SCOTUS to Consider Delegation of “Wholly Groundless” Arbitrability Claims

The Supreme Court of the United States has granted certiorari in another arbitration case.  In Henry Schein, Inc. v. Archer and White Sales, Inc., No. 17-1272, a dental equipment distributor, Archer, filed a lawsuit against a dental equipment manufacturer and distributor along with its wholly-owned subsidiaries alleging the companies committed federal and state antitrust violations.  The case was referred to a magistrate judge and the defendants filed a motion to compel arbitration based on a dealer agreement that Archer entered into with a predecessor in interest for one of the companies.

Following a hearing, the magistrate judge issued a Memorandum Order holding that: (1) the incorporation of the AAA Rules in the arbitration clause clearly evinced an intent to have the arbitrator decide questions of arbitrability; (2) there is a reasonable construction of the arbitration clause that would call for arbitration in this dispute; and (3) the Grigson equitable estoppel test, which both sides agree is controlling in their dispute, required arbitration against both signatories and non-signatories to the Dealer Agreement.

The district court vacated the magistrate judge’s order and held that the court could decide the question of arbitrability, and that the dispute was not arbitrable because the plain language of the arbitration clause expressly excluded suits that involved requests for injunctive relief. The court declined to reach the question of equitable estoppel.

On appeal, the Fifth Circuit affirmed the district court’s decision stating “it had the authority to rule on the question of arbitrability and the claims at issue were not arbitrable.” The defendants then filed a petition for certiorari with the U.S. Supreme Court.

On Monday, the Supreme Court agreed to consider the dispute in the upcoming October 2018 term.  The Question Presented in the case is:

Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is “wholly groundless.”

The high court’s opinion will resolve a split among the Circuit Courts of Appeal regarding whether a court may decide the issue of arbitrability in situations where the arbitration claim is groundless.

Please stay tuned to Disputing for future developments in this case!

H/T to Mark Kantor.

Photo credit: julz91 on Foter.com / CC BY-ND