Under what circumstances can an arbitrator order that claims presented to him or her be adjudicated on a classwide basis?
In Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp, 559 U.S. 662 (2010), the Supreme Court held that class procedures can be employed “only if the parties have authorized them.” But what steps may be considered as conferring that authorization on the arbitrator? In Oxford Health Plans LLC v. Sutter, No. 12-135 (June 10, 2013), the Supreme Court unanimously held that since the parties in that case requested the arbitrator to decide if the arbitration contract authorized class arbitration, they were bound by his determination on the issue.
As Justice Kagan put it in the majority opinion, “In sum, Oxford chose arbitration, and it must now live with that choice. Oxford agreed with Sutter that an arbitrator should determine what their contract meant, including whether its terms approved class arbitration. The arbitrator did what the parties requested: He provided an interpretation of the contract resolving that disputed issue. His interpretation went against Oxford, maybe mistakenly so. But still, Oxford does not get to rerun the matter in a court.”
What alternatives are left to a defendant who confronts an arbitrator who believes that he or she has been expressly or implicitly authorized to decide whether to order arbitration of the claims of absent class members? Two avenues are left open by the Oxford Health Plans case. First, the majority opinion in footnote 2 points out that “We would face a different issue if Oxford had argued below that the availability of class arbitration is a so-called ‘question of arbitrability.'” In other words, “‘certain gateway matters, such as…whether a concededly binding arbitration clause applies to a certain type of controversy’…are presumptively for courts to decide.” That path to avoiding an arbitrator’s decision to order a class arbitration is open because “this Court has not yet decided whether the availability of class arbitration is a question of arbitrability.”
Second, a concurring opinion by Justice Alito, joined by Justice Thomas, focused on the rights of absent class members who had not consented to have their claims adjudicated in an arbitration. Justice Alito noted that “an arbitrator’s erroneous interpretation of contracts that do not authorize class arbitration cannot bind someone who has not authorized the arbitrator to make that determination.” As such, “it is difficult to see how an arbitrator’s decision to conduct class proceedings could bind absent class members who have not authorized the arbitrator to decide on a classwide basis which arbitration procedures are to be used.”
The unresolved issues of (1) the arbitrability of the question of whether class arbitration is available in a given case, and (2) the binding impact of an arbitration on absent class members who have not authorized their claims to be decided by the arbitrator caution the unhappy defendant who finds itself in a potential classwide arbitration to be careful what it says to the arbitrator, and to seek federal court relief promptly on the former question if the arbitrator signals an intent to hold a class arbitration. In other words, don’t ask the arbitrator, but tell the federal court.