The Supreme Court granted certiorari in the case of Henry Schein v Archer and White Sales, Inc., to answer the question “[w]hether the Federal Arbitration Act 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.” See Henry Schein, et al. v. Archer and White Sales, Inc., Petition for a Writ of Certiorari. At the core of the appeal is the issue of whether an arbitration clause can provide an arbitrator the exclusive authority to determine whether certain issues can be arbitrated or if trial courts can effectively override those provisions.
The cases arose when Archer and White Sales, Inc., a distributor of dental equipment, sued Henry Schein and other dental equipment manufacturers for violations of the Sherman Anti-Trust Act. Archer & White Sales, Inc. v. Henry Schein, Inc., 878 F.3d 488, 491 (5th Cir. 2017), cert. granted, No. 17-1272, 2018 WL 1280843 (U.S. June 25, 2018). Archer and White sought damages and injunctive relief for continuing violations, but Henry Schein moved to compel arbitration. Id. The arbitration clause, however, allowed arbitration “except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property” Id. A Texas magistrate judge granted the motion to compel arbitration, finding that the arbitration provision clearly evidenced an intent to arbitrate disputes between the parties. Id. However, a Texas district court reversed the magistrate’s decision by finding that a district court has jurisdiction over questions of arbitrability. The court ultimately ruled that this case cannot be arbitrated since the arbitration provision expressly excluded actions for injunctive relief. Id.
Henry Schein argued on appeal that allowing the district court to determine if the matter is arbitrable strips the agreement’s provision that arbitrability is to be determined by an arbitrator. Id at 496. Schein alternatively contended that even if the injunctive relief is not arbitrable, the action for damages is, and that issue must be sent to arbitration even if it results in “piecemeal litigation.” Id at 496-7. In response, Archer and White asserted that the matter fits into the “wholly groundless” exception to arbitrability since the arbitration clause clearly excluded claims for injunctive relief. Therefore, no basis exists for arbitration for the matter. Id at 497.
The 5th Circuit Court of Appeals affirmed the district court, holding that the court properly determined that the matter was not arbitrable. Id at 498. Moreover, the 5th Circuit agreed with Archer and White and held that the arbitration was “wholly groundless,” relying on Douglas v. Regions Bank, 757 F.3d 460 (5th Cir. 2014). Id at 495. The court began its analysis by explaining that when a court finds a plausible argument that an arbitration clause allows the claim to be arbitrated, then the “wholly groundless” exception is inapplicable. Archer & White Sales, Inc., 878 F.3d at 495. The court noted that although the doctrine of the “wholly groundless” exception is not entirely fleshed out. “[I]f [it] is to have any teeth, it must apply where, as here, an arbitration clause expressly excludes certain types of disputes.” Id at 497.
The 5th, 6th, and Federal circuits have adopted the “wholly groundless” doctrine, while the 10th circuit, in Belnap v. Iasis Healthcare, and 11th circuit, in Jones v. Waffle House, have rejected it. See Karen Chesley, Who Determines If A Dispute Is Arbitrable, Nat’l L.J. (Nov. 16, 2017). While some proponents of the “wholly groundless” doctrine argue that without the exception some arbitration provisions can lead to absurd results by allowing an arbitrator to determine the arbitrability of almost any issue that is somewhat related to the contract, critics of the doctrine believe that parties to an arbitration agreement should be bound by that agreement.
The Supreme Court’s ultimate decision in Henry Schein v Archer and White Sales, Inc., is likely to both resolve the current circuit-split surrounding the “wholly groundless” doctrine and have a significant impact on the question of whether the arbitrator or a court determines the arbitrability of certain matters.
(Nick Leyh, a third-year student at the University of Missouri School of Law prepared this post.)