Third Circuit Permits Class Arbitration, Distinguishes Stolt-Nielsen

For the past ten years (and counting), Dr. Ivan Sutter and Oxford Health Plans have been engaged in a dispute arising from a 1998 agreement pursuant to which Dr. Sutter would provide health services to Oxford’s members and Oxford would compensate the doctor at a predetermined rate.

Seeking quick, efficient resolution of any disputes between them, Oxford and Dr. Sutter agreed 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 in New Jersey, pursuant to the Rules of the American Arbitration Association with one arbitrator.

The doctor initiated this process, however, by filing a complaint on behalf of himself and other Oxford providers in New Jersey Superior Court, arguing that referral of class claims to arbitration would violate New Jersey public policy.  Oxford successfully moved to compel arbitration, the court leaving to the arbitrator the question whether a class should be certified in the arbitration proceeding.

The arbitrator (the estimable William L.D. Barrett) determined in 2005 that the agreement allowed for class arbitration, basing his finding on his interpretation of the arbitration clause.   Oxford unsuccessfully moved to vacate that Class Determination Award before the US District Court, and the denial was affirmed by the Third Circuit in 2007. 

Then the arbitration proceeded to the merits.  (See how quick arbitration can be, students?) 

In 2010, the US Supreme Court decided Stolt-Neilsen S.A. v. AnimalFeeds International Corp., ruling that an arbitrator exceeds her powers when ordering class arbitration where the parties have stipulated that no agreement on that issue had been reached.  Oxford the repaired to the US District Court a second time, and for a second time its motion to vacate the arbitrator’s class certification award was denied.  And once more Oxford appealed to the Third Circuit.


The Third Circuit noted the presumption that an arbitration award is enforceable and could be vacated only on the four narrow grounds set forth in Section 10(a) of the Federal Arbitration Act.  It also noted that “the task of an arbitrator is to interpret and enforce a contract.  When he makes a good faith attempt to do so, even serious errors of law or fact will not subject his award to vacatur.”

Thus the nub of the Third Circuit’s analysis, affirming the denial of vacatur despite Stolt-Neilsen:  While an arbitrator may exceed his powers by ordering class arbitration without contractual authorization, he does not do so where there is a contractual basis for concluding that the parties agreed to that procedure.

In Stolt-Neilsen, the parties stipulated that their agreement was “silent” on the issue of class arbitration, in the sense that they had not reached an agreement one way or the other on the issue.  The Supreme Court held that, in the face of a stipulated finding that there was no agreement with respect to class certification, the arbitrators were not empowered to behave as if there were one and certify a class.

By contrast, Arbitrator Barrett’s 2005 award was based on a contract that was by no means “silent” in the way that the parties in Stolt-Neilsen stipulated that theirs had been.  Oxford contended that the clause did not refer to class arbitration and therefore did not permit it.  Dr. Sutter never stipulated to that effect, and indeed actively argued that the arbitration clause, on its face, required “all” and “any” claims to be arbitrated.  The arbitrator found for the good doctor, relying on the text of the clause. 

It begins: “No civil action concerning any dispute arising under this Agreement shall be instituted before any court….”  The arbitrator reasoned that the phrase was very broad — broad enough to include every type of action whatsoever, including class actions.  If this is so, then the second phrase, requiring arbitration of “all” such actions, would compel every type of civil action — including class actions — to be arbitrated.

The Third Circuit’s opinion is enlightening and, if broadly adopted, may seriously limit the consequences of the holding in Stolt-Neilsen.  Where it has been conceded by the parties, or determined by the arbitrator, that no agreement to arbitrate class claims exists between the parties, then the arbitrator may not order it.  But where no such stipulation or finding exists, and the arbitrability of class actions is to be determined based on contested contract interpretation, then Stolt-Neilsen would not apply, and the arbitrator’s finding would stand.

One would guess that the former instances are rare.  Thus, Sutter v. Oxford Health Plans might herald a marginalization of Stolt-Nielsen, and a re-empowerment of arbitrators to interpret and enforce the contracts before them as to the question of arbitrability of class claims.

1 Comment

Leave a Reply

Your email address will not be published. Required fields are marked *