Hunton Employment & Labor Perspectives

The Supreme Court once again has shown its strong preference for enforcing the terms of arbitration agreements as written by the parties.  In Henry Schein Inc. v. Archer & White Sales Inc., Justice Kavanaugh’s first written opinion, the Court held that when an arbitration agreement delegates the threshold question of arbitrability to an arbitrator, the arbitrator, not a court, should decide the question, even if it is clear to a court that the dispute is not covered by the arbitration agreement.  This unanimous opinion adds to a growing body of recent Supreme Court case law making clear that the terms of arbitration agreements, like any other contract, should be enforced as written and without policy considerations or exceptions.  

Henry Schein Inc. involved an anti-trust dispute in which the parties previously contracted for arbitration of any dispute arising under their contract.   The arbitration agreement incorporated the American Arbitration Association’s arbitration rules, which provide that arbitrators have the power to resolve arbitrability questions.

After the plaintiff filed suit in federal court, the defendant invoked the agreement and moved to compel arbitration.  The plaintiff objected, arguing that the dispute was clearly not covered by the arbitration agreement.  The federal district court agreed and ruled that because the claim that the dispute was subject to arbitration was “wholly groundless,” the court, rather than an arbitrator, could resolve the arbitrability issue.  The Fifth Circuit affirmed.

The case headed to the Supreme Court because federal courts were split on whether a “wholly groundless” exception to the FAA existed.  The Fifth Circuit and other supporters of the exception had reasoned that the “wholly groundless” exception enables courts to block frivolous attempts to transfer disputes from the courts to arbitration.

The Supreme Court rejected this rationale, holding that the FAA does not contain a “wholly groundless” exception.  The Court further noted that a “wholly groundless” exception was inconsistent with prior precedent that an agreement to arbitrate the threshold question of arbitrability is simply an additional, antecedent agreement covered by, and to be enforced under, the FAA.

The Court summed up its holding as follows: “when the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.”

This decision reinforces recent Supreme Court precedent respecting  parties’ rights to agree to arbitrate and to agree to the scope of arbitration.  More arbitration decisions are expected from the Supreme Court in the coming year, as upcoming decisions in Lamps Plus v. Varela and New Prime Inc. v. Oliveira are likely to provide even more guidance on the enforceability of arbitration agreements.