Schein On: Supreme Court to Decide Key Arbitration Delegation Question

GavelThe Henry Schein arbitration battle is making its way to the Supreme Court again. The Court recently granted Henry Schein, Inc.’s certiorari petition to answer the question of “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.” Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (2019). In other words, if an arbitration agreement carves out certain claims (like injunctive relief), does that create a loophole that allows the district court to decide the arbitrability of those claims?

Round 1

As we explained last year, the case started when Archer & White Sales, Inc., a small business that distributes dental equipment, sued a dental equipment manufacturer and Schein, a major distributor of the equipment, for alleged antitrust violations. The parties’ agreement provided that disputes “arising under or relating to” the agreement “shall be resolved by binding arbitration in accordance with the rules of the American Arbitration Association [AAA].” Henry Schein, Inc. (“Schein”) invoked the FAA and sought to compel arbitration. In opposition, Archer & White relied on a court-created exception permitting the court to decide arbitrability—notwithstanding a contractual delegation to the arbitrator—where the court finds the argument for arbitration to be “wholly groundless.” The trial court agreed and denied arbitration, and the Fifth Circuit affirmed, 878 F.3d 488 (5th Cir. 2017). The Supreme Court vacated the decision, unanimously concluding that the “wholly groundless” exception was inconsistent with the FAA and the Court’s precedents, 139 S. Ct. 524 (2019). The decision suggested that the Court as constituted remains firmly on a pro-arbitration path and will continue to strictly adhere to the FAA.

Round 2

On remand, the Fifth Circuit again refused to compel arbitration, 935 F. 3d 274 (5th Cir. 2019). The Fifth Circuit acknowledged that the parties had delegated at least some questions of arbitrability to the arbitrator. But because the arbitration agreement carved out injunctive relief claims, the agreement did “not clearly and unmistakably delegate[] the question of arbitrability to an arbitrator.” The Fifth Circuit therefore concluded that the court—and not the arbitrator—was responsible for determining the arbitrability of the claims at issue. It then held that the action was one “seeking injunctive relief” and thus exempt from arbitration under the parties’ agreement.  Schein filed a petition for writ of certiorari, which the Supreme Court granted.[1]

As Schein’s petition pointed out, courts are divided on the question presented. Some hold that the question of whether the provision exempts a particular claim from arbitration is itself a question of arbitrability, and the arbitrator must decide that question once the moving party has demonstrated the existence of a clear and unmistakable delegation. Others, like the Fifth Circuit, hold that the presence of a carve-out provision negates an otherwise clear and unmistakable delegation. Schein argues that this approach “threatens to render even the clearest and most unmistakable delegation ineffective,” allowing courts to easily override a contract’s delegation of authority to the arbitrator. The Supreme Court’s decision is expected to provide much-needed clarity in this matter. In the meantime, Morrison & Foerster’s Class Actions and Mass Torts attorneys can provide further insight on the implications of this action.


[1] The Court denied a cross-petition by Archer & White Sales, which asked the Court to decide (1) whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and (2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.