Poor Henry Schein. After Seven Years, Still No Arbitration, Even After SCOTUS Victory Earlier this Year
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By George H. Friedman, SAA Editor-in-Chief

Evaluating the parties predispute arbitration agreement (“PDAA”) for delegation of arbitrability after remand from SCOTUS earlier this year, the Fifth Circuit holds unanimously that the PDAA does not clearly and unmistakably call for delegation.

Ever wonder about the epilogue after SCOTUS issues a major arbitration-related decision? We do, because often the parties end up back in arbitration or court. An example of the latter is Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (Jan. 8, 2019), where in the first Opinion authored by Justice Kavanaugh, the Supreme Court held unanimously that there is no delegation carveout under the Federal Arbitration Act (“FAA”) for “wholly groundless” assertions of arbitrability. 

Case Below

In Archer & White Sales v. Henry Schein, Inc., 878 F.3d 488 (5th Cir. 2017), a case we covered in SAAs 2018-10 (Mar. 7) & -04 (Jan. 24), the Fifth Circuit held that the court, not an arbitrator, should decide whether an assertion of arbitration rights is “wholly groundless,” even though there was a delegation provision by virtue of incorporation of the AAA’s Rules. Why? The arbitration agreement expressly carved out injunctive relief applications, which on its face were involved in the dispute. SCOTUS granted Certiorari to resolve a clear split in the Circuits, with some courts holding that, if there is a clear, unequivocal delegation, all arbitrability issues without exception go to arbitrators. The issue before the Court, as described in the Petition for Certiorari, was: “Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is ‘wholly groundless.’”

SCOTUS: No Wriggle Room in the FAA

Justice Kavanaugh’s January 8 Opinion stated: “We conclude that the ‘wholly groundless’ exception is inconsistent with the text of the [Federal Arbitration] Act and with our precedent. We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written. When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.”

Back to the Fifth Circuit

SCOTUS, however, stopped short of actually deciding whether the contract delegated the arbitrability question to an arbitrator: “The Court of Appeals did not decide that issue…. On remand, the Court of Appeals may address that issue in the first instance, as well as other arguments that Archer and White has properly preserved.” So, what happened? On August 14 the Fifth Circuit in Henry Schein, Inc. v. Archer & White Sales, No. 16-41674, held that the parties did not clearly delegate arbitrability: “The most natural reading of the arbitration clause at issue here states that any dispute, except actions seeking injunctive relief, shall be resolved in arbitration in accordance with the AAA rules. The plain language incorporates the AAA rules – and therefore delegates arbitrability – for all disputes except those under the carve-out. Given that carve-out, we cannot say that the Dealer Agreement evinces a ‘clear and unmistakable’ intent to delegate arbitrability. We are mindful of the Court’s reminder that ‘[w]hen the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.’ But we must also heed its warning that courts ‘should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.’ The parties could have unambiguously delegated this question, but they did not, and we are not empowered to re-write their agreement” (emphasis in original; footnote omitted).

(ed: Now what? The Motion to Compel Arbitration is denied, so it looks like the parties are back at the District Court on Archer & White’s original antitrust suit against Henry Schein – pursuing a petition for injunctive relief filed almost 7 years ago!) (SAC Ref. No. 2019-32-01)

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