A familiar case will soon be back at the U.S. Supreme Court.
The Court has agreed to hear another arbitration case in the coming term: Henry Schein, Inc. v. Archer and White Sales.
If the name sounds familiar, it’s because this is the second trip to the U.S. Supreme Court for these litigants. You will recall the Court’s 9-0 decision from last year, striking down a 5th Circuit opinion and its “wholly groundless” exception to arbitration delegation provisions.
Parties can agree prospectively to arbitrate the merits of a future dispute. And they can also agree to delegate to an arbitrator the gateway question – whether a particular dispute is covered by the arbitration agreement. The 5th Circuit had declined to enforce the delegation clause, on the theory that the applicability of the arbitration agreement was “wholly groundless.”
The arbitration agreement in Schein covers all disputes arising out of the agreement but excluded claims for injunctive relief. But because the plaintiffs are seeking both money damages and injunctive relief, the lower court found the defendants’ argument for arbitration was “wholly groundless.” The question presented in Schein I was whether this “wholly groundless” exception was consistent with the Federal Arbitration Act.
Noting that a “wholly groundless” exception would “inevitably spark collateral litigation” over whether the delegation of arbitrability was or was not “wholly groundless,” the Court unanimously rejected that interpretation and remanded for further proceedings.
Tasked with interpreting the arbitration clause anew, the lower court again declined to enforce the delegation provision, this time concluding that the arbitration agreement failed to meet the standard of having delegated the arbitrability question to an arbitrator by “clear and unmistakable evidence.”
The court held that the presence of the carve-out for injunctive relief had the effect of excluding claims involving injunctive relief both from the arbitration agreement and from the delegation provision delegating the arbitrability to the arbitrator.
It’s also worth noting that the “claim for injunctive relief” is comprised entirely of the following boilerplate two-sentence request: “Plaintiff also seeks injunctive relief. The violations set forth above are continuing and will continue unless injunctive relief is granted.”
Resistance by lower courts is among reasons FAA first enacted. And to watch lower courts continued efforts to invalidate arbitration agreements is to understand the need for federal protection for these contract rights.