November 16, 2018 practice point

U.S. Supreme Court to Decide Three Arbitration Cases in Fall 2018 Term

By Beth Graham

New Prime vs. Oliveira

Section 1 of the Federal Arbitration Act (FAA) says that the FAA does not apply “the employment of seamen, railroad employees or any other class of workers engaged in foreign or interstate commerce.” The Supreme Court previously has held that this exemption applies only to “transportation” workers. In New Prime Inc. v. Oliveira, No. 17-340, the nation’s highest court will consider whether the exemption applies to interstate truck drivers when their employment agreement states that they are independent contractors.

The district court denied the trucking company’s motion to compel arbitration and ordered discovery concerning the independent contractor’s employment status. On appeal, citing the exemption in Section 1, the First Circuit dismissed the case for lack of subject matter jurisdiction.

Another issue in the case is whether the question of arbitrability is one for the courts or the arbitrator to decide when there is a delegation clause in the parties’ agreement.

Lamps Plus, Inc. et al. v. Varela

In Lamps Plus, Inc., et al. v. Varela, No. 17-988, the Court will decide whether class arbitration is permitted when an employer’s agreement to arbitrate is silent on the issue. The district court ruled that class arbitration was permitted because the parties’ arbitration agreement was an adhesion contract that was ambiguous on the issue of collective arbitration. Because Lamps Plus drafted the agreement, the district court construed the ambiguity against the employer and ordered the parties’ to engage in class arbitration. The Ninth Circuit affirmed.

Henry Schein, Inc. v. Archer and White Sales, Inc.

In Henry Schein, Inc. v. Archer and White Sales, Inc., No. 17-1272, the Court will address whether a court may refuse to enforce a clause that delegates jurisdictional issues to the arbitrator when, in the court’s judgment, the claimed right to arbitrate is “wholly groundless.”

Courts have held that the FAA allows parties to an arbitration agreement to delegate the question of whether a particular issue is arbitrable to the arbitrator. In Henry Schein, the Fifth Circuit affirmed a lower court’s holding stating “it had the authority to rule on the question of arbitrability,” where the claims at issue are “not arbitrable” because the claim of arbitrability was wholly groundless. The decision directly conflicts with opinions from both the Tenth and Eleventh Circuit Courts of Appeal but is consistent with decisions from the Sixth and Federal Circuits.

The Supreme Court heard oral argument in New Prime on October 3 and Lamps Plus and Henry Schein on October 29. A transcript for the oral arguments in each case is available on the court’s website.

Beth Graham is an attorney and legal content writer at Karl Bayer in Austin, Texas.

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