SUPREME COURT RULES THAT COURTS MAY NOT OVERRIDE A CONTRACT PROVISION DELEGATING THE ARBITRABILITY OF A DISPUTE TO AN ARBITRATOR

 

            On January 8, 2019, in an opinion written by Justice Kavanaugh, the United Supreme Court unanimously ruled that a court may not override a contract provision delegating the power to determine the arbitrability of a dispute to an arbitrator.

            The case involved a lawsuit brought by Archer & White Sales, which entered into a contract to distribute dental equipment with a manufacturer, the successor in interest of which was Henry Schein, Inc.  The contract included an arbitration clause that provided for arbitration of “any dispute arising under or related to the agreement,” with certain exceptions, including actions seeking injunctive relief.  The contract further provided that the rules of the American Arbitration Association were to apply.  Those rules provide that arbitrators have the power to determine whether a dispute is subject to arbitration.

            Archer & White brought an antitrust lawsuit against Schein in a Texas federal court seeking both monetary damages and injunctive relief.  Schein asked the court to refer the case to arbitration under the Federal Arbitration Act.  The District Court denied the request based on its finding that Schein’s argument for arbitration was “wholly groundless,” and the Fifth Circuit Court of Appeals affirmed.  The Supreme Court accepted certiorari because there was a split in circuits as to whether there was a “wholly groundless” exception to the Federal Arbitration Act.

            The Court held that the “wholly groundless” exception is inconsistent with the Federal Arbitration Act and Supreme Court precedent: 

"We must interpret the Act as written, and the Act in turn requires that we interpret the contract as written.  When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override their decision…That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless."

            The opinion noted that the Court was not expressing a view about whether the contract at issue in fact delegated arbitrability to the arbitrator and that the Fifth Circuit did not decide that issue.  The case was remanded for further proceedings.

            The case is Henry Schein, Inc. et al., v. Archer & White Sales, Inc., No. 17-1272.  The Court’s opinion is linked here