The United States Supreme Court continued the pro-arbitration trend in its jurisprudence, as well as its strict construction of the Federal Arbitration Act, in its unanimous decision in Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272, 2019 WL 122164 (U.S. Jan. 8, 2019). Resolving a division in the Circuits on the issue, the Court held that where the parties delegate the “gateway” issue of arbitrability to the arbitrator, the court may not apply a judicially created “wholly groundless” exception to avoid delegation.
Archer and White Sales, Inc., a small business that distributes dental equipment and the plaintiff below, sued a dental equipment manufacturer and Schein, a major distributor of the equipment, for federal and state law antitrust violations. The relevant agreement between the parties provided that disputes “arising under or relating to” the agreement “shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association [AAA].” Schein invoked the FAA and sought to compel arbitration.
Archer and White opposed, relying on an exception in the arbitration provision for actions seeking injunctive relief. It argued that because its complaint sought injunctive relief in addition to damages, the dispute was not arbitrable. Schein argued that because the AAA rules provide that arbitrators have the power to resolve threshold issues of arbitrability, under applicable case law the contract required that the arbitrator, not the court, decide whether the dispute was subject to arbitration.
In response, Archer and White relied on a court-created exception recognized in the Fifth Circuit (and several other Circuits) permitting the court to decide arbitrability, notwithstanding a contractual delegation to the arbitrator, where the court finds the argument for arbitration to be “wholly groundless.” The trial court agreed and denied arbitration, and the Fifth Circuit affirmed.
With Justice Kavanaugh writing his first opinion for the Court, the Supreme Court vacated the decision and remanded. The opinion emphasizes strict interpretation under the FAA: “We must interpret the Act as written, and the Act in turn requires that we interpret the [arbitration] contract as written.” Schein, 2019 WL 122164, at *4. The Supreme Court had held in prior opinions that who decides whether a dispute may be arbitrated is itself a matter of contract, and the parties thus may agree that an arbitrator and not the court will decide. See, e.g., Rent-A-Center, W., Inc. v. Jackson, 561 U.S. 63, 68-70 (2010).
The Court concluded in Schein that the “wholly groundless” exception was inconsistent not only with the express terms of the FAA, but with the Court’s precedents. Justice Kavanaugh noted that AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649-50 (1986), held that the FAA precludes a court from ruling on the merits of a dispute that has been delegated to an arbitrator, even if the claim appears to be wholly frivolous. Justice Kavanaugh concluded that this principle applied with equal force to the issue of arbitrability: just as the court cannot decide a merits claim that the parties have delegated to an arbitrator, neither can it decide an arbitrability claim that the parties have similarly delegated. Schein, 2019 WL 122164, at *4.
Schein summarily rejected each of respondent’s additional four arguments:
The Court thus rejected the “wholly groundless” objection. The Court expressed no view about whether the contract at issue in fact delegated the arbitrability determination to the arbitrator. Indeed, Justice Kavanaugh emphasized that courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” Id. at *6 (citing First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 994 (1995).
Although the decision in Schein was not a surprise, it confirms that the Court as constituted will remain firmly on a pro-arbitration path and will continue to strictly adhere to the provisions of the FAA. The decision also suggests that parties who desire arbitration may want to expressly delegate the gateway issue of arbitrability to the arbitrator. (Incorporation of the AAA rules likely has that effect, but the Supreme Court has not ruled on the issue.) Unlike a court, the arbitrator’s decision is not subject to review, which will give some potential litigants pause. Nonetheless, the Schein opinion suggests that for parties who strongly desire arbitration, this may be a benefit.
 Just one week later, however, in New Prime Inc. v. Oliveira, No. 17-340, 2019 WL 189342 (U.S. Jan. 15, 2019), the Supreme Court held that a court, not an arbitrator, must decide the threshold question of whether the contract at issue is within the scope of the FAA and not within an exception. Because §§ 3 and 4 of the FAA confer authority on a court to stay litigation and compel arbitration only where the contract comes within the scope of the FAA as defined in § 2 of that Act, the court must first resolve the scope issue even where the contract otherwise delegates arbitrability determinations to the arbitrator. In New Prime, because the Supreme Court concluded that the transportation worker exception contained in § 1 of the FAA applied to independent contractors, the matter was not arbitrable.