In late January 2021, the Supreme Court issued a per curiam order in the Henry Schein v. Archer & White arbitrability case (No. 19-963), dismissing the writ of certiorari as improvidently granted (a decision sometimes referred to as a DIG).  Professor Imre Szalai (Loyola University New Orleans) shares with us his thoughts on the case.

Henry Schein I

Previously, in January 2019, the Court had issued a unanimous decision (Justice Kavanaugh’s first decision on the high court) in this same case holding that the “wholly groundless” exception to the delegation doctrine is inconsistent with the Federal Arbitration Act.  Normally, a court determines whether a valid agreement to arbitrate exists and whether a particular dispute is within the scope of the agreement, and these issues are sometimes called “arbitrability” issues.  However, if the parties “clearly and unmistakably” delegate these issues to an arbitrator, the arbitrator makes these determinations instead of the usual decisionmaker, the court.  The Fifth Circuit had recognized a “wholly groundless” exception by which a delegation does not occur if the threshold arbitrability issues involve groundless arguments.  The Court unanimously rejected the wholly groundless exception in the first Henry Schein decision.

On remand from the Supreme Court, the Fifth Circuit denied the petition to compel arbitration.  The Fifth Circuit found that the arbitration agreement contained a carve-out or exception (every matter between the parties had to be arbitrated except for actions seeking injunctive relief).  Because the case at hand involved injunctive relief, the Fifth Circuit reasoned that given the carve-out from the arbitration clause, a clear and unmistakable delegation to the arbitrator did not exist in this case.  The Fifth Circuit then determined that the action was not arbitrable because it fell outside the scope of the arbitration clause.

Henry Schein II

In June 2020, the Court again granted certiorari in the Henry Schein case on the following issue:

whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.

This issue presumes the existence of a clear and unmistakable delegation, but as the respondent and several amici argued, there was no proper delegation in this case for multiple reasons.  There was a cross-petition raising this issue of whether a proper delegation exists, but the Court denied certiorari on the cross-petition.  During oral argument in December 2020, Justice Alito admitted it is difficult to answer the issue upon which certiorari was granted without assuming a proper delegation exists, and he appeared to apologize for this problem (saying it was the Court’s “fault” and then back-peddling a little and saying it was the Court’s “responsibility” for not detecting this problem earlier).  The Court probably dismissed the most recent grant of certiorari as improvidently granted because of these concerns whether a proper delegation exists in this case.

The threshold issue, whether a proper delegation exists in this case, is debatable because the arbitration agreement did not mention delegation.  Instead, certain arbitration rules from the American Arbitration Association included language recognizing the ability of an arbitrator to resolve arbitrability matters, and the parties’ agreement appeared to incorporate by reference these AAA rules.  Several federal appellate courts have held that an agreement may clearly and unmistakably delegate arbitrability matters to an arbitrator through the incorporation of outside provider rules.  However, some state appellate courts have reached the opposite conclusion and have held that the mere reference to provider rules does not satisfy the heightened clear and unmistakable standard for delegation.  Moreover, in the Henry Schein case, the petitioner was a non-signatory to the arbitration agreement.  Because the petitioner and respondent never entered into any contractual relationship in this case, it is hard to argue they clearly and unmistakably agreed to delegate arbitrability matters to the arbitrator.  The Court may eventually return to this threshold issue left open in Henry Schein (whether an arbitration agreement’s mere incorporation by reference of an outside provider’s rules satisfies the clear and unmistakable standard).  However, the Court may wait for a case that squarely presents this issue without complicating factors like the existence of non-signatories.