Delegation provisions are a hot topic this year! This week, we’re going to look at two more circuit court decisions centering on delegations and finding ways around them.
Just to set the stage, though, I’ve got to put a little egg on my own face. To quote myself from back in June: “it’s almost impossible to imagine ‘an additional ground or basis’ for invalidating a delegation clause. The target that a party wanting to avoid a delegation clause must hit is so small that it’s virtually invisible.” Weeelllll . . . . Turns out that I might have been overstating things just a smidge.
Part of the reason that I said what I did was because of the unanimous decision by SCOTUS in Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). You’ll recall that Henry Schein sounded a death knell for the wholly groundless doctrine. The wholly groundless doctrine was basically a smell test for arbitrability. It gave courts the right to police at least the most questionable arbitration agreements despite the existence of a delegation provision. A unanimous Supreme Court, however, reversed the Fifth Circuit and concluded that when the parties’ contract delegates arbitrability to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is wholly groundless.
Still, SCOTUS “express[ed] no view about whether the [particular] contract at issue in th[e] case in fact delegated the arbitrability question to an arbitrator.” Accordingly, the Court remanded the case to the Fifth Circuit.
Last week, the Fifth Circuit doubled down on its original conclusion. It held that the contract at issue did not assign arbitrability to the arbitrator. See Archer and White Sales, Inc. v. Henry Schein, Inc., 2019 WL 3812352 (5th Cir. Aug. 14, 2019). Everybody agreed that the arbitration agreement was valid. Moreover, everybody agreed that there was a valid delegation clause (through the AAA rules – Rule 7(a)). One might have reasonably thought that this should end the matter. But the claimant sought, at least partially, injunctive relief, and the arbitration clause carved out “actions seeking injunctive relief.” Given the syntax of the clause, the Fifth Circuit determined that the delegation provision did not “clearly and unmistakably” assign arbitrability to the arbitrator.
A few weeks earlier, the Eighth Circuit also wrestled with a delegation clause and found that it didn’t mandate that arbitrability go to an arbitrator. In Shockley v. PrimeLending, 929 F.3d 1012, 1015 (8th Cir. 2019), the court addressed the enforceability of an arbitration agreement and delegation provision in an employee handbook.
The handbook was available to employees on a computer network. The employee accessed the handbook a couple of times, and the system logged an acknowledgement of her review. The employee, however, testified that she did not recall reviewing the handbook and there was no other evidence to suggest that she ever opened or examined the handbook’s full text.
When the employee filed a lawsuit in federal court for violations of the FSLA, the employer sought to compel arbitration. The employee resisted on the ground that she had never assented to the arbitration agreement or the delegation provision. The district court agreed, and the Eighth Circuit affirmed.
Essentially, the Eighth Circuit reasoned that, even if the employer had made an offer to the employee, the employee never accepted it. Merely continuing to work does not manifest the necessary assent to the terms of arbitration. At best, the employee “acknowledged the existence of the delegation clause. . . . [but the court said it] was aware of no legal authority holding that an employee’s general knowledge or awareness of the existence of a contract constitutes the positive and unambiguous unequivocal acceptance required” to form a contract.
I’m unpersuaded by either case. But both suggest that courts remain more willing to scrutinize delegation provisions than I’ve previously indicated on this Blog.