The November argument session begins with yet another case under the Federal Arbitration Act — Henry Schein Inc. v. Archer & White Sales Inc. With Henry Schein, New Prime Inc. v. Oliveira (from October) and Lamps Plus Inc. v. Varela (later on Monday morning), the court will have three FAA cases under its belt before the first of November – almost a match for the Armed Career Criminal Act!

The issue in this case is straightforward: who decides whether a particular dispute should be decided in arbitration rather than a court. As you might expect, the baseline expectation is that a court gets to decide whether to send a dispute from its docket to a private arbitrator. The Supreme Court has recognized, though, that the arbitrator decides those “gateway” issues of arbitrability if the parties “clearly” and “unmistakably” agree that the arbitrator should do so. The parties might agree, for example, that the arbitrator would decide whether a particular dispute does – or does not – “arise out of” the contract that includes the arbitration clause. And if they make such an agreement, the arbitrator will assess whether any particular dispute is sufficiently related to the contract to warrant arbitration.

That brings us to this case, which involves an exception to that treatment of gateway issues for cases in which a court finds a claim of arbitrability “wholly groundless.” Specifically, under the law of the U.S. Court of Appeals for the 5th Circuit (applied in this case), a court will not send a case to an arbitrator to decide the question of arbitrability, even if the parties have clearly and unmistakably agreed that the arbitrator should decide such questions, if the court finds the claim of arbitrability “wholly groundless.”

The contract here provided for arbitration of any “dispute arising under or related to” the contract “except for actions seeking injunctive relief.” The complaint in this case sought tens of millions of dollars in damages for alleged violations of the Sherman Act and various parallel state laws, as well as injunctive relief. The defendants sought arbitration, arguing that the primary thrust of the complaint was to seek damages, and that any appropriate injunctive relief could issue after the arbitrator ruled on the merits of the complaint for damages. The lower courts refused to send the matter to arbitration, though, finding the request for arbitration groundless because of the inclusion in the complaint of a count seeking injunctive relief.

The arguments of the parties are straightforward. The defendant (petitioner Henry Schein Inc.) points out that the Supreme Court already has decided that the parties can delegate issues of arbitrability to an arbitrator, and that those precedents do not even hint at an exception for cases in which the court regards the request for arbitration as groundless. More generally, the only basis for a concern about letting the arbitrator decide groundless requests for arbitration has to be a suspicion that the arbitrator can’t be trusted to decide them properly.

For its part, the plaintiff (respondent Archer & White Sales Inc.) argues that the court can’t properly force a plaintiff into arbitration until the court decides that the plaintiff has (in the terms of the statute) “fail[ed] to comply” with an arbitration agreement – and the plaintiff can’t “fail to comply” with an arbitration agreement if there is no plausible claim that an arbitration agreement covers the dispute. In this case, for example, the plaintiff agreed to arbitrate claims for damages but did not agree to arbitrate “actions seeking injunctive relief.” Because nobody can doubt that this is an action “seeking injunctive relief,” how can a court plausibly force the plaintiff into arbitration?

Suffice it to say that nothing in the FAA or the Supreme Court’s existing cases will drive a decision here. It is true that the Supreme Court’s cases contain nothing suggesting that there should be an exception for “wholly groundless” requests for arbitration, but it is just as true that none of those cases has ever considered the propriety of such an exception, which has subsisted for decades in the lower courts undisturbed by the Supreme Court’s longstanding project to increase the availability of arbitration.

As I mentioned in my post last month about New Prime, attention to the Supreme Court’s arbitration rulings of the last few years would suggest a strong likelihood of reversal – I don’t think the Supreme Court has rejected an FAA claim yet this century. But since I wrote that post we’ve seen some evidence of the court’s softening. One interesting tidbit – from the desk of the estimable John Elwood – is that we’ve seen this month the first rejection this century of a cert petition complaining about pre-emption of an arbitration provision. For another thing, the argument in New Prime (summarized in this post) displayed a bench that was not only open to rejecting the claim for arbitration there, but indeed strongly predisposed to reject it. In particular, the bench seemed quite settled on the idea that the justices – not an arbitrator – should decide whether the FAA applies to contracts involving independent contractors. To be sure, Chief Justice John Roberts emphasized the difference between the gateway question there (“does the Act apply at all”), which he characterized as “an order of magnitude” less suited for arbitral determination than an interpretation question “within the four corners of the agreement.” Perhaps Roberts already was familiar with the issues in this case when he came to the bench in New Prime last month!

I think we have to expect a bench that will give serious attention to the plaintiff’s “plain language of the contract” argument. To my mind, the one key fact that might be enough to keep the defendant in the game is the protracted delay of the judicial proceedings here. The plaintiff filed this complaint in 2012. The litigation over arbitrability has consumed seven years and doubtless expended several hundred thousand dollars in legal fees (if not more). I will be surprised next week if the justices who commonly have joined the majority in broad readings of the FAA are not troubled by the prospects of imposing such long delays and high expenses on parties that had bargained for a swift and presumably less expensive resolution in arbitration.

One additional twist: The courts below did not find that the agreement in this case “clearly and unmistakably” allocated gateway questions to the arbitrator. The court of appeals rested its decision on the ground that the claim for arbitration was in any event “wholly groundless,” and the parties have briefed the case on that basis. It remains an open possibility, though, if the justices do not rapidly coalesce on the propriety of the “wholly groundless” exception, that they could dispose of the case by finding that the agreement did not call for arbitrability of those questions in the first instance. The argument should give us an indication of their sentiment on that front. The outcome might be a lot like Sheriff v. Gillie, in which the court granted review to determine whether state officers are exempt from the Fair Debt Collection Practices Act, but ultimately resolved the case, avoiding that question, by holding that the challenged communications were not deceptive.

Originally posted on SCOTUSblog.

Ronald Mann, Argument preview: Justices to mull who decides whether to arbitrate – the judge or the arbitrator, SCOTUSblog (Oct. 22, 2018, 10:25 AM),


Ronald Mann

Ronald Mann is a professor of law at Columbia, where he teaches courses in commercial finance, payment systems and deals. He graduated from the University of Texas in 1985, and after clerking on the U.S. Court of Appeals for the 9th Circuit (Judge Joseph Sneed) and the Supreme Court (Justice Lewis Powell), he worked in the U.S. solicitor general’s office under Kenneth Starr and Drew Days. He has written extensively about secured credit, credit cards and other electronic payments systems, the role of patents in financing innovation and related topics. For SCOTUSblog, he covers the court’s cases in the areas of commercial law and intellectual property.


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