Case No. 18-1447 | 5th Cir.
December 8, 2020
Preview by Kevin Adams, Member
This case is before the Court for the second time in as many years. In 2012, Archer & White Sales, Inc. filed suit against Henry Schein, Inc. alleging violations of the Sherman Antitrust Act and the Texas Free Enterprise and Antitrust Act and sought injunctive relief along with monetary damages. 15 U.S.C. § 1; Tex. Bus. & Com. Code Ann. § 15.01 (West 2019). Schein moved to compel arbitration pursuant to the arbitration clause in the contract between Archer & White and Schein’s predecessor in interest. The relevant language of that clause is:
“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 . . .) shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association.”
Brief for Respondent at 3, Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (U.S. filed Jan. 31, 2020). Archer & White argued that the carve-out clause of “except for actions seeking injunctive relief” excepted its action from arbitration, and therefore Schein’s motion to compel was wholly groundless. The district court agreed, dismissed the motion, and the Fifth Circuit later affirmed. Archer & White Sales, Inc. v. Henry Schein, Inc., 878 F.3d 488 (5th Cir. 2017). The Supreme Court, in a unanimous decision, vacated and remanded the case. See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 531 (2019). The Court held that the Federal Arbitration Act did not permit a court to ignore the parties’ contractual agreement to delegate questions of arbitrability to an arbitrator. Id. at 529. The Court remanded the case to the Fifth Circuit to determine if there was “clear and unmistakable evidence” that Schein and Archer-White delegated the question of arbitrability. Id. at 531. On remand, the Fifth Circuit held that because the arbitration agreement included a carve-out exempting certain claims from arbitration, the agreement did not “clearly and unmistakably” delegate the question of arbitrability to an arbitrator. Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274, 277 (5th Cir. 2019).
In the present case, the Supreme Court granted cert to resolve a circuit split over whether a carve-out clause that exempts certain claims from arbitration negates an otherwise clear & unmistakable delegation of questions of arbitrability to an arbitrator.
Schein argues that the “clear and unmistakable” rule only applies to the initial question of whether the parties agreed to a delegation of questions of arbitrability. Brief for Petitioner at 19, Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (U.S. filed Aug. 21, 2020). As such, Schein argues that an arbitrator would decide procedural questions that grow out of the dispute and bear on its final disposition, as exist in this case. See id. at 23–24. Additionally, Schein argues that the Court’s decisions interpreting the Federal Arbitration Act create a strong presumption of arbitrability, and once it is evident that the parties intended to arbitrate some questions of arbitrability, the Court should apply the presumption and conclude that the parties intended to arbitrate all questions of arbitrability absent clear evidence to the contrary. See id. at 25. Anticipating argument regarding the applicability of the American Arbitration Association (“AAA”) rules as a delegation of arbitrability, Schein notes that all eleven circuits are in agreement that adoption of AAA rules is an implicit agreement to delegate questions of arbitrability to the arbitrator. See id. at 38–39.
Archer & White contends that the clause’s reference to the AAA rules is not a “clear and unmistakable” delegation of the questions of arbitrability. Brief for Respondent at 14, Henry Schein, Inc. v. Archer & White Sales, Inc., No. 19-963 (U.S. filed Oct. 13, 2020). In its view, the agreement would need to include an explicit delegation along the lines of, “The arbitrator shall decide arbitrability,” in order to meet the “clear and unmistakable” standard. Id. at 16. The mere reference to the AAA rules would be insufficient. Archer & White argues in the alternative that even if reference to the AAA rules is a delegation of the question of arbitrability, the carve-out clause exempts the claim at issue from the scope of delegation to the arbitrator. Id. at 26. In Archer & White’s view, the Court may decide the arbitrability of the claim.
While seemingly a dispute of an esoteric nature, the policy implications of the case are wide-reaching. Over the last two decades the Court has enabled the expansion of arbitration agreements, particularly between consumers and commercial entities. The Court’s decision in this case will affect how such agreements must be drafted in order to be effective and avoid costly disputes over their applicability.