In a decision issued on January 8, 2019, the U.S. Supreme Court (the “Court”) resolved a split of opinion among courts of appeals over whether the “wholly groundless” test has any application to the determination of who, as between a court and an arbitrator, is to decide the threshold issue of arbitrability, i.e., whether an agreement to arbitrate applies to a particular dispute. The Court unanimously decided that it does not. [1] The “wholly groundless” test, as previously recognized by some federal courts, allowed the court to decide the arbitrability issue, notwithstanding the delegation of that decision-making authority to an arbitrator, if the court found the assertion of arbitrability to be wholly groundless. While the Court’s decision in Henry Schein is notable for its resolution of what had become a growing divide among the federal appellate courts over the use of the “wholly groundless” test, or exception, it is also notable for its narrowness. The Court did not decide whether, pursuant to the particular arbitration agreement between the parties, questions of arbitrability were, in fact, delegated to an arbitrator. Rather, the Court remanded the case to the Fifth Circuit for consideration of that issue among, potentially, others.
Writing for the unanimous Court, Justice Kavanaugh framed the limited issue as “whether the ‘wholly groundless’ exception is consistent with the Federal Arbitration Act.” In concluding that it is not, the Court’s opinion is grounded on the text of the Federal Arbitration Act and on Court precedent recognizing the power of the arbitration agreement. As the Court observed, under the Federal Arbitration Act, arbitration is a matter of contract, and courts are required to interpret the contract as written. [2] “This Court has consistently held that parties may delegate threshold arbitrability questions to the arbitrator, so long as the parties’ agreement does so by ‘clear and unmistakable’ evidence.” [3] Accordingly, “if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.” [4]
The Court addressed and rejected each of the four arguments raised by Respondents and did so primarily on the ground that to accept their arguments would require the Court to improperly rewrite the Federal Arbitration Act. “When the parties’ contract assigns a matter to arbitration, a court may not resolve the merits of the dispute even if the court thinks that a party’s claim on the merits is frivolous.” [5] In summing up its rejection of the “wholly groundless” exception...
