Henry Schein, Inc. v. Archer & White Sales, Inc.
2019 U.S. LEXIS 566, 139 S. Ct. 524, 202 L. Ed. 2d 480 (2019)
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Rule of Law:
Under the Federal Arbitration Act, if parties contractually delegate the threshold question of arbitrability to an arbitrator, a court may not intervene and decide that question, even if the court believes the argument for arbitration is 'wholly groundless'.
Facts:
- Archer and White, a dental equipment distributor, entered into a distribution contract with Pelton and Crane, a manufacturer.
- Henry Schein, Inc. (Schein) is the successor-in-interest to Pelton and Crane.
- The contract's arbitration clause stated that 'Any dispute arising under or related to this Agreement ... shall be resolved by binding arbitration.'
- The clause carved out an exception for 'actions seeking injunctive relief.'
- The contract also incorporated the rules of the American Arbitration Association (AAA), which empower an arbitrator to rule on his or her own jurisdiction, including questions of arbitrability.
- A dispute arose between the parties, and their business relationship soured.
- Archer and White sued Schein, alleging antitrust violations and seeking both monetary damages and injunctive relief.
Procedural Posture:
- Archer and White sued Schein in the U.S. District Court for the Eastern District of Texas.
- Schein filed a motion to compel arbitration based on the parties' contract.
- The District Court, applying Fifth Circuit precedent for a 'wholly groundless' exception, denied the motion, finding Schein's argument for arbitration to be wholly groundless.
- Schein, as appellant, appealed to the U.S. Court of Appeals for the Fifth Circuit.
- The Court of Appeals affirmed the District Court's decision.
- The U.S. Supreme Court granted certiorari to resolve a conflict among the Courts of Appeals regarding the 'wholly groundless' exception.
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Issue:
Does the Federal Arbitration Act permit a court to decide the question of arbitrability, rather than an arbitrator, if the court finds the argument for arbitration to be 'wholly groundless,' even when the parties' contract delegates that question to the arbitrator?
Opinions:
Majority - Justice Kavanaugh
No, the Federal Arbitration Act (FAA) does not permit a 'wholly groundless' exception. When parties agree to delegate the threshold question of arbitrability to an arbitrator, courts must enforce that agreement according to its terms and have no power to decide the arbitrability issue. The FAA's text requires courts to enforce arbitration contracts as written, and it contains no such exception. This Court's precedent, particularly in AT&T Technologies, Inc. v. Communications Workers, establishes that a court may not rule on the merits of a claim assigned to an arbitrator, even if the claim appears frivolous; this principle applies with equal force to gateway questions of arbitrability that the parties have delegated. Arguments that this exception promotes efficiency or deters frivolous motions are unpersuasive policy concerns that cannot override the clear statutory text enacted by Congress.
Analysis:
This decision eliminates a judge-made 'wholly groundless' exception that had been adopted by several circuit courts, thereby creating a uniform national rule. It significantly strengthens the enforceability of delegation clauses in arbitration agreements, reinforcing the principle that arbitration is a creature of contract. By preventing courts from conducting a preliminary assessment of the merits of an arbitrability claim, the ruling ensures that an arbitrator is the decision-maker for both the gateway question and the underlying dispute when the parties have so agreed. This may increase the use of arbitration for disputes where one party believes the claim is clearly outside the scope of the arbitration clause, as they are now foreclosed from asking a court to make that initial determination on grounds of frivolity.
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