United States: Supreme Court Settles Age-Old Arbitrability Debate

Many construction contracts designate arbitration as the means to adjudicate disputes which are not resolved through executive negotiation, mediation or some alternate method. Occasionally, a question arises whether the claim falls within the scope of the arbitration clause. In other words, the parties debate whether the dispute is arbitrable under the contract. Examples of such arbitrability disagreements include claims for negligence, misrepresentation, fraud, interference in business relationships or other non-contractual claims. One of the parties might file a lawsuit and request the court to decide the issue of arbitrability of the claim. For many years, legal scholars have debated whether the court or the arbitrator should decide the threshold arbitrability question.

On January 8, 2019, the U.S. Supreme Court answered the age-old question regarding arbitrability. In Henry Schein, Inc., et al. v. Archer & White Sales, Inc., the Supreme Court ruled that, when the parties' contract delegates the arbitrability question to an arbitrator, the court cannot meddle in the parties' contract; and, therefore, the arbitrator must decide the issue of arbitrability. The Schein decision marked Justice Kavanaugh's first Supreme Court opinion, which he wrote for the unanimous Court.

The Schein case involved a dispute between a dental equipment distributor and a dental equipment manufacturer. The parties' contract contained a straightforward arbitration provision which excluded actions for injunctive relief and disputes related to trademark, trade secrets or other intellectual property of the manufacturer. The arbitration clause also incorporated the Rules of the American Arbitration Association ("AAA"). Interestingly, the AAA rules provide that arbitrators have the power to resolve arbitrability questions.

In Schein, the distributor claimed that the manufacturer violated federal and state antitrust laws and filed suit in federal court in Texas. The manufacturer invoked the Federal Arbitration Act ("FAA") and requested that the court refer the antitrust disputes to arbitration in accordance with the parties' contract. The question then became who decides the threshold question whether the antitrust dispute is subject to arbitration...the court or the arbitrator.

Both the trial court and the Court of Appeals determined that the manufacturer's arbitrability challenge was "wholly groundless" and ruled that the court could determine the arbitrability issue. The Supreme Court disagreed and held that the "wholly groundless" argument was inconsistent with the FAA and Supreme Court precedent. The Court held that when the parties' contract delegates the arbitrability question to an arbitrator, a court cannot override a parties' contract. Justice Kavanaugh wrote that, in such circumstances, a court possesses no power to decide the arbitrability issue, even when the court thinks that the challenge to the scope of the arbitration provision is "wholly groundless."

In Schein, the Supreme Court was careful not to express a view on whether the contract between the manufacturer and the distributor, in fact, delegated the arbitrability question to an arbitrator, because the Court of Appeals did not decide that issue. Under Supreme Court precedent, courts "should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so."

Although Schein is not a construction case, its holding clearly applies to arbitrability issues which arise under a construction contract. Notably, Rule R-9 of the AAA's Construction Industry Arbitration Rules provides that the arbitrator has the authority to decide arbitrability of claims. Similarly, Rule 11 of the JAMS Engineering and Construction Arbitration Rules provides that the arbitrator has such authority to decide the threshold arbitrability question. Therefore, if a construction contract incorporates the AAA or JAMS Arbitration Rules, the parties agree to delegate the arbitrability question to the arbitrator.

If a construction professional is concerned about giving the arbitrator the authority to decide arbitrability of claims, it can do one of at least three things. First, specify in the construction contract that any issue relating to arbitrability of the claim or dispute will be decided by the court, not the arbitrator. Second, review the arbitration rules which are incorporated into the arbitration provision to determine whether the arbitrability question is delegated to the arbitrator by the rules. Third, carefully craft the arbitration clause to exclude specific construction claims which are not covered by the arbitration provision.

The recent Schein decision regarding arbitrability of claims extends well beyond manufacturer-distributor disputes and clearly relates to claims arising under a construction contract containing an arbitration provision. In Schein, the Supreme Court settled the age-old debate whether the court or arbitrator decides the threshold arbitrability question by holding that the arbitrator makes such determination when the parties' contract delegates such authority to the arbitrator. You can read the short and concise Schein opinion HERE.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions