On January 8, 2019, the U.S. Supreme Court issued a unanimous opinion in Henry Schein, Inc. v. Archer & White Sales, Inc.—the first opinion authored by Justice Brett Kavanaugh—reaffirming that, where parties have agreed to let an arbitrator decide whether a dispute is properly submitted to arbitration, courts may not weigh in on the issue, even if courts believe there are no grounds to submit the claim to arbitration.
“Arbitrability”—whether an arbitration agreement encompasses a particular dispute—can be decided by trial courts when one party moves to compel the other party to arbitrate their dispute. Certain arbitration agreements, however, include a clause providing that the arbitrator—not the court—will decide whether the dispute is properly submitted to arbitration. Other agreements, as in the case before the Supreme Court, include a provision that a certain set of rules, such as the American Arbitration Association’s rules, will apply to the dispute, and those rules can dictate whether arbitrators have the power to resolve arbitrability questions.
Lower courts were split. The Fifth and Sixth Circuit Courts of Appeals previously held that when a party’s argument that a dispute should be submitted to arbitration is “wholly groundless,” the trial court may deny a motion to compel the parties to arbitrate the dispute even where the arbitration agreement provided that arbitrability be decided by the arbitrator. This is known as the “wholly groundless” exception.
In writing for a unanimous Court, Justice Kavanaugh rejected outright the “wholly groundless” exception, finding that it is inconsistent with the text of the Federal Arbitration Act and with prior Supreme Court precedent. Thus, where an arbitration agreement includes a provision that the arbitrator will decide questions of arbitrability, trial courts must refer the dispute to arbitration even if they disagree that the dispute is encompassed by the arbitration agreement.
What the Court did not decide, however, is whether the particular parties in this case, Archer & White Sales, Inc. and Henry Schein, Inc., had agreed to delegate the issue of arbitrability to the arbitrator. The arbitration agreement at issue did not expressly state that questions of arbitrability should be decided by the arbitrator. Instead, the arbitration agreement incorporated the American Arbitration Association rules, which in turn provide that arbitrators have the power to resolve arbitrability questions. One remaining, undecided issue is whether parties agree to arbitrate arbitrability when they incorporate a certain set of arbitration rules. Consistent with a line of questioning at oral argument on this topic, the Court appears to have left this door open by citing a prior case in which the Court held that courts “should not assume that the parties agree to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
The opinion can be found here.
