Monday’s oral argument for the class arbitration dispute in Oxford Health Plans v. Florida before the US Supreme Court contained some expected points and some unexpected points.  As expected, the argument revolved around the question of the extent to which the Court should defer to the decision of the arbitrator, who interpreted the arbitration clause to authorized class arbitration, or instead to treat the matter as a question of law under the Federal Arbitration Act, with a strong presumption against class arbitration.  The unexpected point was the considerable discussion, initiated by questions from the Justices, about the application of the doctrine of manifest disregard of law as a basis for vacatur of an arbitral award.  The implication I draw from the latter discussions is that a number of the Justices believe the doctrine continues to have vitality.

 

First, the question of deference.  The following colloquies among several individual Justices and Seth Waxman, counsel for petitioner, and Eric Katz, counsel for respondent, capture the issue, and perhaps the attitude of the relevant Justices, well.  Note that Justice Kennedy is considered by many to be a “swing vote” on issues of arbitration.

 

JUSTICE SOTOMAYOR: More than once we have said an error of law or fact is not a basis to say that an arbitrator exceeded his or her powers.

 

MR. WAXMAN: Oh, Justice Sotomayor, we are not asking the Court to vary in any material respect the highly deferential standard that’s reflected in Section 10(a)(4) of the Federal Arbitration Act.

 

But we are asking that that generally applicable standard of review be applied to a question with a very strong empirical presumption that the FAA has attached to it and this Court has announced, which is, that absent an actual agreement by the contracting parties that they will permit their disputes to be arbitrated on a class basis, an inference that may not as a matter of Federal law be derived from an agreement to submit all disputes to arbitration –

 

JUSTICE KENNEDY: So your rule is that although we must defer to an arbitrator’s interpretation of the contract, in this case, there is an exception because?

 

MR. WAXMAN: Well, in this case, you defer, as you always do, but you — you — you — you have to provide — there is some level of review. It’s not just because the arbitrator says, I’ve looked at the contract and I think this.

 

As this Court has said over and over again, including in Stolt, just saying something is so doesn’t make it so. There is deferential review, but there is review. And the review is of a proposition that this Court has now said twice strongly presumes that there is — there is no agreement to arbitrate as a class unless it is clearly shown to be so, and that that showing is not satisfied by an all-disputes clause.

 

JUSTICE KENNEDY: So — so we make that rule just with reference to the word “arbitration” when it’s in the class action context, or does this apply to other words as well?

 

MR. WAXMAN: Well, I think –

 

JUSTICE KENNEDY: I’m — I’m just not sure what the –

 

MR. WAXMAN: So, I — I think — I mean, this Court has recognized repeatedly that class — that the question of class versus bilateral arbitration is a special kind of question under the FAA as to which the Federal Arbitration Act itself applies a rule of decision.

 

And therefore, the question I suppose is, when a court looks at a — an assertion by an arbitrator that the language of the contract permits — and in this case, the arbitrator found that it required class arbitration — a court has to ascertain whether that assertion of fact is at least plausible, or, to use the vernacular of this Court in Stolt-Nielsen, the Court said in Stolt-Nielsen that the stipulation left no room for an argument that the parties had agreed.

 

And similarly here, the –

 

JUSTICE GINSBURG: But there was no — in Stolt-Nielsen, the parties stipulated that the contract said nothing on the issue of class proceeding. In this case, we have no such stipulations –

 

MR. WAXMAN: Correct.

 

JUSTICE GINSBURG: — and the arbitrator is interpreting a term of the contract, the ordinary rule is that — that the arbitration — arbitrator’s interpretation of a contract term, wrong or right, unless it’s off the wall, is — is not to be overturned.

 

MR. WAXMAN: Well, Justice Ginsburg, the -everyone agrees in this case, as one would have to, based on the holding in Stolt-Nielsen, that if the -this arbitration clause in this case just said all disputes will be arbitrated, not litigated, that the arbitrator could not — the arbitrator would be reversed if it — if he found that that indicated an actual agreement of the parties to class arbitration. That is inconsistent with the actual holding in Stolt-Nielsen.

 

And in this case, that sentence is indistinguishable from that orthodox clause. All that we –

 

JUSTICE SCALIA: You’re — you’re saying that this is off the wall. That’s your — to put it in — in Justice Ginsburg’s terms, right?

 

MR. WAXMAN: Well, not to be pejorative, but I would say this: In the vernacular of Stolt-Nielsen, this language, quote, “leaves no room” for a conclusion that the parties agree to arbitrate on the facts –

 

JUSTICE SCALIA: So you’re saying — you’re saying that the — that the deference which we give to arbitrator’s statement of fact, like the deference we give to a lower court’s adjudication of fact, has a limit, that at some point, the distortion of fact becomes an issue, a question of law rather than fact, right?

 

MR. WAXMAN: Yes. And in this case, a question of Federal arbitration.

 

****

 

JUSTICE ALITO: Can I ask you a question on something a little bit different? Did the arbitrator have — how many parties were there to this agreement? There is Oxford on one side and how many doctors on the other side?

 

MR. KATZ: Well, this specific agreement was Dr. Sutter and Oxford, but there are 20,000 physicians who had signed the same agreement.

 

JUSTICE ALITO: All right. So 20,000. And the effect of the arbitrator’s decision is that all of those 20,000 doctors are deemed to have agreed to class arbitration, right?

 

MR. KATZ: Correct.

 

JUSTICE ALITO: And if we assume — if I ask you to assume for the sake of argument that this agreement does not constitute an agreement to engage in class arbitration, where did the arbitrator get the authority to make that holding with respect to all of these absent class members?

 

MR. KATZ: Well, the arbitrate –

 

JUSTICE ALITO: If they didn’t agree to class arbitration, how can they — and they didn’t agree to have the arbitrator decide whether the agreement calls for — for class arbitration. How did he purport to bind them to that decision?

 

MR. KATZ: Well, the arbitrator made the decision based on the language and the evidence presented before him and finding that it authorized class arbitration. That was the determination that was made initially.

 

JUSTICE GINSBURG: Is the — is the contract authorized it as for Dr. Sutter, all of the others are similarly situated, they got the same contracts?

 

MR. KATZ: They all — they all had the –

 

JUSTICE GINSBURG: So either the contract means what the arbitrator said it meant or it doesn’t. If it means what the arbitrator said it meant, then everybody’s bound.

 

MR. KATZ: That — that is correct. Now, ultimately, when the matter was certified –

 

JUSTICE ALITO: Wait a minute. Where did he get the authority to make that decision to interpret the contract with respect to them?

 

MR. KATZ: Well, the –

 

JUSTICE ALITO: You’re saying he can do it with respect to Oxford because Oxford agreed to have the arbitrator decide whether this calls for class arbitration. But these other people didn’t. They didn’t agree to have the arbitrator decide whether it calls for class arbitration.

 

MR. KATZ: Well, Justice Alito, this — this is no different than in any other contract interpretation issue. The arbitrator makes a determination based upon the reading of the language and what the parties are telling him that language means.

 

CHIEF JUSTICE ROBERTS: But the difference is in First Options. The one thing First Options says is the question of who’s going to be bound by arbitration is decided by the court de novo. And in the class context, you are binding 19,999 individuals who did not agree to be bound, depending upon the particular interpretation.

 

MR. KATZ: But Stolt-Nielsen, which the arbitrator faithfully reviewed, analyzed, and followed, makes clear that you can have class arbitration as long as the arbitrator determines that the contracting parties to that agreement establish that class arbitration is available.

 

JUSTICE SCALIA: Did these other people agree to this arbitrator? I mean, they might have said, this arbitrator, he’s a wild guy, he’s going to say that — that we agreed to class action. We didn’t agree to class — I don’t want this arbitrator.

 

They didn’t agree to this arbitrator. Why should they be bound by — by whatever he says?

 

MR. KATZ: Well, for one thing, Justice Scalia, that’s exactly what Oxford wanted. Oxford argued that the class action should go into arbitration.

 

****

 

Perhaps surprisingly, the argument also incorporated several discussions of the doctrine of manifest disregard of law as a basis for vacating an erroneous arbitral decision.  Because the Court’s recent jurisprudence has triggered considerable discussion of whether that doctrine continues to exist in Federal Court, I excerpt below the various discussions in the argument in which the doctrine arose.  I read these discussions to indicate that a number of the Justices regard the doctrine of manifest disregard of law as continuing to exist.  Readers might note that the Reporters for the draft ALI Restatement of the Law of International Commercial Arbitration have taken the position in their work that, whatever may be the case for that doctrine in US domestic arbitrations, it does not apply to international arbitrations under the Federal Arbitration Act.  The excerpts follow.

 

JUSTICE SCALIA: And you think that standard — all that standard means is that the arbitrator has to say is, I am interpreting the contract, even though what he says is flatly, visibly, unquestionably contrary to what the contract says, and the court has to accept that, so long as he says, I’m interpreting the contract.

 

MR. KATZ: This Court’s jurisprudence for almost 2 centuries has held just exactly that.

 

JUSTICE SCALIA: Just exactly that?

 

JUSTICE BREYER: Well, I don’t think so. thought it said that — that the award — if the award displays manifest disregard, or words like that. I mean, Misco is — is not absolute. Misco has a narrow exception, and that exception is where there’s just no basis in the contract for the decision. And so I thought you were arguing that here that’s clearly not so, there is a basis.

 

MR. KATZ: Well, there — well, there is a basis. What Misco — as I understand what Misco teaches is that it has to be unambiguous, that the arbitrator –

 

JUSTICE BREYER: That’s a different thing, that’s a different thing. It doesn’t say whatever he says about the contract, he wins. It says what he says about the contract, it is not just manifestly wrong, it isn’t just plain language to the contrary, and et cetera. There is language in the cases to that effect. So I would be repeating myself, but are you saying there is no loophole no matter how tiny? That’s news to me.

 

MR. KATZ: Well, Justice Breyer, I don’t think manifest disregard — certainly, manifest disregard is not a standard by which this matter has come up before the Court. And this Court has held in Hall Street and other cases that 10(a)(4) is the exclusive ground set forth by Congress, that this Court did not have the authority — and I’m quoting the Court — it “did not have the authority to expand.”

 

JUSTICE BREYER: All right. Suppose I think, since I wrote the words in First Options, that something like manifest disregard or totally ignoring plain law is a ground for reversing an arbitrator, even an arbitrator. Now, suppose I think that. Then do I decide against you?

 

MR. KATZ: No, Justice Breyer, because here both sides, not only in 2003, but in 2010 after Stolt-Nielsen, came to the arbitrator and said, we want you to decide it. They told the arbitrator at that time, look at the agreement, look at what transpired in 2002, back when this matter was in the superior court and make your decision.

 

So the arbitrator applied the law that -and applied the — the standard that he was told to apply. He didn’t just disregard it. He didn’t make a decision saying, I don’t care what you are telling me to do.

 

****

 

JUSTICE SOTOMAYOR: Counsel — counsel, you seem — I don’t know. I see two questions here. The first was an arbitrator exceeds his power if he decides a question is arbitral when it’s not. And — but here there is no dispute about that because you are right, your adversary submitted this question to arbitration. And that’s what I’m hearing you respond. He did, there’s no question, he said the arbitrator has to decide this issue.

 

Justice Breyer raised the second question: Assuming he could, is there any remaining power in the Court to overturn his decision? And Justice Breyer said, If the standard is manifest disregard of fact and law, why would you still win?

 

Because your adversary is saying: The law is clear you have to find some hook in the agreement to agree to class action — arbitration. And he says there is none. That’s basically his position, that the arbitrator’s decision on its substance manifestly disregarded the law. So that’s the question that I believe is extant still.

