allows Class-Wide Arbitration to Proceed
by Jon Sheldon
NCLC eReports, June 2013, No. 3
Arbitration; Class Actions
On June 10, a unanimous U.S. Supreme Court in Oxford
Health Plans LLC v. Sutter
resolved a split in the circuits,
and found that courts should almost never vacate an arbitrator's interpretation
of an arbitration agreement as to whether or not the agreement provides for
class-wide arbitration. The agreement at issue in Sutter provided 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..."
This agreement is not explicit as to whether class-wide arbitration is or is not allowed. Such
an agreement is often termed a "silent" agreement and the issue before
arbitrators and the courts is whether an action forced into arbitration can
proceed on a class-wide basis if the arbitrator interprets the silent agreement
as allowing class-wide arbitration, and then later decides to certify the
The arbitrator in Sutter looked to the meaning of the above quoted language and decided that a class
action was a "civil action concerning any dispute" and that the arbitration
provision required that "all such disputes" (i.e. class actions) be submitted
to arbitration. The Supreme Court found that the arbitrator did not exceed his
powers (one of the few bases to vacate an arbitration decision) because the
arbitrator was seeking to interpret the agreement, which is one of the powers
of an arbitrator.
The standard for a reviewing court in deciding whether to vacate an arbitrator's interpretation of
the agreement is solely "whether the arbitrator (even arguably) interpreted the
parties' contract, not whether he got its meaning right or wrong." The Court
reiterated "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
grounds to vacate an award as exceeding the arbitrator's powers].... The
arbitrator's construction holds, however good, bad, or ugly."
Distinguishing Supreme Court's Decision in Stolt-Nielsen
The Court distinguished its 2010 ruling in Stolt-Nielsen, S.A. v. AnimalFeeds Int'l
where the Court found the arbitrators in providing for class arbitration did
exceed their authority. The facts of that case were unique in that the parties
stipulated that the parties had never reached an agreement on class
arbitration, and then the arbitrators made a determination on policy grounds.The Court stated that making policy decisions was beyond the arbitrators'
authority and that they should instead interpret the contract, which is exactly
what the arbitrator did in Sutter.
Sutter Does Not Apply
Where Agreement Explicitly Bans Class Arbitration
Sutter only has implications for silent arbitration clauses. Many arbitration agreements
today are not silent but explicitly prohibit class-wide arbitration, and the
Supreme Court in 2011 in AT&T Mobility LLC v. Concepcion,
upheld such a ban even though the California Supreme Court found it to be
unconscionable in the facts of that case.
The viability of the best remaining challenge to a ban on class arbitration may be determined by
the Supreme Court any day now, in In re American Express Merchants'
Litigation. The Second Circuit found that a ban on class arbitration made
the arbitration agreement unenforceable because the facts of the case made
impractical the plaintiffs' attempt at vindication of their federal statutory
rights. In that case, the cost to litigate a complex federal anti-trust claim
was beyond the financial means of an individual plaintiff. The right to have
practical vindication of federal statutory rights must supersede the Federal
Arbitration Act's policy of enforcing arbitration agreements. The Supreme Court accepted certiorari in American Express Merchants'
Litigation, oral argument was completed on February 27, and a decision
should be forthcoming this month.
Sutter's Practical Implications Where Agreement Is Silent on Class Arbitration
While class arbitration faces high hurdles if the agreement prohibits class arbitration,
many arbitration agreements today are still silent as to the availability of
class-wide arbitration. As long as the arbitrator seeks to interpret the
arbitration agreement, courts are unlikely to overturn the arbitrator's clause
Thus an arbitrator may find class arbitration allowed where an otherwise-silent arbitration
clause states that it allows the arbitrator to award any kind of relief that a
court could award.Similarly, where an arbitration clause provides that it applies to any claim that would be resolved in a
court under applicable state and federal law, an arbitrator could reasonably
view this as allowing class arbitration since federal and state law authorize
class treatment. The same might be interpreted from the fact that the arbitration agreement
applies broadly to any dispute with itemized
exceptions, and class arbitration is not one of those exceptions.
clause's requirement that arbitration proceed under AAA or JAMS rules may
indicate an intent to allow class arbitration because those rules provide for
class arbitration. Similarly, an arbitrator could infer an intent to allow
class arbitration from a silent clause where a state has case law allowing
class arbitration where a clause is silent, such as California
and perhaps Minnesota
In interpreting ambiguous language as to the parties' intent, an arbitrator might be guided by
certain general principles. Ambiguous terms are construed against the drafter.
Once the existence of an arbitration agreement is established, federal law
favors an expansive treatment of that arbitration agreement.
Copyright © 2013 National Consumer Law Center, Inc. All rights reserved.
2013 WL 2459522 (June 10, 2013).
131 S. Ct. 1740 (2011).
See 667 F.3d 204 (2d Cir. 2012).
Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982), rev'd on other
grounds sub nom. Southland Corp. v. Keating, 465 U.S. 1 (1984). See
also Garcia v. DirecTV, 9 Cal. Rptr. 3d 190, 195-196 (Ct. App. 2004); Blue
Cross of Cal. v. Super. Ct., 78 Cal. Rptr. 2d 779, 781 (Ct. App. 1998).
Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792 (Minn. 2004).
Dickler v. Shearson Lehman Hutton, Inc., 596
A.2d 860 (Pa. Super. Ct. 1991).
Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S. Ct. 927,
74 L. Ed. 2d 765 (1983).