The U.S. Supreme Court held that lower courts cannot decide whether a claim is arbitrable, if the parties to the arbitration agreement properly delegated that responsibility to the arbitrator. Justice Kavanaugh wrote his first opinion on behalf of a unanimous Court.
The law has long permitted parties to arbitration contracts to permit arbitrators, rather than courts, to decide whether a given claim falls within the scope of an agreement to arbitrate. However, lower courts have refused to compel arbitration if the judge decides that the argument in favor of arbitration was “wholly groundless.” The specific issue the Supreme Court decided concerns whether the “wholly groundless” exception is valid under the Federal Arbitration Act.
In the case under consideration, Henry Schein, Inc. v. Archer & White Sales, Inc., the parties’ arbitration agreement specifically excluded claims for injunctive relief:
“Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)]. The place of arbitration shall be in Charlotte, North Carolina.” App. to Pet. for Cert. 3a.
The arbitration agreement also provided that American Arbitration Association (AAA) rules governed the agreement to arbitrate. And AAA rules permit the arbitrator to decide whether cases are arbitrable l
Archer sued Schein for money damages and injunctive relief, based on a dispute that arose during their business relationship. Schein asked the district court to send the case to arbitration. Archer believed the case was outside the scope of the arbitration agreement. Archer argued to the district court that the court should decide the arbitrability issue, because the motion to compel arbitration was “wholly groundless” given the arbitration agreement. Schein said the arbitrator should decide. The district court agreed with Archer, because the Fifth Circuit Court of Appeals had recognized the wholly groundless exception. The Supreme Court agreed to hear the case to resolve a split among the circuit courts.
The Supreme Court decided there is no such thing as a “wholly groundless” exception to arbitration agreements that properly delegate arbitrability questions to the arbitrator.
When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract. In those circumstances, a court possesses no power to decide the arbitrability issue. That is true even if the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.
This case is important, because it removes an extra step from the arbitration process. That said, it’s important to carefully consider how much power to given an arbitrator.
The case is Henry Schein, Inc. v. Archer & White Sales, Inc., and the opinion is here.