By: Ryan Boonstra
Arbitration Law Review, Senior Editor
A recent Supreme Court case addressed a claim regarding a “wholly groundless” defense to delegating the arbitrability question to the arbitrator.[1] Henry Schein, Inc. v. Archer & White Sales involved a sour business deal between Archer and White, a small dental equipment distributor, and Henry Schein, the successor in interest of a dental equipment manufacturer.[2] The suit alleged violations of federal and state antitrust law, and Schein invoked the arbitration clause within the contract.[3] An arbitratiblity question arose regarding the antitrust nature of the suit and according to the American Arbitration Association’s rules, which were incorporated, it was the arbitrator’s duty to decide.[4] Archer and White, however, argued that Schein’s reasoning for arbitration was “wholly groundless” and this created an exception to the rule which would allow the district court to decide the arbitrability question.[5]
The District Court agreed with this argument and ruled in favor of Archer and White holding the arbitration to be “wholly groundless”.[6] The Supreme Court disagreed and held that the “wholly groundless” exception was inconsistent with the text of the FAA.[7] The court reasoned that though the exception would, “block frivolous attempts to transfer disputes from the court system to arbitration,” the FAA requires that the contract be interpreted as written.[8] The court rejected Archer and White’s first two arguments based on precedent.[9] Those being that the court has always allowed arbitrability to be delegated so long as it is “clear and unmistakable” and that § 10 of the FAA does not also grant the court front end power for arbitrability questions.[10]
Archer and White’s third argument of saving time and money was also not convincing to the court.[11] The court believed that the exception would spark additional litigation that would cost just as much as the savings on the first issue.[12] As for Archer and White’s final argument regarding policy, the court stated that it is not in their power to redesign the FAA to accommodate an exception that improves public policy.[13] To summarize, any and all issues of arbitrability will be decided by the arbitrator is such power is delegated to them through clear and unmistakable language.
This case solved a disconnect between many district courts that were ruling differently on the issue.[14] Now parties are on notice that so long as arbitrability delegations are present in the contract, the decision will be delegated. There is no room for exceptions any longer. The benefits of this is that the court has declared a strict textual interpretation of the FAA and will not allow any implied exceptions.[15] This should come as good news to drafters of arbitration agreements since they know no implied exceptions will be lurking around the corner.[16] The only matter left to resolve that could be possibly challenged is what “clear and unmistakable” means.[17]
* Ryan Boonstra is a Senior Editor for the Penn State Law Arbitration Law Review.
[1] See generally Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).
[2] See Id. at 528.
[3] Id.
[4] Id.
[5] Id.
[6] Henry Schein, 139 S. Ct. at 528.
[7] Id. at 531.
[8] Id. at 529.
[9] Id. at 529-30.
[10] Henry Schein, 139 S. Ct. at 529-30.
[11] Id. at 530-31.
[12] Id.
[13] Id at 531.
[14] Id. at 528.
[15] Javier Rubinstein et al., Supreme Court Rejects “Wholly Groundless” Exception to Contractual Delegation of Arbitrability Decisions to Arbitrators, Kirkland Ellis (Jan. 16, 2019) https://www.kirkland.com/-/media/alerts/2019/01/supreme-court-rejects-wholly-groundless-exception.pdf.
[16] Id.
[17] Id.