U.S. Supreme Court Says Arbitration Governed by Contracts, Not Courts

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U.S. Supreme Court Says Arbitration Governed by Contracts, Not Courts

In a recent decision that reinforces the Supreme Court’s penchant for favoring arbitration, the nation’s highest court ruled that the courts must enforce arbitration agreements as written, including with regard to the arbitrbility of the dispute.

The case — Henry Schein Inc. v. Archer and White Sales Inc. — arose from a commercial contract dispute where Archer sued Schein for alleged violations of state and federal antitrust laws.  Relying on an arbitration clause in the contract, Schein sought to compel arbitration.  Archer, which was seeking monetary damages and injunctive relief, objected to arbitration since the contract’s arbitration clause excluded actions for injunctive relief. 

A district court declined to compel arbitration, saying that the argument for arbitration was “wholly groundless” —and thus, even though the AAA arbitration rules gave arbitrators the power to determine the gateway issue of arbitrability, the court could decide this question instead.  The district court’s ruling was appealed by Schein and the Fifth Circuit affirmed.  Schein then appealed to the Supreme Court.

In a unanimous decision, the Supreme Court stayed true to precedent, vacating the Fifth Circuit’s decision and remanding the case back to district court to determine the question of arbitrability.  Writing for the Court, Justice Kavanaugh rejected the “wholly groundless” exception, noting that the exception does not exist anywhere in the Federal Arbitration Act (FAA) and that the Court is “not at liberty to rewrite the statute passed by Congress and signed by the President.” 

The Court also rejected Archer’s arguments that the courts must always determine arbitrability because sections 3 and 4 of the FAA indicate that a court must be satisfied with arbitration.  Justice Kavanaugh noted that Supreme Court precedent has established that designating the question of arbitrability to an arbitrator may occur when the parties agree and “so long as the parties’ agreement does so by ‘clear and unmistakable’ evidence.”

The Supreme Court’s opinion in the case demonstrates that the Court will continue to enforce arbitration clauses in contracts, and eliminates the “wholly groundless” exception as a way to avoid arbitration.  This ruling resolves a Circuit split, overruling the Fourth, Fifth, Sixth, and Federal Circuits — which have previously embraced the “wholly groundless” exception — and aligning with decisions by the Tenth and Eleventh Circuits that rejected this exception.

Williams Mestaz, L.L.P., has the experience and reputation that you want when you are dealing with a business-related lawsuit. We are here to obtain the best possible outcome for your situation. Do not hesitate to contact Williams Mestaz, L.L.P., at (602) 256-9400, and see how we can help you resolve your legal matter.

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