June 10, 2013

Supreme Court Decides Oxford Health Plans, LLC v. Sutter

On June 10, 2013, the Supreme Court of the United States decided Oxford Health Plans, LLC v. Sutter, No. 12-135, holding that, as long as an arbitrator's decision construes the parties' contract, the arbitrator has not "exceeded his powers" so as to permit vacation of the decision under section 10(a)(4) of the Federal Arbitration Act (FAA), 9 USC § 10(a)(4).

John Sutter, a physician who provided medical services under a contract with Oxford Health Plans, sued Oxford in New Jersey state court alleging violation of the contract and several state laws.  Oxford moved to compel arbitration of Sutter's claims based on an arbitration clause in the parties' contract. The state court granted the motion, and an arbitrator determined that the arbitration clause included an intent for class arbitration.

Oxford moved to vacate the arbitrator's decision on the ground that he had "exceeded [his] powers" under section10(a)(4) of the Federal Arbitration Act. The District Court denied the motion, and the United States Court of Appeals for the Third Circuit affirmed.

Following the Supreme Court's decision in Stolt-Nielsen S. A. v. Animal Feeds Int'l Corp. 559 U.S. 662, 684 (2010)—which 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"— Oxford renewed its effort to vacate the arbitrator's decision under section 10(a)(4). The District Court again denied the motion and the Third Circuit affirmed. The Supreme Court granted certiorari to address a circuit split on whether section 10(a)(4) authorizes district courts to vacate an arbitral award under such circumstances.

The Supreme Court affirmed, holding that the sole question under section 10(a)(4) is "whether the arbitrator (even arguably) interpreted the parties contract, not whether he got its meaning right or wrong." This conclusion flowed from the "limited review" inherent in section 10(a)(4), which "permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly." Convincing a court of an arbitrator's error—"even his grave error"—was not enough under section 10(a)(4) to justify vacating the award. In colorful language, the court concluded: "the arbitrator's construction holds, however good, bad, or ugly." Because Oxford chose arbitration and agreed with Sutter that an arbitrator should determine what that contract meant (including whether its terms approved of class arbitration), the court could not conclude that the arbitrator "exceeded his powers" under section 10(a)(4).

Justice Kagan delivered the opinion for a unanimous Court. Justice Alito filed a concurring opinion, in which Justice Thomas joined.

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