Generally speaking, arbitration is a matter of contract, and arbitration agreements must be enforced according to their terms. The Ninth Circuit recently issued a caveat, however. In In re Wal-Mart Wage & Hour Employment Practices Litigation, No. 11-17718 (9th Cir. Dec. 17, 2013), an issue of first impression, the Ninth Circuit held that a non-appealability clause in an arbitration agreement that eliminates all federal court review of arbitration awards, including review under § 10 of the Federal Arbitration Act, is not enforceable. Federal court review of arbitration awards is already limited to the grounds enumerated in the FAA and to very limited circumstances in which an arbitrator manifestly disregards the law. Allowing parties to contractually eliminate all judicial review of arbitration awards, the court stated, would disregard the text of the FAA and take away the assurance of a minimum level of due process for the parties. This case shows that, while courts do strongly favor enforcing arbitration agreements according to their terms, there are still limits on the terms to which parties can agree.
By Bill Wright
In a much-anticipated case the U.S. Supreme Court today reached a decidedly unremarkable conclusion. The gist of the U.S. Supreme Court’s new decision on class action arbitration agreements is old hat—courts may overturn an arbitrator’s decision under the Federal Arbitration Act only if the arbitrator acts outside the authority granted in the agreement. Here, the arbitrator’s decision itself is the interesting part. The arbitrator interpreted the following language: “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 . . . .” The arbitrator (twice) found this language permitted the contractor to bring a class action. As summarized by the Supreme Court, the arbitrator reasoned (a) the agreement sent to arbitration the same set of “disputes” that it barred the parties from bringing as civil actions; (b) class action is one possible “form” of civil action; therefore, (c) class arbitrations can be maintained. The Supreme Court carefully avoided endorsing the arbitrator’s reasoning; after all, the arbitrator does shift, without explanation, from the substance of the dispute (i.e. whether a health plan failed to pay the claimant for his services under the contract) to the “form” of civil actions barred from court. Oxford Health Plans LLC v. Sutter, No. 12-135 (U.S. June 10, 2013).
If you are drafting an arbitration agreement and want to avoid class action arbitration, be clear about forbidding class actions or preserve arbitrability questions for the court. Here the contracting parties failed to do either.