 

MR. KATZ: Answering that — answering that hypothetical, assuming that was –

 

JUSTICE SOTOMAYOR: Was it a hypothetical?

 

(Laughter.)

 

MR. KATZ: Well, if there was a manifest disregard –

 

JUSTICE SOTOMAYOR: No, I want to say why there wasn’t. I want you to explain why there wasn’t one.

 

MR. KATZ: Well, the arbitrator did not manifestly disregard. The arbitrator did what the parties wanted the arbitrator to do.

 

JUSTICE BREYER: Look, I’m going to say something and you are going to say, that’s right, that’s just what I wanted, and that won’t do me any good if you don’t think of it. The arbitrator in front of me, so you better tell me why I’m wrong, because they certainly will and they are in the briefs.

 

Mr. Arbitrator, this class — this language here says all disputes will go to arbitration. It doesn’t say they are supposed to be class or can be or can’t be. You decide what it means.

 

And the arbitrator thinks, hmm, all, hmm, it doesn’t say, but I got to reach a decision. So what kind of a case is it? Small claims. And then it says something about court suits where they have class. Hmm, gets his magic 8-ball out and, whatever it is, he says, that’s what it means. It means it could include class, too. Okay?

 

Where in our case law is that a manifest disregard? He’s looked at the language, there were two plausible constructions, he came up with one of them. What’s the problem? Now, that’s of course their problem, but if you just say yes and don’t go into why they are saying no it’s not going to help me.

 

MR. KATZ: Well, I don’t believe that is –Justice Breyer, I don’t believe that is a manifest disregard.

 

JUSTICE BREYER: So — obviously you don’t.

 

(Laughter.)

 

MR. KATZ: And the reason being is that the arbitrator based his determination on the standards or the materials that were put forth before him, the agreement and the evidence, and he made a decision.

 

JUSTICE SCALIA: But that’s not enough. As stated by Justice Breyer, he has to have come to a plausible construction. It’s not enough that he said, I’m construing the contract; I have looked at the terms of the contract and what the parties’ said, and my construction of the contract is X. That’s not enough. It has to be plausible.

 

MR. KATZ: Yes.

 

JUSTICE SCALIA: Now, why is this plausible?

 

MR. KATZ: Well, with all due respect, Justice Scalia, I don’t think plausibility comes into play.

 

JUSTICE BREYER: Use whatever word you want. Manifest disregard, stick to the law. Now, suppose the arbitrator had said this: It doesn’t say how to do it; I see how you do it; you get out a magic 8-ball. Now, we would strike that down, because that is not relevant. But he didn’t say magic 8-ball. He said class. And there are many class arbitrations. So it isn’t quite magic 8-ball.

 

Now, you explain to me –

 

JUSTICE SCALIA: What’s a magic 8-ball? don’t know what you are talking about. (Laughter.)

 

JUSTICE BREYER: A magic 8-ball is you have — that’s a little thing, it’s the — it’s a non-sportsman’s equivalent of throwing darts.

 

(Laughter.)

 

****

 

MR. WAXMAN: Thank you.

 

I have three points, two small ones and one significant one.

 

****

 

JUSTICE KENNEDY: What is your significant point?

 

(Laughter.)

 

MR. WAXMAN: I can’t go back 200 years, but let’s just go to 1960 in terms of the standard. And in the Steelworkers v. the Enterprise Wheel case, what this Court held was, quote, “An award is legitimate only so long as it draws its essence from the agreement. When the arbitrator’s words manifest an infidelity to this obligation, courts have no choice but to refuse enforcement of the award.”

 

And our submission is that this award, the conclusion that the all-disputes provision here manifested an actual agreement by the parties to class arbitration, cannot possibly be reconciled with the plain language or Stolt-Nielsen’s holding.

 

Thank you.

 

CHIEF JUSTICE ROBERTS: Thank you, Mr. Waxman. Counsel.

 

The case is submitted.

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Tags: JUSTICE ALITO, JUSTICE SCALIA

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