Photo Credit: http://altalaw.ca/areas-of-practice/arbitration/
By: Nick Jackson
Associate Editor, American Journal of Trial Advocacy
Introduction
In January 2019, Brett Kavanaugh, a newly confirmed justice on the Supreme Court of the United States, delivered his first opinion, one that was unanimously confirmed by the Court.[1] In Henry Schein, Inc. v. Archer and White Sales, Inc.,[2] the Court overturned the Fifth Circuit’s interpretation of the Federal Arbitration Act, stating “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.”[3] In recent years, arbitration agreements have become a controversial aspect of the American legal system.[4] Accordingly, many individuals have brought forth challenges to contest unfavorable arbitration results.[5] One of the most criticized aspects of arbitration deals with forced arbitration agreements.[6] However, the controversial nature of arbitration agreements has failed to limit their use in industries where the use of arbitration is increasing such as the credit card, banking, insurance, and mobile phones services industries.[7]
Recently, the popularity of arbitration has expanded rapidly.[8] This increase in popularity is largely due to “the judiciary’s modern favorable attitude toward enforcement of arbitration clauses.”[9] However, many legal scholars have criticized the role of arbitration in the American legal system by stating, “the Supreme Court [has] engaged in improper judicial activism by misinterpreting the Federal Arbitration Act of 1926 to create a national rule of arbitration clause enforceability that outstripped any reasonable view of the intent of the enacting Congress.”[10] Controversial nature aside, arbitration agreements have seen a great deal of bi-partisan support from both the conservative wing and the liberal wing of the Supreme Court.[11] The bi-partisan support of arbitration agreements was further solidified when the Court unanimously upheld the Federal Arbitration Act in Henry Schein, Inc. v. Archer and White Sales, Inc.[12]
Facts
Archer & White Sales, Inc., filed a lawsuit against Henry Schein, Inc. alleging antitrust violations and seeking both money damages and injunctive relief.[13] However, both parties had previously agreed to a contract providing for “arbitration of any dispute arising under or related to the agreement, except for, among other things, actions seeking injunctive relief.”[14] At the district level, Schein asked the district court to refer the case to arbitration; however, Archer & White argued that the Federal Arbitration Act did not apply because it sought injunctive relief.[15] The district court agreed, holding that Schein’s argument for arbitration was “wholly groundless.”[16] Accordingly, the district court denied Schein’s motion to compel arbitration and the Fifth Circuit ultimately affirmed.[17]
Analysis
In deciding Schein, the Court rejected the Fifth Circuit’s “wholly groundless” argument by first recognizing that under the Federal Arbitration Act, arbitration is a contract and, thus, courts must enforce arbitration contracts according to their terms.[18] Accordingly, the Court held the parties to a contract “may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘gateway questions of arbitrability.’”[19] Thus, “when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract even if the court thinks that the arbitrability claim is wholly groundless.”[20]
In challenging the Federal Arbitration Act, Archer & White brought forth four separate arguments which the Court rejected.[21] First, Archer & White contended that portions of the Federal Arbitration Act should be interpreted as stating that courts must always resolve questions of arbitrability.[22] However, following prior precedent, the Court rejected this argument.[23] Second, Archer & White contended the Federal Arbitration Act provides for “back-end judicial review” if an arbitrator has exceeded his or her powers; however, Archer & White sought “front-end review” and, thus, the Court denied to “redesign the Act.”[24] Third, Archer & White contended it would be a waste of resources to hire an arbitrator that ignores the Federal Arbitration Act’s ‘wholly groundless” exception; however, the Court held no such exception exists, stating “[t]his Court may not engraft its own exceptions onto the statutory text.”[25] Lastly, the Court rejected Archer & White’s argument that the exception is necessary to “deter frivolous motions to compel arbitration” by stating arbitrators are already capable of efficiently disposing of frivolous cases and that such motions have not caused issues in circuits not recognizing a “wholly groundless” exception.[26]
Conclusion
Controversial nature aside, the Court’s ruling in Schein further solidifies the Federal Arbitration Act and its implications. The bi-partisan support of arbitration agreements was further solidified in this unanimous decision and it further demonstrates that arbitration will likely be a major component of the American legal system for years to come.
[1] Adam Liptak, In His First Supreme Court Opinion, Justice Brett Kavanaugh Favors Arbitration, N.Y. Times(Jan. 8, 2019) https://www.nytimes.com/2019/01/08/us/politics/supreme-court-brett-kavanaugh-opinion.html.
[2] 139 S. Ct. 524 (2019).
[3] Schein, 139 S. Ct.at 526.
[4] See Gregg Bertram, Employment Arbitration: Controversy Unleashed, Pac. ADR Consulting (June, 6, 2018) http://www.pacificadrconsulting.com/employment-arbitration-controversy-unleashed/ (“It is no secret that arbitration has in general become a controversial alternative dispute resolution (ADR) process.”).
[5] Id.
[6] Id.
[7] Jason Cheung, Business use of Arbitration Clauses, LegalMatch (May, 2, 2018) https://www.legalmatch.com/law-library/article/business-use-of-arbitration-clauses.html?formVariant=1.
[8] Symposium, Keeping Arbitrations from Becoming Kangaroo Courts, 8 Nev. L. J. 251, 251 (2007).
[9] Id.
[10] Id.
[11] Stephen J. Ware, The Centrist Case for Enforcing Adhesive Arbitration Agreements, 23 Harv. Negot. L. Rev. 29, 32 (2017).
[12] 139 S. Ct. 524 (2019).
[13] Schein, 139 S. Ct. at 526.
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
[19] Schein, 139 S. Ct. at 526. (internal quotations omitted).
[20] Id.
[21] Id.
[22] Id.
[23] Id.; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995).
[24] Id.
[25] Schein, 139 S. Ct. at 526.
[26] Id.
American Journal of Trial Advocacy 