The U.S. Supreme Court continues to rule in favor of mandatory arbitration. In Henry Schein Inc. v. Archer and White Sales Inc., the Court held that arbitrators, rather than judges, should decide how disputes should be resolved in cases where contracts call for arbitration.
Federal Arbitration Act
Under the Federal Arbitration Act (FAA), arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. Under existing Supreme Court precedent, parties may agree to have an arbitrator decide not only the merits of a particular dispute but also “gateway’ questions of arbitrability,” such as whether the parties have agreed to arbitrate or whether their agreement covers a particular controversy.
Even when the parties’ contract delegates the threshold arbitrability question to an arbitrator, the several Courts of Appeals have determined that the court rather than an arbitrator should decide the threshold arbitrability question if, under the contract, the argument for arbitration is wholly groundless. The rationale behind the exception is that it enables courts to block frivolous attempts to transfer disputes from the court system to arbitration.
Facts of Henry Schein Inc. v. Archer and White Sales Inc.
Archer & White Sales, Inc. filed suit against Henry Schein, Inc., alleging violations of federal and state antitrust law. The suit sought both monetary damages and injunctive relief. The relevant contract between the parties provided for arbitration of any dispute arising under or related to the agreement, except for, among other things, actions seeking injunctive relief.
Invoking the FAA, Schein asked the District Court to refer the matter to arbitration, but Archer & White argued that the dispute was not subject to arbitration because its complaint sought injunctive relief, at least in part. Schein contended that because the rules governing the contract provide that arbitrators have the power to resolve arbitrability questions, an arbitrator—not the court—should decide whether the arbitration agreement applied. Archer & White countered that Schein’s argument for arbitration was wholly groundless, so the District Court could resolve the threshold arbitrability question. The District Court agreed with Archer & White and denied Schein’s motion to compel arbitration. The Fifth Circuit affirmed.
Supreme Court’s Decision in Henry Schein Inc. v. Archer and White Sales Inc.
The Supreme Court unanimously reversed. In an opinion written by Justice Brett Kavanaugh, the Court held that the “wholly groundless” exception is inconsistent with the FAA and Supreme Court precedent.
“The act does not contain a ‘wholly groundless’ exception, and we are not at liberty to rewrite the statute passed by Congress and signed by the president,” Judge Kavanaugh wrote. “When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.”
In reaching its decision, the Court rejected the argument that going to the courts on some decisions would save time because “an arbitrator would inevitably reject arbitration in those cases where a judge would conclude that the argument for arbitration is wholly groundless.”
“Not always,” Justice Kavanaugh wrote. “After all, an arbitrator might hold a different view of the arbitrability issue than a court does, even if the court finds the answer obvious. It is not unheard of for one fair-minded adjudicator to think a decision is obvious in one direction but for another fair-minded adjudicator to decide the matter the other way.”
Key Takeaway for NY and NJ Businesses
The Supreme Court’s decision is a win for businesses and will make it more difficult for consumers to have their day in court. On a broader scale, it confirms that the Court remains strongly committed to strictly interpreting the FAA in favor of arbitration.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Joel Kreizman, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.