Two U.S. Supreme Court Opinions Enforce Arbitration Agreements
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Litigants cannot be forced to arbitrate disputes through class arbitration unless they agree to do so. This is the U.S. Supreme Court’s message delivered in two opinions addressing the enforceability of arbitration provisions and class action waivers. With these opinions, the Court signaled that the language of the arbitration agreement controls whether a case may be maintained as a class action or whether a class action is precluded.
Choose Language Carefully
The Supreme Court issued its unanimous opinion in Oxford Health Plans v. Sutter,affirming an arbitrator’s conclusion that contractual language requiring arbitration of all claims that could be brought as a civil action was intended for class action claims to be resolved through arbitration because a class action is a type of civil action. The Court noted that the parties agreed that their agreement was silent as to whether class arbitration was permissible and requested that the arbitrator interpret the agreement and determine whether class arbitration was permissible. The Court refused to second guess the arbitrator’s decision, concluding there was no error as he interpreted and applied the language of parties’ agreement.
“What Oxford demonstrates is that if you don’t have explicit language in your arbitration agreements [addressing class action treatment] and you defer to the arbitrator to decide that, you may not like what the arbitrator has to say, but you’ll be stuck with that,” explains Edward A. Salanga, Phoenix, cochair of the ABA Section of Litigation’s Expert Witness Committee. “The Oxford Health Plans case was a basic contract interpretation case,” observes Raymond A. Garcia, New Haven, chair of the subcommittee on construction for the Section of Litigation’s Alternative Dispute Resolution Committee. “The lesson for business people drafting these provisions is that they have to be very specific,” cautions Garcia. Otherwise, as the Supreme Court stated, “[t]he potential for those mistakes is the price of agreeing to arbitration.”
Arbitration Agreements Will Be Enforced as Written
Less than two weeks after issuing its decision in Oxford Health Plans, the Supreme Court issued an opinion addressing whether a class action waiver in an arbitration agreement is enforceable where enforcement would deprive the plaintiffs of an effective means to vindicate their statutory rights. In American Express Co. v. Italian Colors Restaurant, the Court disagreed with three successive Second Circuit decisions holding a class action waiver was unenforceable because the high costs of litigating antitrust claims meant individual claims would not be pursued absent a class action mechanism. The Supreme Court held that a class action waiver is not unenforceable on the ground that the cost of arbitrating the claim exceeds the potential recovery.
The Supreme Court is “taking every opportunity to publish decisions on arbitration agreements holding that they will be enforced in accordance with their terms as that is the stated policy behind the FAA,” observes Salanga. Now, with its decision in American Express, the Court has reaffirmed that “arbitration is a matter of contract,” and “courts must ‘rigorously enforce’ arbitration agreements according to their terms”—even if that means low-value claims will not be prosecuted.
Read original articleTags: Class Action, the Supreme Court
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