By: Patrick Brogan, ALR Senior Editor, 2021
On January 25, 2020, the Supreme Court dismissed its decision to review Henry Schein Inc. v. Archer and White Sales Inc., as improvidently granted.[1]
The case centers around an arbitration clause with a “carve-out” for certain actions and remedies. Specifically, the parties agreed that “any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property…), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.”[2]
This is the second time the Court was asked to review this case, an antitrust action involving distributors of dental equipment. In the first decision, offered in 2019, the Court unanimously held that when a contract clearly and unmistakably delegates questions of arbitrability to an arbitrator, a court may not determine arbitrability questions, even when the court finds the argument for arbitration to be “wholly groundless.”[3]
Justice Kavanaugh’s opinion emphasized the Court’s previous holdings that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by “clear and unmistakable” evidence.[4] However the court’s 2019 decision did not answer whether the contract in question delegated questions of arbitrability to the arbitrator.
The case was remanded to the Fifth Circuit who ruled on the issue of arbitrability delegation. The Fifth Circuit ruled that the arbitration clause in question created a carve-out for “actions seeking injunctive relief,” and therefore, a claim seeking injunctive relief was beyond the scope of arbitration.[5] Accordingly, issues carved-out from the arbitration clause are for the court to decide, not an arbitrator.[6]
In the case’s return to the Supreme Court, the issue was 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.[7]
In Henry Schien’s view, the arbitration agreement’s incorporation of the AAA rules clearly and unmistakably delegates questions of arbitrability to the arbitrator. Further, Henry Schien argued that the presumption of arbitrability requires that ambiguities in the scope of the agreement should be resolved in favor of arbitration.
On the other hand, Archer & White’s position is that the question of arbitrability is for the court due to the carve-out in the arbitration agreement and that reference to the AAA rules in the arbitration agreement alone does not clearly and unmistakably show the intent of the parties to delegate arbitrability questions.
The Court’s dismissal means that the decision of the Fifth Circuit’s decision from August 2019, remains. So too does the question of who decides questions of arbitrability when parties limit the scope of arbitration agreements by carving out specific actions and remedies. While questions remain to be answered on this issue, one thing that is certain is that the dispute between the parties, which date back to 2012, could have been avoided by language that clearly and unmistakably detailed the intentions of the parties when it comes to delegating questions of arbitrability.
[1] Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (2019).
[2] Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019).
[3] Id at 531.
[4] Id. at 530.
[5] Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019).
[6] Id.
[7] Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (2019).