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What Does Oxford Health Plans v. Sutter Mean for Your Company?

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By William Peacock, Esq. on June 11, 2013 1:16 PM

Clarify your arbitration clauses.

Dr. John Sutter sued Oxford Health Plans, on behalf of himself and other physicians, over a payment dispute. The contract itself did not provide for class-action arbitration, but did provide for individual arbitration.

The parties agreed to mediation, and Oxford conceded that the arbitrator should decide arbitrability. According to the Supreme Court's holding, that was the fatal mistake, as far as avoiding class-action arbitration.

Under the Federal Arbitration Act, courts are required to give an extremely high amount of deference to the arbitrator's rulings and interpretations. In essence, the only question for the court is, did the arbitrator actually interpret the contract (regardless of the quality of the interpretation). Right or wrong, if there is some basis in the contract for the ruling, it stands.

Here, there was an arbitration clause. It didn't specifically allow or disallow class-action arbitration, but the arbitrator's interpretation was that class-action was appropriate.

This brings up two very important points:

First, the case may be limited to cases where the party conceded to the issue of arbitrability. If your company contests the arbitrability of the claim, the court can review that question de novo. Here, Oxford conceded this point early on, and by doing so, deprived themselves of any chance of meaningful judicial review.

Second, from a more proactive standpoint, this entire mess can be eliminated with clarified arbitration clauses. Class-action arbitration is incredibly costly and eliminates most of the benefits that one might gain from alternative dispute resolution. Instead, you might provide for arbitration of individual claims only. Note that the holding of another recent Supreme Court decision, AT&T v. Concepcion, supports this strategy.

With a well-crafted, specific, and narrow arbitration clause, you might be able to keep all claims in one-on-one arbitration, which is great for the employer, and may make smaller claims disappear due to the costs of handling so many small claims.

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