Although courts and practitioners may think of the Stolt-Nielsen decision as the death knell of class arbitration, the Third Circuit’s ruling last week serves as a reminder that the Stolt-Nielsen did not deal a mortal blow.  In fact, in Sutter v. Oxford Health Plans LLC, __ F.3d __, 2012 WL 1088887 (3d Cir. April 3, 2012), the Third Circuit affirmed an arbitrator’s decision to allow class arbitration based on an arbitration agreement that never mentioned class actions at all.

The arbitration agreement at issue in this dispute over medical reimbursements succinctly provided: “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…”  (Before you criticize the drafters, let me point out that this agreement was executed in 1998, before the availability of class arbitration was a hot topic.)  The putative class of doctors initially brought their case in state court, and the court granted the insurer’s motion to compel arbitration, noting that the issue of whether the case could proceed on a class basis was for the arbitrator to determine. 

The arbitrator determined that the arbitration agreement allowed the doctors to proceed in arbitration as a class.  The arbitrator based his analysis on both the breadth of the arbitration agreement and the absence of any express carve-out for class arbitration, which led him to conclude the parties intended to authorize class arbitrations. 

After the arbitration proceeded on a class-wide basis, the insurer moved to vacate the arbitrator’s decision to allow the class-wide claim.  The insurer argued the arbitrator “exceeded his power” within the meaning of Section 10 of the FAA.  (It is probably safe to assume the insurer lost the arbitration, although the opinion does not say…)  The district court and Third Circuit both upheld the arbitrator’s decision. 

The extraordinary deference that courts grant arbitrators was critical to the decision; the Third Circuit noted that as long as an arbitrator “makes a good faith attempt” to interpret and enforce the contract, the court will not vacate the arbitrator’s decision.  Because the arbitrator in Sutter rooted his decision in an analysis of the text of the arbitration agreement, the court concluded “the arbitrator performed his duty appropriately” and his decision on class arbitration could not be vacated. 

This decision is important for other courts, counsel, and arbitratorswho are interpreting Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 130 S. Ct. 1758 (2010).  The Third Circuit recognized that “an arbitrator may exceed his powers by ordering class arbitration without authorization,” but also addressed some misconceptions about Stolt-Nielsen.  Most critically, the court emphasized that “Stolt-Nielsen did not establish a bright line rule that class arbitration is allowed only under an arbitration agreement that…expressly provides for aggregate procedures.”  Instead, it “established a default rule” that parties may not be compelled to class arbitration unless the contract indicates the party consented to class arbitration.   

What is the distinction?  It is that courts and arbitrators should not use the presence or absence of magic words like “class arbitration” or “class action” as the basis to rule on the availability of class arbitration, but instead must carefully analyze the contract to determine the parties’ intent.  The “default rule” mentioned in Sutter leaves the door open a smidge wider for arguments about the propriety of class arbitration than the “bright line rule”.  Just a smidge.