In a unanimous decision, the first authored by Justice Brett Kavanaugh, the United States Supreme Court rejected the “wholly groundless” exception to the general rule that courts will enforce a “clear” and “unmistakable” agreement delegating questions of arbitrability to the arbitrator. The exception was rejected because it was inconsistent with the Federal Arbitration Act (FAA). This decision reinforces the fundamental point that the FAA governs all agreements to arbitrate, and the FAA unequivocally allows the parties to agree that the arbitrator, rather than the Court, shall decide the threshold question of arbitrability.
This issue often arises in the context of a dispute between parties as to whether a valid and enforceable agreement to arbitrate governs all or part of the dispute in question. The party seeking to enforce the agreement to arbitrate will often cite to language in the underlying contract between the parties (oftentimes referred to as a “delegation clause”) allowing the arbitrator to decide, as an initial matter, whether a dispute is subject to arbitration.
By way of brief background, several lower courts had adopted an exception to the general rule stated above by reasoning that if a claim of arbitrability is “wholly groundless” then courts can refuse to send it to an arbitrator. The Supreme Court was then asked to weigh in on the validity of such an exception.
In Henry Schein Inc. v. Archer & White Sales Inc., Archer White brought an antitrust suit against Henry Schein seeking injunctive relief and monetary damages. The parties had previously entered into a contract that provided for arbitration of any dispute “arising under or related to” the agreement, except for actions seeking injunctive relief. The Fifth Circuit upheld the district court’s decision that because Archer White sought injunctive relief, at least in part, Henry Schein’s argument that the action was subject to binding arbitration was “wholly groundless,” and need not be decided by the arbitrator.
In an opinion consistent with other recent Supreme Court decisions reinforcing the supremacy of the FAA, the Court decisively rejected all four arguments presented in support of the “wholly groundless” exception. Two of the respondent’s arguments were based on the language of the FAA. The Court rejected one argument as inconsistent with Supreme Court precedent and the other as unsupported by the plain language of the text.
The Court similarly rejected the respondent’s two policy-based arguments. The Court rejected Respondent’s argument that as a “practical and policy matter,” allowing courts to deny groundless arbitration requests would save time and money. The Court aptly pointed out that creating such an exception “would inevitably spark collateral litigation.” The Court also disagreed with the contention that the exception was necessary to deter frivolous motions to compel arbitration as “overstat[ing] the potential problem.” The Court cited the lack of evidence that motions to compel arbitration were clogging the dockets of the lower courts that do not have such an exception in place. Finally, the Court noted that arbitrators are “already capable of efficiently disposing of frivolous motions.”
The Court’s decision in Henry Schein reaffirms the enforceability of delegation clauses, and reaffirms that lower courts are required to strictly adhere to the text of the FAA.