“Wholly Groundless” Authority: Can a Circuit Court Rewrite The FAA?

Archer and White Sales, Inc., a seller of dental equipment, brought suit against Henry Schein, Inc., manufacturers of dental equipment, seeking both damages and injunctive relief. Schein moved to compel arbitration pursuant to a clause in a contract with Archer. The issue “[w]ho should have the primary power to decide’ whether the claim is arbitrable,” turns on “whether the agreement contains a valid delegation clause – that is, if it evinces an intent to have the arbitrator decide whether a given claim must be arbitrated.” The district court decided the claim was not arbitrable because the arbitration clause expressly excluded claims for injunctive relief.

The court of appeals affirmed, based on that court’s decision in Douglas v. Regions Bank, 757 F.3d 460, 464 (5th Cir. 2014). In Douglas the court held that even if the parties “clearly and unmistakably” intended to delegate the question of arbitrability to an arbitrator, the motion to compel arbitration should nevertheless should not be granted “[i]f the argument that the claim at hand is within the scope of the arbitration agreement is ‛wholly groundless.’” The court of appeals then held that where there is no “plausible argument . . . the district court may decide the ‘gateway’ issue of arbitrability despite a valid delegation clause.”

Issue Areas:

Free Enterprise, Individual Liberty

Case:

Henry Schein, Inc. v. Archer & White Sales, No. 17-1272 (Supreme Court) (petition stage)

Read the Amicus Brief:
Question(s) Presented:

Whether the FAA 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.”


Additional Background:

The Supreme Court has held that “the overarching purpose of the [FAA] is to ensure the enforcement of arbitration agreements according to their terms” and to “facilitate streamlined proceedings.” AT&T Mobility LLC v. Concepcion,563 U.S. 333, 344 (2011). This is meant to preclude widespread judicial hostility to arbitration agreements.

ALF’s Amicus Brief:

 In an amicus brief ALF argues that the appeals court refused to enforce the arbitration agreement according to its terms, and instead adopted an exception that negates the parties’ choice to have the arbitrator decide all issues, including the “gateway” issue of arbitrability. The “wholly groundless” exception is nowhere contained in the Federal Arbitration Act, and contradicts the overriding federal policy of enforcing arbitration agreements. ALF asks that the Supreme Court reverse the 5th Circuit to bring them back into line with Court precedence and the FAA.

Status:

In January 8, 2019, The Supreme Court issued an opinion unanimously holding that it is not the place of a circuit court to rewrite the FAA  in defiance of Congress and Court precedence. Henry Schein, Inc. v. Archer and White Sales, Inc., 139 S. Ct. 524 (2019).

Date Originally Posted: August 21, 2018

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