The second and third arbitration cases that the Supreme Court will consider this term (2018-2019) were argued on October 29. The first arbitration case of the term, New Prime, Inc. v. Oliveira, argued on October 3, was discussed in these earlier posts here, and here.
In Henry Schein Inc. v. Archer & White Sales (Docket No. 17-1272 ), the question is whether a court can essentially ignore the question of whether a contract delegates arbitrability disputes to an arbitrator if the court decides that the claim of arbitrability is “wholly groundless.” Although a court ordinarily decides “gateway” issues of arbitrability, in this case, there was a dispute over whether the arbitration agreement delegated arbitrability issues to the arbitrator under an agreement that required that most disputes arising from the commercial contract at issue had to be decided in an arbitration proceeding. The contract also specifically provided that “actions seeking injunctive relief” were not subject to the arbitration agreement.
In upholding the District Court decision, the Fifth Circuit Court of Appeals held that it did not have to decide the delegation issue because the argument that the dispute was arbitrable was “wholly groundless.” Henry Schein did not dispute that it was seeking injunctive relief, and the court reasoned there was no question that the arbitration clause excluded that claim from the arbitration requirement. Henry Schein’s argument that it also sought non-injunctive relief in the form of millions of dollars in damages fell on deaf ears, as did its argument that in any case the parties’ delegation of arbitrability questions to the arbitrator meant that an arbitrator, not a court, had to decide the question.
It will be interesting to see if the well-established legal doctrine for labor arbitration on this issue, based on § 301 of the Labor-Management Relations Act (LMRA, 29 U.S.C. § 185), is a factor in this commercial case, which is governed by the Federal Arbitration Act (FAA, 9 U.S.C. §§ 1-16). In United Steelworkers v. American Mfg. Co., 363 U.S. 564 (1960), the Supreme Court had held that under § 301 of the LMRA in the context of collective bargaining, it would compel arbitration even though the grievance or dispute at issue might be meritless since “the agreement is to submit all grievances to arbitration, not merely those that a court may deem to be meritorious.” 363 U.S. at 567. This § 301 case does not necessarily decide the matter, however. The Court could find that § 301 arbitrability issues are distinguishable from FAA arbitrability issues for a variety of reasons. The Supreme Court itself noted in American Mfg. that enforcing the grievance and arbitration system that the union and the employer had agreed upon was an important part of the nation’s labor relations policy. The Court noted: “we think special heed should be given to the context in which collective bargaining agreements are negotiated and the purpose which they are intended to serve.” 363 U.S. at 567.
In Lamps Plus Inc. v. Varela (Docket No. 17-988), the Court will consider whether the parties to an arbitration agreement agreed to permit class actions in a contract that: 1) required the parties to use arbitration “in lieu of any and all lawsuits or other civil legal proceedings;” 2) stated that claims covered by the arbitration agreement include those “that, in the absence of this Agreement, would have been available to the parties by law;” and 3) authorized the arbitrator to “award any remedy allowed by applicable law.” In this employment arbitration dispute brought pursuant to the FAA, the parties dispute the effect of the Court’s 2010 decision in Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 559 U.S. 662 (2010). In that case, the Court had held that arbitrators could not read an acceptance of class actions into an arbitration agreement unless it was clear that the parties had agreed to do so.