Northern District of Texas Blog

On January 8, 2019, the Supreme Court issued its unanimous opinion in Henry Schein v. Archer & White (available here). At issue was whether, when the parties to an arbitration agreement have agreed that an arbitrator, rather than a court, will resolve the threshold arbitrability question (i.e., the question of whether the parties agreed to arbitrate the particular dispute at issue), a court may decide the question if it finds that a party’s argument in favor of arbitrability is “wholly groundless.” The Supreme Court noted that some federal courts, including the Fifth Circuit in the instant case, had adopted a “wholly groundless” exception:

Even when a contract delegates the arbitrability question to an arbitrator, some federal courts nonetheless will short-circuit the process and decide the arbitrability question themselves if the argument that the arbitration agreement applies to the particular dispute is “wholly groundless.”

That is what happened in the instant case—the district court, relying on Fifth Circuit precedent, agreed that a “wholly groundless” exception existed and ruled that Schein’s argument for arbitration was wholly groundless, thus denying Schein’s motion to compel arbitration. The Fifth Circuit affirmed.

The Supreme Court reversed. The Court ultimately held that the Federal Arbitration Act did not allow for a “wholly groundless” exception—i.e., when the parties’ contract delegates the arbitrability question to an arbitrator, courts must respect the parties’ decision and send the case to arbitration, regardless of whether the court believes that a party’s argument that the dispute is arbitrable is wholly groundless:

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.

The Court’s decision raises the related issue of determining when the parties have delegated the arbitrability question to an arbitrator. Many courts have found that, where the parties have specified that a particular arbitrable body’s rules will govern the arbitration (such as the AAA or JAMS), this constitutes a delegation to the arbitrator where the rules provide that the arbitrator has the power to resolve arbitrability questions. See, e.g., Cooper v. WestEnd Capital Mgmt., L.L.C., 832 F.3d 534, 546 (5th Cir. 2016) (adoption of JAMS Rules in parties’ agreement, where JAMS Rules provide that arbitrability disputes shall be submitted to and ruled on by the arbitrator, constitutes “clear and unmistakable evidence that the parties agreed to arbitrate arbitrability”); Petrofac, Inc. v. DynMcDermott Petroleum Operations Co., 687 F.3d 671, 675 (5th Cir. 2012) (same with respect to AAA Rules). The lesson from Henry Schein is that parties to an arbitration agreement should clearly specify in their contract whether the arbitrator has the authority to resolve disputes concerning arbitrability. Parties should assume that, if the arbitration provision references an arbitral body’s rules (such as the AAA or JAMs) that contain rules stating that the arbitrator has authority to resolve arbitrability disputes, the parties will have delegated the arbitrability question to the arbitrator such that a court will not rule on it, no matter how “groundless” an argument in favor of arbitrability may be.