Henry Schein, Inc., II: Post-Argument Analysis

The Supreme Court heard argument in the second iteration of Henry Schein, Inc. v. Archer & White Sales, Inc., Case No. 19-963, (Henry Schein II) on December 8, 2020, which was broadcast live on CSPAN and is available here.  During the course of the argument and questioning, the Court made clear that it was only considering a narrow question:  Assume that the contract generally says that an arbitrator decides if a particular dispute must be arbitrated, rather than be litigated in a court. Also assume that the contract says claims for injunctive relief are not subject to arbitration. The parties to the contract have a dispute, and they disagree on whether the dispute seeks injunctive relief. Who decides this threshold dispute—an arbitrator or a court? (For more background on this case, see our pre-argument discussion on the issues presented.)

The question presented to the Court in Henry Schein II seems to be one of pure contract interpretation, which makes it an odd choice for the Court to hear. The Court is ostensibly deciding whether the carve-out for injunctive relief claims in this contract limits just the scope of arbitration or also limits the scope of the contract’s delegation to the arbitrator to decide the threshold issues of arbitrability. Yet, the oral argument revealed a few themes that indicate some of the broader implications of this litigation.

First, Henry Schein II implicates two fundamental principles in arbitration law that are seemingly at odds. On the one hand, the Supreme Court has often expounded that the Federal Arbitration Act incorporates a strong presumption in favor of arbitration. Once parties agree to send a dispute to arbitration, “any doubts as to the scope of arbitral issues should be resolved in favor of arbitration.” Granite Rock Co. v. Teamsters, 561 U.S. 287, 298 (2010). On the other hand, the Court has cautioned that lower courts “should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).

At argument, the parties each seized on these two countervailing themes. Counsel for Henry Schein, in arguing that the arbitrator gets to decide if Archer & White Sales’ claims seek injunctive relief, repeatedly invoked the presumption in favor of arbitration. In Henry Schein’s view, once there is some evidence that gateway questions of arbitrability were delegated to an arbitrator, courts should apply that presumption to all arbitration-related issues, i.e., courts should presume that the arbitrator should decide all disputes as to which tribunal—a court or an arbitrator—is appropriate for each claim. Counsel for Archer & White Sales, by contrast, repeatedly seized on the Court’s language that the delegation of threshold arbitrability must be clear and unmistakable. Where the parties expressed their intent that claims seeking injunctive relief should not be arbitrated, it makes no sense to submit such issues to an arbitrator at all, even to decide the threshold question of whether the arbitrator has the power to hear the dispute. If injunctive relief claims are outside the scope of arbitration, an arbitrator should not be involved at all.

Caught up in all these competing views are some overarching questions: Where parties expressly exempted certain types of claims from arbitration, can the presumption in favor of arbitration be used to resolve ambiguities about the scope of a delegation to an arbitrator to decide what forum is appropriate to resolve each of the parties’ claims? Or should a court presume that it should decide these threshold issues before sending any claims to arbitration, based on the default rule that courts decide threshold arbitrability questions?

Second, the Court seemed unusually interested in the practical effects of their decision. Chief Justice Roberts initially expressed concern about sending a claim that, in Archer & White Sales’ view, seeks injunctive relief to an arbitrator, when the parties clearly did not want an arbitrator to decide those same claims. If the parties meant to carve out injunctive relief claims from arbitration in their entirety, why would the parties nevertheless be forced to go to arbitration on threshold matters as to those exact claims?

The Chief Justice and others on the Court were similarly concerned about whether an arbitration agreement could delegate some arbitrability questions to an arbitrator and some to the court. For example, could there be a contract that says a court decides if a claim seeks injunctive relief and an arbitrator decides if the dispute relates to or arises out of the contract? The parties agreed as a theoretical matter that such an agreement could be written, but sharply disputed whether such agreements exist in practice or how they would be enforced. Counsel for Henry Schein scored points with many justices, including Justice Kavanaugh—the author of the first Henry Schein opinion—by pointing out that most parties would not want to divide responsibility for deciding what disputes belong in what tribunal. The parties likely wanted one decision maker to make the threshold determination of who decides which substantive disputes.

The Court also expressed skepticism that a divided delegation of arbitrability could function effectively. If, for example, an arbitrator was generally to decide the question of “who decides,” but a court first decided if a claim sought injunctive relief, the court would have already, in effect, decided “who decides” and supplanted the role of the arbitrator. If a court says the claim seeks injunctive relief, then the court’s decision automatically means the claim is for the court. If a court rules the opposite way, then obviously the claim must be heard by an arbitrator. In other words, a court cannot decide if a claim seeks injunctive relief without a fortiori also ruling on the arbitrability issue. Overall, the Court seemed skeptical that it could adopt the reasoning of the Fifth Circuit for this reason.

Third, as to the role of the AAA Rules in resolving the issues, the Court was uninterested. Archer & White Sales focused much of its briefing on the question of whether incorporation of the AAA Rules by reference constituted a “clear and unmistakable” delegation of gateway arbitrability issues to the arbitrator. But the Supreme Court denied Archer & White Sales’ cross-petition for a writ of certiorari on that exact question. While Archer & White Sales’ counsel wanted to continue focusing on this question during argument, the Court appeared to have no inclination to consider the issue. The justices repeatedly asked Archer & White Sales to assume that the delegation was sufficient, and certain justices—including Chief Justice Roberts—expressed some impatience with counsel’s attempt to insert the AAA Rules issue back into the discussion.  Therefore, we are unlikely to see any ruling from the Court that expressly decides whether an arbitration agreement’s language incorporating the AAA Rules is a clear and unmistakable delegation of arbitrability to an arbitrator.

Stay tuned for more analysis after the Supreme Court issues its opinion in the case.