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By: Ted Peters
The question of arbitrability (i.e., Who decides whether a dispute is arbitrable? The court or the arbitrator(s)?) is as ageless as the conundrum of what came first, the chicken or the egg. In 2010, the Supreme Court decided Rent-a-Center, Vest Inc. v. Jackson, wherein it concluded that agreements to arbitrate questions of arbitrability are, themselves, enforceable. That dispute involved an employee who had signed an arbitration agreement that provided for arbitration of disputes arising out of his employment, including discrimination claims. The agreement expressly provided that the arbitrator, and not a court, had the exclusive authority to resolve any disputes relating to the enforceability of the arbitration agreement. The Ninth Circuit Court determined that the employee’s argument that the agreement was unconscionable was a matter of fact for the court rather than the arbitrator. In a split vote, the Supreme Court found otherwise, and concluded that because the employee challenged the agreement as a whole (and not only the delegation provision), the determination had to be made by the arbitrator.
The US Supreme Court will weigh in again on the issue of arbitrability. On June 25, 2018, the Court accepted certiorari in the case of Henry Schein, Inc. v. Archer & White Sales, Inc., a case in which the Fifth Circuit addressed the arbitrability of antitrust claims asserted against a distributor of dental equipment. The defendants/appellants sought to enforce an arbitration agreement. The magistrate granted a motion to compel arbitration, concluding that the threshold question of the arbitrability of the claims was vested in the decision of an arbitrator, and not for a court to decide. The district court, however, reversed, finding that it had the authority to rule on the question of arbitrability and concluded that the claims at issue were not arbitrable. The Fifth Circuit affirmed finding that submission of the dispute to the arbitrator was not necessary because the assertion of arbitrability was “wholly groundless.” The appellate court explained that the arbitration clause in question created a carve-out for “actions seeking injunctive relief,” but did not limit the exclusion to “actions seeking only injunctive relief.” The court reasoned that even though the agreement would allow the plaintiff/respondent to avoid arbitration by simply adding a claim for injunctive relief did not change the clause’s plain meaning.
The decision in Henry Schein underscores that a conflict has developed among the lower courts; some recognizing an exception for “wholly groundless” claims of arbitrability, but others not. Defendants/appellants seek to have the Supreme Court reject the “wholly groundless” exception, asserting that the Fifth Circuit’s decision cannot be reconciled with the Federal Arbitration Act’s text or its overarching purpose: “to ensure that private agreements to arbitrate are enforced according to their terms.” The question presented before the Court is simple: “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.”
Oral argument is scheduled for October 29, 2018.
If you have questions or would like more information, please contact Ted Peters at [email protected].