(Even as the dust settles on the Janus decision, the SCOTUS gets ready for next year. Arbitrator and NAA member, Lise Gelernter comments on a case which the Court will be addressing next term).
The United States Supreme Court granted a petition for certiorari on June 25, 2018 in a case involving how far to go in enforcing arbitration agreements. The case involves the question of whether a court or an arbitrator should decide the issue of arbitrability in a dispute. Henry Schein, Inc. v. Archer and White Sales, Inc. (Docket No. 17-1272, 6/25/18). An issue is “arbitrable” if an arbitration agreement covers disputes about that issue. In most cases, a court decides the “gateway” question of what the parties’ agreement to arbitrate means. Granite Rock Co. v. International Brotherhood of Teamster, 561 U.S. 287, 296 (2010). However, if the arbitration agreement delegates gateway issues of arbitrability to an arbitrator, the Supreme Court has held that an arbitrator, not a court, decides those issues. Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010).
In the Henry Schein case, the Court is being asked to decide whether the Federal Arbitration Act, 9 U.S.C. §§ 1-16, permits “a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is ‘wholly groundless.’ ” Henry Schein, pet. for cert., (Docket No. 17-1272, 3/9/18). In Archer and White Sales, Inc. v. Henry Schein, Inc., 878 F.3d 488 (5th Cir. 2017), the Fifth Circuit Court of Appeals had ruled that because it was so clear that the type of claim that one of the parties to an arbitration agreement had brought to court was excluded from the agreement, that even though there was a delegation of arbitrability questions to an arbitrator, there was no need to force the party to get an arbitrator’s ruling on the issue. Since the “assertion of arbitrability [was] wholly groundless,” the Fifth Circuit upheld the trial court’s decision to deny the defendant party’s motion to compel arbitration of the dispute.
Archer and White Sales, Inc. is a distributor, seller and servicer for several dental equipment manufacturers and Henry Schein, Inc. is a large dental equipment distributor and manufacturer. Archer and White sued Henry Schein in federal court, alleging that Henry Schein violated the Sherman Antitrust Act and Texas state law by conspiring to fix prices, among other antitrust violations. Archer and White sought money damages as well as injunctive relief (a court order to enjoin the defendants to take some action or refrain from taking it). Henry Schein moved to compel Archer and White to arbitrate their dispute because the parties had an agreement to have an arbitrator decide all disputes about their business relationship. They incorporated the rules of the American Arbitration Association into their agreement, and those rules provide that an arbitrator has “the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”
The arbitration agreement also provided that “[a]ny dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [the predecessor] ), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.” Although the Fifth Circuit acknowledged that the reference to the AAA rules was “clear and unmistakable evidence” that the parties had delegated all arbitrability issues to an arbitrator, because the arbitration agreement clearly excluded the plaintiff’s claims because they involved injunctive relief, any argument that the dispute was arbitrable was “wholly groundless.” Under prior Fifth Circuit precedent, this meant a court had to deny the motion to compel arbitration.
The Supreme Court has held that courts must enforce parties’ agreements to delegate decision-making authority to an arbitrator on the “gateway” issue of whether or not parties agreed to arbitrate a particular dispute. Rent-A-Center, 561 U.S. at 68-69. But the Fifth Circuit found an exception to that general rule: if an arbitrability claim is “wholly groundless,” the courts can make that decision. The upshot is that under the Fifth Circuit’s reasoning, arbitrability delegations do not allow a party to escape court intervention on claims that are very clearly excluded from an arbitration agreement. We will have to wait until the Court’s next term (2018-2019) to find out if the Fifth Circuit’s reasoning convinces the Supreme Court that this narrow exception is viable.