{"id":281,"date":"2020-12-03T17:16:15","date_gmt":"2020-12-03T21:16:15","guid":{"rendered":"http:\/\/blogs.duanemorris.com\/appellatelaw\/?p=281"},"modified":"2020-12-04T13:31:53","modified_gmt":"2020-12-04T17:31:53","slug":"arbitrability-returns-to-the-supreme-court-in-henry-schein-inc-v-archer-white-sales-inc-the-sequel","status":"publish","type":"post","link":"https:\/\/blogs.duanemorris.com\/appellatelaw\/2020\/12\/03\/arbitrability-returns-to-the-supreme-court-in-henry-schein-inc-v-archer-white-sales-inc-the-sequel\/","title":{"rendered":"Arbitrability Returns to the Supreme Court in Henry Schein, Inc. v. Archer & White Sales, Inc., the Sequel"},"content":{"rendered":"

Arbitrability\u2014or who decides what claims are subject to arbitration\u2014is returning to the Supreme Court next week for the second time in as many years.\u00a0 The first time the matter reached the Court, the Supreme Court\u00a0 unanimously held that, where a contract clearly and unmistakably delegates questions of arbitrability to an arbitrator, a court cannot decide the issue in the first instance, even if the court thinks the argument for arbitration is \u201cwholly groundless.\u201d\u00a0 Henry Schein, Inc. v. Archer & White Sales, Inc.<\/em>, 139 S. Ct. 524 (2019).<\/p>\n

The issue has now returned to the Supreme Court following remand and a new decision by the Fifth Circuit.\u00a0 Archer & White Sales, Inc. v. Henry Schein, Inc.<\/em>, 935 F.3d 274 (5th Cir. 2019).\u00a0 On December 8, 2020, the Court will hear the case again, this time to decide \u201c[w]hether 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.\u201d<\/p>\n

<\/p>\n

This whirlwind of litigation justifying two trips to the Supreme Court all stems from the following language in the governing contract:<\/p>\n

Disputes. <\/u>\u00a0This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes relating to trademarks, trade secrets, or other intellectual property of [Schein]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)]. The place of arbitration shall be in Charlotte, North Carolina.<\/p>\n

Henry Schein, Inc.<\/em>, 139 S. Ct. at 528 (alterations in original).<\/p>\n

Courts do not interpret such arbitration clauses on a blank slate.\u00a0 The Supreme Court has explained that, when confronted with an arbitration provision and a motion to compel arbitration, a court generally must consider two threshold issues: (1) is there a valid agreement to arbitrate and (2) is the dispute encompassed within the arbitration provision?\u00a0 Yet, these questions are not always for a court to decide.\u00a0 Parties can delegate these threshold issues to the arbitrator, as long as the parties \u201cclearly and unmistakably\u201d indicate their intent to do so.\u00a0 AT&T Techs., Inc. v. Commc\u2019ns Workers of Am.<\/em>, 475 U.S. 643, 649 (1986).<\/p>\n

In determining whether the parties to an arbitration agreement have \u201cclearly and unmistakably\u201d indicated an intent to have the arbitrator decide arbitrability, courts have generally held that it is sufficient that the arbitration clause incorporates commercial rules that allow the arbitrator to decide threshold questions of arbitrability.\u00a0 For example, the arbitration clause in the Henry Schein<\/em> case states that the arbitration shall be governed by the AAA rules.\u00a0 And the AAA rules provide that \u201c[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.\u201d\u00a0 AAA Commercial Arbitration R. 7(a).\u00a0 Based on this language, \u201c[v]irtually every circuit to have considered the issue has determined that incorporation of the American Arbitration Association\u2019s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.\u201d\u00a0 Oracle Am., Inc. v. Myriad Grp. A.G.<\/em>, 724 F.3d 1069, 1074 (9th Cir. 2013); see also Blanton v. Domino\u2019s Pizza Franchising LLC<\/em>, 962 F.3d 842, 846 (6th Cir. 2020) (collecting cases).\u00a0 Accordingly, courts have generally recognized that an arbitration clause referencing commercial arbitration rules, like the one here, requires an arbitrator to decide arbitrability.<\/p>\n

