The Court holds that in cases where an arbitration clause contains a delegation provision, courts must rubberstamp arbitration proceedings even where arguments for arbitrability are “wholly groundless.”

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Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U.S._(2019)(slip opinion)
 

Relevant Facts: After a distributor’s deal with a manufacturer went bad, the distributor, Archer & White, filed an antitrust suit seeking injunctive relief. Henry Schein, the manufacturer’s successor in interest, invoked an arbitration clause that specified that American Arbitration Association (AAA) rules would govern any applicable disputes. Archer & White objected to arbitration on the basis that the arbitration provision they agreed to expressly excluded suits seeking injunctive relief. Henry Schein argued that by incorporating the AAA rules, which provide that arbitrators may resolve questions of arbitrability, Archer & White had agreed to delegate the resolution of the dispute to an arbitrator. A magistrate agreed, and ruled the question of whether the claim of injunctive relief was arbitrable was for the arbitrator to decide.

 

Relying on precedent from the U.S. Court of Appeals for the Fifth Circuit, the district court reversed and held that the court could decide the question of arbitrability because the arguments for arbitration were “wholly groundless.” The appellate court affirmed.

 

Question Before The Court: 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.”

 

The Opinion: The Court granted certiorari in this case to resolve a circuit split around the question of whether the Federal Arbitration Act allows a “wholly groundless” exception. This exception, where recognized, permitted “the court rather than the arbitrator [to] decide the threshold arbitrability question if, under the contract, the argument for arbitration is wholly groundless.” Relying on its precedent in First Options and Rent-A-Center, the Court found that “the ‘wholly groundless’ exception is inconsistent with the text of the Act and with our precedent.”

 

The Court reasoned, “Just as a court may not decide a merits question that the parties have delegated to an arbitrator, a court may not decide an arbitrability question that the parties have delegated to an arbitrator. . . . If a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.”

 

In the final paragraph, the Court expressly declined to rule on the question of whether a delegation provision may be incorporated by reference, as Henry Schein had argued at the lower court levels. It remains an open question whether the Court, in the future, will agree that companies can use a reference to for-profit arbitration firm rules in an arbitration clause to implicitly impose delegation provisions.

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