On January 8, 2019, the United States Supreme Court issued a unanimous decision in Henry Schein, Inc. et al. v. Archer & White Sales, Inc., No. 17–1272, 2019 WL 122164 (U.S. Jan. 8, 2019), in which the Court yet again considered the question of who decides the scope of arbitrators’ jurisdiction, or “arbitrability” as that term is used in the United States. In the first opinion of the Court delivered by Justice Brett Kavanaugh, the Court held that, where the parties have agreed that the arbitrators rather than the court will decide the “threshold question of arbitrability,” the courts cannot “short-circuit the process and decide the arbitrability question themselves.” Id. at *2–*3, This is true even where “the argument that the arbitration agreement applies to the particular dispute is ‘wholly groundless.’” Id. at *4. The Court found that the “wholly groundless” doctrine finds no justification in either the language of the Federal Arbitration Act (“FAA”) or any Supreme Court precedent.
In Henry Schein, the Court followed First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), which held that there is a rebuttable presumption that parties to an arbitration agreement intend for a court, rather than the arbitrators, to decide issues of arbitrability. That presumption is overcome where there is “clear and unmistakable” evidence that the parties intended to delegate the arbitrability question to the arbitrators. Id. at 944. The Court granted certiorari to address a split in authority in the lower courts over whether a court faced with a delegation provision could nevertheless decide the arbitrability question itself if the court determined that the argument in favor of arbitration was “wholly groundless.” Henry Schein at *3. The Court noted that the United States Courts of Appeal for the Fourth, Fifth, Sixth, and Federal Circuits have recognized a “wholly groundless” exception to the rule while the Tenth and Eleventh Circuits have not.
In Henry Schein, the parties’ contract provided that the dispute would be resolved under the rules of the American Arbitration Association (the “AAA Rules”), and contained a carve-out for certain actions, including those involving injunctive relief, which would be reserved for the courts. After Archer & White sued Schein in court, Schein moved to compel arbitration. Archer & White objected, on the basis that its case included a request for injunctive relief, at least in part.
The United States District Court then had to determine whether it could decide arbitrability, or whether it must be decided by the arbitrators. Schein argued that the parties’ selection of the AAA Rules, which include a rule granting arbitrators the authority to decide the scope of their own jurisdiction, meant that they had agreed to arbitrate arbitrability. Archer & White responded by noting that the Fifth Circuit recognized an exception to that rule where the defendant’s argument for arbitration is wholly groundless. In such instances, the court may decide the issue. The District Court agreed with Archer & White’s argument that the position in favor of arbitration was wholly groundless and denied the motion to compel arbitration. On appeal, the Fifth Circuit affirmed.
The Supreme Court provided four reasons for overturning the Fifth Circuit’s ruling and eliminating the wholly groundless exception. First, while the Court acknowledged that a court confronted with a motion to compel arbitration must first determine whether a valid arbitration agreement exists, the Court rejected Archer & White’s argument that Sections 3 and 4 of the FAA require a District Court to resolve arbitrability questions as well before staying litigation and compelling arbitration. “[T]hat ship has sailed” because the Supreme Court has “consistently held that parties may delegate...
