The Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq., continues its ubiquitous presence on the U.S. Supreme Court’s docket. Hardly a Term has gone by in recent years without at least one decision by the Court interpreting and applying the statute, and this Term is no exception; no fewer than three merits cases on the Court’s docket arise under the Act.
The first of those cases to be decided, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019), presented a perennial issue: who decides whether a particular dispute is subject to arbitration—a court or an arbitrator? As the Court has previously explained, contracting parties are free to delegate this “arbitrability” (or “gateway”) issue itself to an arbitrator. Notwithstanding that rule, at least four federal courts of appeals—the Fourth, Fifth, Sixth, and Federal Circuits—held in recent years that courts always remain free to decide arbitrability disputes where the arguments in favor of arbitration are “wholly groundless.” In contrast, two other federal courts of appeals—the Tenth and Eleventh Circuits—rejected the “wholly groundless” exception, and held that the FAA requires courts to enforce agreements to arbitrate arbitrability no matter how far-fetched the arguments in favor of arbitration.
The Supreme Court granted review in Henry Schein to resolve that circuit conflict, and—in the maiden opinion by Justice Brett Kavanaugh— unanimously rejected the “wholly groundless” arbitrability, no less than any other kind of arbitration agreements, must be enforced according to their terms. Whether the court deems the arbitrability question hard or easy on the merits is irrelevant, and conflates the underlying arbitrability question with the distinct issue of who decides that question.
While rejecting the “wholly groundless” exception, the Supreme Court skirted the more fundamental issue: under what circumstances will courts interpret arbitration agreements to assign arbitrability disputes to an arbitrator? The “wholly groundless” exception, after all, represented at most a narrow exception to the rule that parties are free to assign arbitrability disputes to an arbitrator. Now that the Supreme Court has dispensed with that judicially-crafted “safety valve,” courts will have no choice but to compel arbitration of arbitrability disputes upon interpreting an agreement to send such disputes to arbitration, so that interpretive issue looms larger than ever.
The Fifth Circuit dodged that interpretive issue in Henry Schein by holding that, even assuming that the parties’ agreement were interpreted to require arbitration of arbitrability disputes, the arbitration demand in that case was “wholly groundless.” Accordingly, after the Supreme Court rejected the “wholly groundless” exception, it remanded the case for the Fifth Circuit to address that interpretive issue in the first instance, simply reiterating its prior observation that courts “‘should not assume that the parties agreed to arbitrate arbitrability unless is there clear and unmistakable evidence that they did so.’” 139 S. Ct. at 531 (emphasis added; quoting First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995)). The Supreme Court shed no additional light on what particular contractual language will be deemed such “clear and unmistakable evidence,” and it is likely that the issue will return to the Supreme Court in the near future. In the meantime, parties entering into arbitration agreements, or seeking or opposing arbitration under such agreements, would be well-advised to be aware of arguments for and against construing agreements to delegate arbitrability disputes to an arbitrator.
Background: Arbitrating Arbitrability
As the Supreme Court has emphasized in a line of cases dating back decades, the FAA reflects a liberal federal policy favoring arbitration agreements. Although arbitration is a matter of consent, not coercion, and parties cannot be forced to arbitrate—as opposed to litigate—disputes that they did not agree to arbitrate, the Court has construed the Act to direct that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).
As a matter of law and logic, one of the issues that parties can agree to arbitrate is a dispute over who decides a dispute over the scope of arbitrable issues. Say, for example, that the parties agree to arbitrate disputes “arising out of or relating to” a particular contract. If one of the parties wishes to litigate a statutory claim in court, the threshold question is whether that dispute “arises out of or relates to” the contract. In determining whether the parties have delegated the resolution of that arbitrability dispute to the arbitrator, the general presumption in favor of arbitration is flipped: a court will not assume that parties intended to arbitrate arbitrability in the absence of “‘clear and unmistakable’” evidence that they did so. First Options, 514 U.S. at 944 (brackets...
