In a recent ruling of the U.S. Supreme Court, Oxford Health Plans LLC v. Sutter, petitioner-defendant Oxford was forced to proceed with class arbitration with respondent-plaintiff John Ivan Sutter.
This case, like other recent rulings of the Supreme Court, has an unusual procedural history, which will limit its applicability to future cases. However, it does provide an important reminder for all parties of the great compromise arbitration represents.
Sutter, a pediatrician, entered into a contract with Oxford, a health insurance company, to provide medical care to members of Oxford’s network and Oxford agreed to pay for those services at prescribed rates. Several years later, Sutter filed suit against Oxford in New Jersey Superior Court on behalf of himself and a proposed class of other New Jersey physicians under contract with Oxford, alleging that Oxford had failed to make full and prompt payments to the doctors, in violation of their agreements and various state laws.
Oxford moved to compel arbitration of Sutter’s claims, relying on an arbitration provision in their contract. The state court granted Oxford’s motion, thus referring the suit to arbitration.
In what must be a regrettable decision on the part of Oxford, the parties agreed that the arbitrator should decide whether their contract authorized class arbitration and the arbitrator determined that it did.
As Justice Alito explained in his concurrence, the arbitrator improperly inferred an implicit agreement to authorize class-action arbitration from the fact of the parties’ agreement to arbitrate and that it is far from clear that absent class members will be bound by the arbitrator’s ultimate resolution of the dispute.
After all, it is well-established that arbitration is a matter of consent, not coercion, and the absent members of the plaintiff class have not submitted themselves to this arbitrator in any way.
Class arbitrations that are vulnerable to such collateral attack allow absent class members to unfairly claim the benefit from a favorable judgment without subjecting themselves to the binding effect of an unfavorable one. However, because Oxford consented to the arbitrator’s authority by conceding that he should decide in the first instance whether the contract authorizes class arbitration, this argument was not available to it.
It is unlikely that other defendants will make the same mistake in light of this ruling, which will limit its impact going forward.
The greater lesson is in the arbitrator’s erroneous analysis of the parties’ contract. Justice Kagan, who wrote for the majority, explained that the potential for such mistakes are the price of agreeing to arbitration. Where an arbitrator’s decision concerns the construction of a contract, it holds, however good, bad or ugly.
In summary, Justice Kagan put it bluntly: “Oxford chose arbitration, and it must now live with that choice.”
In this rare instance, the misfortune of an arbitrator’s grave error fell on a defendant with the wherewithal to appeal the decision to the highest court in our nation, albeit unsuccessfully. More often, however, the misfortune will fall upon plaintiffs who are inexperienced with the arbitration process and whose individual damages do not warrant appeal.
Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.
Memorial Day was officially proclaimed on May 5, 1868 by General John Logan, national commander of the Grand Army of the Republic and was first observed on May 30, 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery. The first state to officially recognize the holiday was New York in 1873.
Memorial Day often marks the start of the summer vacation season and Labor Day its end. But did you know that on Memorial Day the flag is raised briskly to the top of the staff and then solemnly lowered to the half-staff position, where it remains only until noon. It is then raised to full-staff for the remainder of the day. The half-staff position remembers the men and women who gave their lives in service of their country. At noon their memory is raised by the living, who resolve not to let their sacrifice be in vain, but to rise up in their stead and continue the fight for liberty and justice for all.
To help remind Americans of the true meaning of Memorial Day, the “National Moment of Remembrance” resolution was passed in 2000 and signed by President Clinton which asks that at 3 p.m. local time, for all Americans “To voluntarily and informally observe in their own way a Moment of remembrance and respect, pausing from whatever they are doing for a moment of silence or listening to ‘Taps.’”
Plaintiffs brought a class action on behalf of approximately 4,000 current and former employees of Boyd & Associates, Inc. which provides security guard services. Plaintiffs alleged that Boyd denied off-duty meal breaks and off-duty rest breaks and did not include certain reimbursements and an annual bonus payment in calculating the hourly rate of overtime pay. Plaintiffs proposed three subclasses: (1) the Meal Break Class, (2) the Rest Break Class, and (3) the Overtime Class. The appeals court initially issued an opinion affirming the denial of class certification of the Meal Break Class and the Rest Break Class and reversing the order denying certification of the Overtime Class. After the court issued its opinion, the California Supreme Court issued its landmark decision Brinker Restaurant Corp. v. Superior Court, 53 Cal. 4th 1004 (2012). Upon reconsideration, the appellate court concluded that all three subclasses should be certified. The only class certification question in dispute before the appellate court was the predominance of common questions. The court concluded that in light of Brinker common issues of fact predominate in determining whether Boyd was liable for not providing off-duty meal breaks. The court explained that “Brinker teaches that we must focus on the policy itself and address the issue whether the legality of the policy can be resolved on a classwide basis.” The court held that that plaintiffs’ claim, that Boyd’s meal policy is unlawful, is amendable to class treatment because “the evidence presented in connection with the motion for class certification established Boyd’s on-duty meal break policy was uniformly and consistently applied to all security guard employees.” The court reached a similar conclusion for the Rest Break Class and held that common issues predominate explaining that “the lawfulness of Boyd’s lack of rest break policy and requirement that all security guard employees remain at their posts can be determined on a classwide basis.” Finally, the court concluded that “whether the work uniform maintenance allowance and gasoline reimbursement must be included in calculating the overtime rate of pay can be decided on a classwide basis as a legal matter based on common proof” and that “[p]laintiffs also presented evidence that Boyd had uniform, companywide policies for determining entitlement to an annual bonus.” Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm.