Marc J. Goldstein Arbitrator & Mediator NYC
April 09, 2012

Third Circuit Ruling Shows Vitality of Commercial Class Arbitration After Stolt-Nielsen

That class arbitration in a commercial context remains viable after, and perhaps despite, the Supreme Court’s 2010 decision in Stolt-Nielsen S.A. v. Animalfeeds Int’l, Inc. (130 S.Ct. 1758), was demonstrated again last week in a decision of the US Third Circuit Court of Appeals. The Third Circuit affirmed a district court ruling that denied vacatur of an arbitrator’s award permitting class arbitration between the Oxford managed care network and a class of doctors on whose behalf the Claimant brought the case under his individual reimbursement contract with Oxford. (Sutter v. Oxford Health Plans LLC, 2012 WL 1088887. (3d Cir. April 3, 2012)). Both the district court and the Third Circuit rejected Oxford’s position that Stolt-Nielsen required the conclusion that the arbitrator had exceeded his powers by allowing class arbitration.

The Oxford dispute resolution clause stated:

“No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and any and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.”

The arbitrator construed this clause as authorizing class actions, in a procedural order in 2003 later incorporated in a clause construction award. The arbitrator considered that the class action the Claimant had commenced in New Jersey Superior Court was “a civil action concerning” a dispute arising under the Agreement. He then reasoned that whereas the clause stated that  “any and all such disputes”  should go to arbitration, the parties evidently intended to arbitrate any action which, but for the arbitration clause, could be commenced in court. This necessarily included a class actios.

This construction of the clause was not inevitable, and was perhaps not even the one most logically derived from the text. The prohibition on court proceedings could have been read as broader than the submission to arbitration. The clause does not unambiguously send to arbitration that which it forbids in court: i.e. “any civil action concerning any dispute arising under this Agreement.” The signatory doctor was required to arbitrate only “such disputes,” not “such civil actions.”

The arbitrator might have found that a dispute between Oxford and another physician who signed a similar contract does not “aris[e] under this Agreement,” but under another agreement. But that interpretation would have imposed a class action waiver, and under the canon of construction that a waiver should be set forth in explicit terms, it was quit. justifiable to reject that interpretation — at least if the text could plausibly support another. And indeed such a broader interpretation was possible, as “this Agreement,” did not necessarily mean only the agreement between Oxford and this particular doctor, but could plausibly embrace the identical reimbursement agreements between Oxford and hundreds or thousands of other doctors.

For the Third Circuit panel, the case fell comfortably within settled FAA jurisprudence that an arbitrator acts within his or her powers when the award purports to construe the contract, even if the arbitrator’s construction is at the outer limits of plausibility. Stolt-Nielsen was seen by the Court as neither changing this doctrine nor requiring the rejection of class arbitration in this case.

In Stolt-Nielsen the parties had stipulated that the arbitration clause was “silent” concerning class actions, i.e. that they had made no agreement about class actions. That stipulation, the Supreme Court reasoned, precluded any arbitral finding that the parties intended to permit class arbitration, and left the arbitrators only one way to find that class arbitration was permitted — by resort to the law applicable to the arbitration clause. The Supreme Court held that whereas the arbitrators did not apply such law, but relied instead on other arbitral awards that found class arbitration appropriate when the clause did not preclude class arbitration, the tribunal exceeded its powers.

The Third Circuit was unpersuaded by Oxford’s arguments that Stolt-Nielsen prohibited class arbitration in this case.

The arbitrator having purported to interpret the langauge of the arbitration clause to discern the parties’ intent, and having had before him no stipulation of “silence” about class arbitration, Stolt-Nielsen was inapposite. The arbitrator’s ascertainment of the  parties’ intent based on the words of the clause was procedurally proper, and so the merits of that interpretive exercise were not open to review on a motion to vacate the award based on FAA Section 10(a)(4) for having exceeded the powers conferred on the tribunal by the parties.

The Oxford case should add vitality to the view that Stolt-Nielsen did not signal the end of all class arbitration in commercial cases, especially those that involve neither consumers nor employees. Oxford reminds us that Stolt-Nielsen was fundamentally a case about contract interpretation, and not a policy polemic against class arbitration from the conservative wing of the US Supreme Court. Oxford also reminds us that Stolt-Nielsen will frequently not control the outcome of a contested class arbitration clause construction dispute before an arbitral tribunal, as claimants will avoid making the type of stipulation, concerning the “silence” of the clause,  that in Stolt-Nielsen foreclosed further analysis of the text as a source of the intent of the parties.

Indeed, as more decisions like Oxford emerge from the federal courts of appeals, the class arbitration analytical roadmap for arbitrators should become well-understood. A tribunal not constrained by any explicit class action waiver nor by a Stolt-Nielsen type stipulation regarding the “silence” of the clause, will parse the text and syntax of the clause, in the context of the parties’ overall contract, as a first step to ascertaining their intent. If ambiguity exists, resort may be had to parol evidence.

And if the clause, so construed, permits conflicting inferences about intent, resort may be had to the governing law concerning principles of interpretation, burdens of proof, etc. 







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