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Cert Granted in a New(ish) Arbitration case —Henry Schein Part II

by Henry Allen Blair

June 2020

Henry Allen Blair

Welcome back to ArbitrationNation after a pandemic and protests hiatus.  I hope that you and your families are safe and that you’re confronting and coping with the injustices of our world.

I’m glad to have a good reason to write about arbitration again.  I’ve got a boatload of arbitration developments and cases to catch up on in the coming weeks.  But there’s no better day to get rolling than on a day that SCOTUS grants cert on a new(ish) arbitration case—Henry Schein, Inc. v. Archer and While Sales, Inc. Part II: Revenge of the Wholly Groundless Doctrine’s Zombie.

Yeah, okay, it’s a good thing I’m a law professor and not someone naming sequels.

Before getting to the new case, let’s have a quick refresher on Henry Schein Part I.  Henry Schein Part I focused on the wholly groundless doctrine.  The wholly groundless doctrine, you might recall, was basically a smell test for arbitrability.  It gave courts the right to regulate dubious arbitration agreements even if those agreements included a delegation provision.  A unanimous Supreme Court sounded the death knell on the doctrine.

But SCOTUS “express[ed] no view about whether the [particular] contract at issue in th[e] case in fact delegated the arbitrability question to an arbitrator.” Accordingly, the Court remanded the case to the Fifth Circuit. As I mentioned here, the Fifth Circuit on remand doubled down on its original conclusion. It held that the contract at issue did not, in fact, assign arbitrability to the arbitrator. See Archer and White Sales, Inc. v. Henry Schein, Inc., 2019 WL 3812352 (5th Cir. Aug. 14, 2019).

The court agreed that there was a valid delegation clause (through the AAA rules – Rule 7(a)). But the claimant sought, at least partially, injunctive relief, and the arbitration clause carved out “actions seeking injunctive relief.” The Fifth Circuit determined that the delegation provision did not “clearly and unmistakably” assign questions about the arbitrability of injunctive relief to the arbitrator, so a court got to decide if the claimant had to arbitrate. It decided the claimant did not have to arbitrate.

Today, SCOTUS took the case up again. Essentially, the issue presented is whether an arbitration clause containing a carve-out provision necessarily requires a court to determine whether the claims fall within the scope of the arbitration agreement before following the complying with a delegation provision. To date, courts have split on this issue.

Delaware and the Second Circuit take the view that a carve-out generally requires a court to decide whether the dispute falls within the carve-out or not. The delegation provision only becomes relevant after this threshold court determination. See James & Jackson, LLC v. Willie Gary, LLC, 906 A.2d 76 (Del. 2006) (In the presence of a carve-out, “something other than the incorporation of the AAA rules” was “needed to establish that the parties intended to submit arbitrability questions to an arbitrator.”); NASDAQ OMX Group, Inc. v. UBS Securities, LLC, 770 F.3d 1010 (2d. Cir. 2014) (“The presence of the carve-out provision. . . delays application of AAA rules until a decision is made as to whether a question does or does not fall within the intended scope of arbitration, in short, until arbitrability is decided.”).

In contrast, the Ninth Circuit and Kentucky find that a delegation provision includes the question of whether a dispute falls within the carve out or not. See Oracle America, Inc. v. Myriad Group A.G., 724 F.3d 1069, 1076-1077 (9th 2013) (determining that incorporation of the AAA rules unmistakably delegated questions of arbitrability to the arbitrator and rejecting the argument that the carve-out provision negated that delegation); Ally Align Health, Inc. v. Signature Advantage, LLC, 574 S.W.3d 753, 756-758 (Ky. 2019) (“A carve-out provision . . . does not negate the clear and unmistakable mandate of the AAA’s [r]ules that the arbitrability of claims is to be decided by an arbitrator [because to hold] the opposite would conflate the two separate and distinct questions of (1) who decides what claims are arbitrable with (2) what claims are arbitrable.”).

And that brings me back to my admittedly terrible sequel titles.  But I stand by the notion that the Fifth Circuit wants to resurrect the wholly groundless doctrine in a stronger, more potent form.  Under the original wholly groundless doctrine, a court could override a delegation provision if, but only if, a party seeking to compel arbitration had a frivolous interpretation of arbitrability.  Under the standard that the Fifth Circuit now proposes, a court could override a delegation provision anytime it simply disagrees with a party’s interpretation of the scope of the arbitral clause.

So, like all too many sequels, I’m afraid that the original will probably be a lot better and more interesting.  I’m getting out my crystal ball and making a bold predication— I think SCOTUS will overturn the Fifth Circuit once again.  In fact, I wouldn’t be surprised if it’s another unanimous decision.

This post first appeared at "Arbitration Nation: A Resource for Litigators, In-House Counsel, and Arbitrators"
https://www.arbitrationnation.com

Henry Allen Blair is the Robins Kaplan Distinguished Professor of Litigation Skills and International Dispute Resolution, a John H. Faricy Professor of Empirical Legal Research, and a senior fellow in the Dispute Resolution Institute at Mitchell Hamline. He’s also a Fellow with the Chartered Institute of Arbitrators. Professor Blair teaches and writes primarily in the areas of arbitration, international dispute resolution, litigation, contract law, and commercial law, with a focus on law and economics. In addition to his teaching and writing, he serves as the on-site director for Mitchell Hamline’s Certificate in Global Arbitration Law and Practice program in London, and he is the faculty advisor and coach for MHSL’s Willem C. Vis International Commercial Arbitration Moot Court team.

 

Professor Blair keeps connections with the world of practice, serving as Of Counsel at Greene Espel PLLP, and as an arbitrator or mediator in commercial disputes. He is on the national roster of arbitrators for the American Arbitration Association, as well as the rosters of arbitrators for the London Court of International Arbitration and FINRA. Professor Blair also regularly represents or consults with other attorneys who are representing pro bono clients seeking asylum in the United States.



Website: https://mitchellhamline.edu/biographies/person/h-allen-blair/

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