February 14, 2019

Arbitrability – Who Decides?

Stuart M. Riback

One of the United States Supreme Court’s first decisions of the year reminds us, yet again, of how important it is to draft your arbitration clause carefully – if, that is, you want arbitra­tion at all.  Henry Schein, Inc. v. Archer & White was a 9-0 decision and, as it happens, it was Justice Kavanaugh’s first opinion.

The case originated in a fairly unremarkable commercial dispute.  Archer & White sued Hen­ry Schein in federal court in Texas in connection with a distribution agreement.  It raised federal and state antitrust claims, and sought both damages and injunctive relief.  It was met with a motion to refer the case to arbitration.  The parties’ contract provided that “[a]ny dispute arising under or re­lated to this Agreement” would be subject to arbitration before the American Arbitration Associ­a­tion.  But Archer & White argued that the arbitration clause didn’t apply because the contract barred arbitra­tion of injunction claims.

Schein’s position in the trial court was that the arbitrators, not the court, should decide arbi­tra­bility because under the AAA’s rules, arbitrators have power to decide such questions.  Archer & White countered that under case law in the Fifth Circuit (which covers Texas), if the basis for saying the dispute was arbitrable was “wholly groundless,” the courts, not arbitrators, can decide arbitrabili­ty.  The trial court held that Schein’s position was in fact “wholly groundless,” and it refused to or­der the parties to arbitration. The Fifth Circuit affirmed. 

The Supreme Court disagreed.  Its analysis was very straightforward:  the Federal Arbitration Act does not contain any exception for “wholly groundless” contentions of arbitrability.  So if the parties’ contract refers issues of arbitrability to the arbitrators, then presumably if a claim of arbitra­bility is groundless, the arbitrators will have no difficulty so ruling.

Note what the Supreme Court did not rule on: it did not decide that the contract in this case in fact did refer the issue of arbitrability to arbitrators to decide.  The Court sent that issue back to the lower court, but it also noted that ordinarily, courts “should not assume that the parties ag­reed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.”  So the Fifth Circuit and district court will be left to figure out whether, by invoking the AAA’s rules, the parties necessarily chose to have the arbitrators decide arbitrability.

Stuart M. Riback