U.S. Supreme Court justices seem skeptical about how a health insurer is interpreting an arbitration clause in a health care provider network contract.
The court heard oral arguments Monday in Oxford Health Plans L.L.C. vs. Florida (Case Number 12-135), a case that could affect many companies' ability to avoid becoming the target of "class arbitration" actions.
Dr. John Sutter, a physician, signed the network contract from Oxford, a carrier later acquired by UnitedHealth Group Inc. (NYSE:UNH), in 1998. The contract included a provision requiring both parties to take any disputes to arbitration.
Arbitration is supposed to be a relatively informal dispute resolution process that relies on the services of a private arbitrator, rather than the court system, to make decisions. Federal law generally requires the courts to support use of arbitration, in part by giving deference to an arbitrator's interpretations of the facts in a case.
In some cases, arbitrators have started bundling similar arbitration cases into classes and handling an entire class of disputes with one set of arbitration proceedings.
In 2005, an arbitrator decided to certify an arbitration class that included about 20,000 physicians in New Jersey who had signed contracts that included arbitration clauses that were the same as or similar to the arbitration clause in the Sutter contract.
Oxford took the case to federal court, arguing that it had not agreed to permit class arbitration." Oxford has argued that the Sutter class arbitration ruling could increase U.S. litigation and court administration costs, by discouraging companies from using arbitration agreements.
The U.S. District Court in New Jersey and the 3rd U.S. Circuit Court of Appeals sided with the physicians and against Oxford.
In 2010, the Supreme Court held in another case, Stolt-Nielsen vs. AnimalFeeds International Corp., that "class-action arbitration changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to arbitration."
When the Supreme Court court agreed to take up the case in December 2012, it decided to look at the following question: "Whether an arbitrator acts within his powers under the Federal Arbitration Act (as the 2nd and 3rd circuits have held) or exceeds those powers (as the 5th Circuit has held) by determining that parties affirmatively 'agreed to authorize class arbitration,'... based solely on their use of broad contractual language precluding litigation and requiring arbitration of any dispute arising under their contract."
The U.S. Chamber of Commerce submitted a brief supporting Oxford.
During the oral arguments, Justice Sonia Sotomayor suggested that the drafters of the Oxford network contract had simply written a bad contract and were trying to get around the principle that the courts usually defer to arbitrators' adjudications about the facts in a case.
"Why should we rewrite our standard of review to accommodate your client's error?" Sotomayor asked Seth Waxman, the lawyer speaking for Oxford. "Because that's really what you're asking us to do."
Waxman suggested that the court had decided otherwise in the Stolt-Nielsen ruling.
Justice Anthony Kennedy pressed Waxman to elaborate.
"So your rule is that, although we must defer to an arbitrator's interpretation of the contract, in this case, there is an exception because?" Kennedy asked.
Justice Ruth Bader Ginsburg said that, in Stolt-Nielsen, the parties had stipulated that the contract involved said nothing about the issue of a class proceeding.
"In this case," Ginsburg said, "we have no such stipulations."
Justice Antonin Scalia asked Waxman for examples of cases in which the Supreme Court had decided that an arbitrator's "statement of fact" was so wrong that the wrongness became a question of law that a court review, rather a question of an arbitration's interpretation of the facts.
Later, Chief Justice John Roberts expressed some skepticism about the arguments of Eric Katz, the lawyer representing the physicians and other respondents, that allowing class arbitration could help speed up the process of resolving similar disputes between a health insurer and 20,000 physicians.
"I thought the purpose of arbitration was to decide these things quickly," Roberts said. "This has been going on 11 years, right?"
After the people in the courtroom laughed, Roberts said, "It's not a facetious question, because I think one of the concerns about class arbitration is that it -- it eliminates the supposed benefits of arbitration, because you can't have sort of quick and rough and ready determinations when it's going to bind 20,000 people."