In the first Opinion authored by Justice Kavanaugh, the Supreme Court holds unanimously in Henry Schein, Inc. v. Archer & White Sales, Inc., No. 17-1272, that there is no delegation carveout for “wholly groundless” assertions of arbitrability under the Federal Arbitration Act (“FAA”).
We reported in SAAs 2018-41E (Nov. 5) and -41 (Oct. 31) that, in a raucous, laughter-filled session, replete with references to Martians engaged in arbitration and sliced baloney, the Supreme Court heard oral argument in this case on October 29th. 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.’”
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.
We Called It
As usual, both attorneys were peppered with questions within a minute of uttering “May it please the Court.” We noted at the time that rookies Justices Gorsuch and Kavanaugh asked several questions, while Justice Thomas did not ask any. After reviewing the transcript and listening to the hearing audio, we were convinced that the “wholly groundless” exception was on borrowed time, writing: “Judging by the questions (always a risky endeavor), it seems like the Court will hold that under the Federal Arbitration Act (‘FAA) there is no delegation carveout for ‘wholly groundless’ assertions of arbitrability.” That turned out to be an understatement, as the Court emphatically resolved the Circuit Court split in a unanimous ruling.
No Wriggle Room in the FAA
Justice Kavanaugh’s January 8 Opinion was grounded in statutory interpretation, which came as no shock to us. We wrote in our July 13th blog post, Supreme Court Nominee Kavanaugh Seems To Be Pro-Arbitration (or so We Think), Part I: “Our Take: This dissent shows a strict reading of the underlying statutes and limited judicial activism.” Said the Justice’s Opinion in Henry Schein: “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. That conclusion follows not only from the text of the Act but also from precedent…. In sum, we reject the ‘wholly groundless’ exception. The exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability. When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.”
(ed: *Interestingly, the Court did not decide whether the contract incorporating the AAA’s Rules constituted “clear and unmistakable” evidence of delegation, because the Fifth Circuit did not rule on that issue. That issue is to be addressed on remand. **See our analysis of the oral argument in our November 6th blog post, Martians, Baloney, and Laughter: SCOTUS Hears Oral Argument in Henry Schein. Seems To Us the “Wholly Groundless” Delegation Exception Is on Borrowed Time. ***Oral argument took place in October in two other arbitration-centric cases: New Prime, Inc. v. Oliveira, No. 17-340, on October 3rdand Lamps Plus v. Varela, No. 17-988, on October 29th. As we’ve noted before, SCOTUS hasn’t heard three arbitration cases during the same Term since 1960, when the Court decided three landmark arbitration cases involving the United Steelworkers union. These decisions were later dubbed, the “Steelworkers Trilogy.”) (SAC Ref. No. 2019-02-01)
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