I called it. SCOTUS issued its unanimous opinion today in Henry Schein v. Archer & White, vacating and remanding the Fifth Circuit decision and making clear that there is no “wholly groundless” exception to the Federal Arbitration Act’s enforcement of delegation clauses.
As you may recall, a circuit split had developed over the “wholly groundless” exception. Some circuits, including the Fifth, concluded that even when parties have delegated questions of arbitrability (questions like: is the arbitration agreement valid? and does it cover the current dispute?) to an arbitrator, courts have the right to do an initial smell test. If the court finds the defendant’s argument for arbitrability is “wholly groundless” (and stinks), then it can refuse to send it to arbitrator. Other circuits, however, found room for no such exception in SCOTUS’s decisions.
After quickly shooting down the four primary arguments proffered in favor of the exception, the Court concluded:
In sum, we reject the “wholly groundless” exception. The exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability. When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.
Given that this outcome was expected, is there anything interesting about this decision? On first glance, there is at least one thing. The Court’s emphasis in this decision is on the parties’ agreement: it reasons that “a court may not decide an arbitrability question that the parties have delegated to an arbitrator.” That could be read as a signal that the Court also favors arbitrators determining the availability of class arbitration, in the circuit split on whether a delegation clause authorizes an arbitrator to decide that issue.
However, SCOTUS inserted a final paragraph that leaves it some wiggle room on that question. It notes that “We express no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator. The Court of Appeals did not decide that issue.” In other words, if the Court is going to keep the decision regarding class arbitrability in courts, it will likely be because it finds that an incorporation of arbitral rules is not sufficient to “clearly and unmistakably” delegate arbitrability to an arbitrator.