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Arbitrator, Not the Federal Court, Must Determine Arbitrability In Presence Of Delegation Clause according to U.S. Supreme Court

By James Reynolds of Shustak Reynolds & Partners, P.C. posted on Friday, March 8, 2019.

Justice Brett M. Kavanaugh, in his inaugural opinion as a U.S. Supreme Court member, vacated and remanded the federal court’s decision in Henry Schein, Inc. v. Archer & White Sales, Inc. (2019) 139 Sup. Ct. 524. Archer & White Sales had sued Henry Schein over violations of antitrust law. The contract between the parties provided for arbitration of any dispute related to the agreement, except for, inter alia, actions seeking injunctive relief. Invoking the Federal Arbitration Act, Schein asked the District Court to send the case to arbitration, but Archer & White argued that the dispute was not subject to arbitration because its complaint sought, in part, injunctive relief. Schein argued the American Arbitration Association rules, applicable to the contract provide that arbitrators have the power to resolve arbitrability questions, thus an arbitrator - not the court - should decide whether the arbitration agreement applied. Archer & White responded that Schein's demand for arbitration was groundless and the District Court could resolve the threshold arbitrability question. The District Court ruled for Archer & White and denied Schein's motion to compel arbitration and the Fifth Circuit affirmed.

Justice Kavanaugh vacated and remanded ---- a "wholly groundless" exception to arbitrability is inconsistent with the Federal Arbitration Act as well as Supreme Court precedent. Under the Federal Arbitration Act, arbitration is a matter of contract which must be enforced according to the contractual terms. Parties are free to agree an arbitrator decide both the merits of a particular dispute as well as the preliminary question of arbitrability. Kavanaugh determined when the contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitration is wholly groundless.

Shustak Reynolds & Partners, P.C.  focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Contact us at 619.696.9500

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