The wrinkle here, however, is the carve out. Archer & White argues that referencing the AAA rules in the arbitration provision does not equate to delegating arbitrability to the arbitrator, let alone \u201cclear and unmistakable\u201d evidence of the intent to do so.\u00a0 Moreover, even if reference to the AAA rules was sufficient, Archer & White contends that the carve-out applies to decide whether the arbitrability of a claim is delegated to an arbitrator, not <\/em>to the scope of the arbitration.\u00a0 Archer & White reads the arbitration provision and the associated carve-out to include two separate carve-outs: (1) \u201cExcept for actions seeking injunctive relief, the parties agree to resolve any dispute by binding arbitration\u201d; and (2) \u201cExcept for actions seeking injunctive relief, the parties agree to arbitrate arbitrability.\u201d\u00a0 (Brief for Respondent, at 27.)\u00a0 Thus, in Archer & White\u2019s view, the clear and unmistakable intent of the parties was to exempt claims for injunctive relief from arbitration in total, with an arbitrator having no role at all.<\/p>\n

Henry Schein disagrees. It argues that a carve-out provision, like the one in its contract with Archer & White, only operates to exempt claims for injunctive relief from arbitration and does not affect the scope of an otherwise valid delegation of questions of arbitrability to an arbitrator.\u00a0 Henry Schein notes that the contract in this case clearly and unmistakably delegates arbitrability to the arbitrator, at least as to most categories of disputes.\u00a0 Thus, what is at issue is not whether<\/em> arbitrability was delegated but the scope<\/em> of that delegation.\u00a0 But to answer that question, in Henry Schein\u2019s view, would require a court to examine the substance of the claims and decide whether those claims are subject to arbitration\u2014which is exactly what a court is not <\/em>supposed to do if arbitrability is for an arbitrator to decide. In other words, allowing a court to decide the scope of an arbitrability delegation conflates arbitrability with whether a claim is arbitrable, even though those two questions are supposed to be separate.<\/p>\n

On remand following the Supreme Court\u2019s first decision, the Fifth Circuit agreed with Archer & White and again held that a court, rather than the arbitrator, could decide if Archer & White\u2019s lawsuit was subject to arbitration.\u00a0 Archer & White Sales, Inc. v. Henry Schein, Inc.<\/em>, 935 F.3d 274 (5th Cir. 2019).\u00a0 This time, however, the Fifth Circuit relied on Archer & White\u2019s analysis of the carve out for injunctive relief.\u00a0 Id.<\/em>\u00a0 Although noting that the contract\u2019s incorporation of the AAA rules is sufficient to delegate questions of arbitrability to an arbitrator for some categories of cases, the court held that the specific placement of the carve-out for cases seeking injunctive relief left the question of who decides arbitrability ambiguous.\u00a0 Id.<\/em> at 280.\u00a0 The court explained that \u201c[t]he most natural reading of the arbitration clause at issue here states that any dispute, except actions seeking injunctive relief, shall be resolved in arbitration in accordance with the AAA rules. The plain language incorporates the AAA rules\u2014and therefore delegates arbitrability\u2014for all disputes\u00a0except<\/em>\u00a0those under the carve-out.\u201d\u00a0 Id.<\/em>\u00a0 In other words, the carve-out of injunctions from the arbitration provision also operated to carve out application of the AAA rules to that category of claims. Without the AAA rules, the court concluded the parties\u2019 intent for arbitrators to decide threshold questions of arbitrability was not clear and unmistakable.<\/p>\n

Before the Supreme Court next week is the question \u201c[w]hether 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.\u201d\u00a0 We\u2019ll report again after the argument December 8.<\/p>\n

\"Leah
Leah Mintz<\/a><\/div>\n
\"Paul
Paul J. Killion<\/a><\/div>\n
\"Robert
Robert M. Palumbos<\/a><\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Arbitrability\u2014or who decides what claims are subject to arbitration\u2014is returning to the Supreme Court next week for the second time in as many years.\u00a0 The first time the matter reached the Court, the Supreme Court\u00a0 unanimously held that, where a contract clearly and unmistakably delegates questions of arbitrability to an arbitrator, a court cannot decide … <\/p>\n

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