Summary
The Supreme Court held that the Federal Arbitration Act does not permit a court-created “wholly groundless” exception to an agreement delegating arbitrability questions to an arbitrator. When a contract clearly and unmistakably delegates arbitrability, courts must enforce that delegation even if the court considers the arbitration argument groundless. The Court vacated and remanded because the Fifth Circuit had not determined whether the contract actually delegated arbitrability.
Topics
Practice areas
Questions Presented
- Whether the Federal Arbitration Act permits a court to decide arbitrability when a party's argument that a dispute is subject to arbitration is 'wholly groundless,' despite a contractual delegation of arbitrability to an arbitrator.
- Whether the Court should resolve in the first instance whether the parties' contract clearly and unmistakably delegated arbitrability to an arbitrator.
Holdings
- The 'wholly groundless' exception is inconsistent with the Federal Arbitration Act and Supreme Court precedent. When a valid contract delegates arbitrability to an arbitrator, a court may not override that delegation merely because it considers the argument for arbitration wholly groundless.
- A court may refer arbitrability to an arbitrator only if a valid arbitration agreement exists and the contract clearly and unmistakably delegates the arbitrability question. The Supreme Court expressed no view on whether this contract made that delegation.
Key quotations
“When the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract.” (5)
“It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.” (8)
Factual background
Archer and White distributed dental equipment under a contract with Pelton and Crane, whose successor-in-interest and Henry Schein were later sued after the business relationship soured. The complaint alleged federal and state antitrust violations and sought both money damages and injunctive relief. The contract required arbitration of disputes arising under or related to the agreement, except actions seeking injunctive relief and certain intellectual-property disputes, and incorporated American Arbitration Association rules that authorize arbitrators to decide arbitrability questions.
Procedural history
Archer and White sued Henry Schein and related defendants in federal district court, alleging federal and state antitrust violations and seeking damages and injunctive relief. Schein moved to compel arbitration, arguing that incorporation of the American Arbitration Association rules delegated arbitrability to an arbitrator. The District Court found the arbitration argument wholly groundless and denied the motion; the Fifth Circuit affirmed. The Supreme Court rejected the wholly groundless exception, vacated the Fifth Circuit's judgment, and remanded for consideration of whether the contract clearly and unmistakably delegated arbitrability and of other preserved arguments.
Remand instructions
The Fifth Circuit was instructed to determine in the first instance whether the contract clearly and unmistakably delegated arbitrability to an arbitrator and to consider other properly preserved arguments.