United States: Supreme Court Holds Threshold Question Of Arbitrability Is One Of Contract And Valid Agreements To Submit Question To Arbitrator Will Be Enforced

Last Updated: January 14 2019
Article by Todd R. Seelman and Tripp Lake

(January 8, 2019) - Today, the U.S. Supreme Court in Henry Schein, Inc. v. Archer & White Sales, Inc. unanimously held that where parties agree in a contract to submit even the gateway question of arbitrability to an arbitrator, the Federal Arbitration Act and Supreme Court precedent compel federal courts to honor that contractual agreement even where the arbitration demand appears 'wholly groundless.'

Today's opinion (authored by newly appointed Justice Brett Kavanaugh) resolves a split in the federal circuits concerning propriety of the 'wholly groundless exception' to the FAA, which was applied by the district court to deny application of the parties' contractual arbitration provision to the dispute at bar. Importantly, while the Court's decision arose in the context of an antitrust dispute, it is not confined to the antitrust arena.

Archer & White Sales, Inc. (Archer) sued Henry Schein, et al. (Schein) for Schein's alleged federal and state antitrust law violations related to the parties' involvement in the dental equipment manufacturing industry. Archer had a dental equipment distribution agreement with Schein's predecessor company, and the relationship soured. The parties' distribution contract provided that "any dispute arising under or related to the Agreement (except for actions seeing injunctive relief . . .) shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association." Id., at 2. Archer argued that the arbitration clause plainly did not apply because the suit sought, in part, injunctive relief, and thus the arbitration demand was wholly groundless because suits seeking injunctive relief are not subject to arbitration.

The threshold question the Court addressed , then, was who decides arbitrability of a dispute. The American Arbitration Association (AAA) rules, expressly incorporated by the parties' contract, provide that arbitrators have the power to decide arbitrability questions. The Court has previously applied the FAA to the gateway question of arbitrability, holding that parties may agree to have an arbitrator decide not only the merits of a particular dispute, but also the "gateway questions of 'arbitrability,' such as whether their agreement covers a particular controversy." Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68-69 (2010). The reasoning is that an agreement to arbitrate a gateway issue is simply an antecedent agreement the party seeks the federal court to enforce, and the FAA operates on this type of agreement just as it does on any other. Id., at 70.

In addition to the text of the FAA applying to this gateway question, Supreme Court precedent holds that a court may not "'rule on potential merits of the underlying claim' that is assigned to an arbitrator, even if it appears to the court to be frivolous." AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649-650 (1986). This principle applies with equal force to the question of arbitrability. Just as a court may not decide the merits of a question that should be arbitrated, a court may not decide the merits of whether a case should be arbitrated.

Archer advanced four arguments in support of the wholly groundless exception. First, Archer argued that the FAA's provision that a court must stay litigation "upon being satisfied that the issue [is] referable to arbitration" means that a court must always resolve the threshold question of arbitrability. Archer, at 6. The Court agreed with Archer that a referring court must always determine whether a valid arbitration agreement exists; but so long as the arbitration agreement is valid, the court's authority to determine arbitrability ends there.

Archer's second argument was that the FAA provides for judicial review of an arbitrator's decision to determine whether an arbitrator has exceeded their power, and so the court should decide if an arbitration demand is wholly groundless in the first instance rather than merely on review. But this is not how the FAA was designed to work, and the Court declined to decide the case contrary to the statute. Id.

Archer's third and fourth arguments travelled similar paths, arguing that sending a wholly groundless arbitration demand to an arbitrator would save the parties' time and money; and the wholly groundless exception is necessary to deter frivolous motions to compel arbitration. The Court rejected both of these arguments on statutory grounds, and on the grounds that Archer presented no evidence that circuits which did not apply the wholly groundless exception suffered the harm Archer predicted.

In the end, the Court rejected the wholly groundless exception and makes quite clear that so long as the parties' contract refers the question of arbitrability to an arbitrator then that contract will be enforced even if the arbitration demand appears to be wholly groundless. This holding is not limited to cases involving antitrust claims, such as the underlying claims at bar in Archer – any contractual arbitration provision will be subject to the Court's ruling here.

Of note, the Court did not decide whether this particular arbitration clause constituted referral of the gateway question to the arbitrator. As noted above, the gateway question was referred to the arbitrator by action of the expressly-referenced AAA rules. The opinion contains only a single sentence, noting that courts "should not assume that the parties agreed to arbitrability unless there is clear and unmistakable evidence that they did so." Id., at 8, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, at 944 (1995). But here, the Court pointedly did not express a view about whether this contractual provision in fact delegated the arbitrability question to an arbitrator. And so, although certain circuits hold that reference to the AAA rules constitutes just such a referral, the standard arbitration provision with reference to AAA rules may not suffice in all jurisdictions.

You can read the full Supreme Court decision 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
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
 
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
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