The Price of Agreeing to Arbitration

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In the recent decision of Oxford Health Plans v. Sutter, the U.S. Supreme Court ruled unanimously that even a “grave error” of an arbitrator is not enough to vacate an award in most cases. Oxford Health Plans had gone to federal court seeking to vacate an arbitrator’s decision that John Sutter, MD, could bring a class action on behalf of himself and other New Jersey physicians alleging that Oxford failed to make full and prompt payment for services provided to members of Oxford’s network.

The united Court held that the arbitrator’s ruling regarding whether a contract authorized a class action prevails, “however, good, bad or ugly,” where the parties had agreed that the arbitrator should decide the question. “All we say is that convincing a court of an arbitrator’s error – even his grave error – is not enough,” wrote Justice Elena Kagan. “So long as the arbitrator was ‘arguably construing’ the contract – which this one was – a court may not correct his mistakes (under the Federal Arbitration Act). The potential for those mistakes is the price of agreeing the arbitration.”

Practitioners are aware of a trend to challenge arbitral awards in the Courts — and the fact that such challenges very rarely succeed. Courts are highly supportive of the arbitral process and have construed the Federal Arbitration Act as providing quite limited grounds for overturning an arbitrator’s decision. The clear language of the Oxford decision will provide little solace for those seeking to undo an arbitral award in the future.

A lesson of Oxford is the imperative of choosing arbitrators wisely.


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