June 15, 2020 / 9:17 PM / 17 days ago

Supreme Court will decide (again!) if courts or arbritrators determine arbitrability

(Reuters) - If you thought there couldn’t possibly be a gateway arbitrability issue that the U.S. Supreme Court hasn’t yet resolved, think again. On Monday, the justices granted review to the medical and dental equipment distributor Henry Schein, which contends that arbitrators – and not judges – should get to decide whether disputes fall into carveouts from broad arbitration contracts.

The underlying case involves antitrust price-fixing claims by Archer & White, a small dental equipment distributor. Archer & White's original suit against Schein and other defendants included a demand for an injunction. The 5th U.S. Circuit Court of Appeals held in 2019’s Archer & White v. Schein that it had the authority to decide whether Archer & White’s injunction claim was carved out from an arbitration contract that, according to Schein, governs their dispute.

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As you know, the Supreme Court held in 1995’s First Options of Chicago v. Kaplan that arbitration agreements can delegate gateway questions of arbitrability to arbitrators. But because the arbitration contract in the Schein case contained a carveout for injunctive claims, the 5th Circuit held that it had the authority to decide if Archer & White's claim could be arbitrated – and concluded that it could not be.

Schein’s petition for Supreme Court review argued that the 5th U.S. Circuit Court of Appeals was wrong. Schein’s counsel, Kannon Shanmugam of Paul Weiss Rifkind Wharton & Garrison told the Supreme Court that the 5th Circuit should have deferred to the arbitrator’s authority to decide whether Archer & White’s injunction claim must be arbitrated.

You may recall that the Supreme Court has already heard a previous iteration of the Schein case. In 2019, the justices ruled that courts cannot override arbitration agreements that delegate arbitrability decisions to arbitrators, even when the courts consider a motion to compel arbitration to be "wholly groundless." The 5th Circuit decision the justices will now review in the newly-granted case was issued by the appeals court on remand from the earlier Supreme Court case.

In the latest petition for certiorari, Schein told the Supreme Court that there’s a split in the lower courts on the question of whether judges or arbitrators have the authority to determine the scope of carveouts from arbitration contracts. The 9th Circuit, in 2013’s Oracle v. Myriad, and the Kentucky Supreme Court have held that it’s up to arbitrators to interpret carveouts. But the Delaware Supreme Court, in 2006’s James & Jackson v. Willie Gary and the 2nd Circuit, in 2014’s NASDAQ OMX v. UBS Securities have allowed courts to determine whether carveouts in arbitration clauses encompassed particular claims. Schein called on the Supreme Court to resolve the split.

To make all of this even more complicated, Archer & White asked the Supreme Court in a counterpetition to decide whether the arbitration clause invoked by Schein required gateway issues to be delegated to the arbitrator. The clause cited AAA rules, which call for arbitrators to decide threshold issues, but specifically say whether courts or arbitrators have authority over arbitrability. Archer & White’s Supreme Court counsel, Daniel Geyser, argued that the lower courts are divided on “implied delegation” in arbitration contracts that incorporate AAA rules but are otherwise silent on who decides gateway arbitrability questions.

The Supreme Court declined Monday to grant review of Archer & White’s counterpetition, even as the justices said they would hear Schein’s petition. Archer & White lawyer Geyser said in an email that his client can still assert the AAA incorporation argument before the Supreme Court. “The AAA incorporation question is a clear and obvious ground for affirmance,” he said. ”It implicates the most significant legal and practical question of the case, and it is the necessary antecedent to Schein’s question presented.”

Archer & White’s brief opposing Supreme Court review of the 5th Circuit’s decision allowing its case to go to trial argued that Schein’s case is riddled with procedural defects. In particular, it argued, the arbitration provision Schein is relying upon was not even between Archer & White and Schein. Schein is relying on equitable estoppel to compel arbitration based on an arbitration agreement between Archer & White and a third company that was accused of participating in the price-fixing scheme Archer & White alleged. That company has since settled and is out of the case.

I have to assume the Supreme Court is well aware of this case’s manifold complications, since both sides filed petitions, opposition briefs and replies in the latest round before the justices. Clearly, the court has more to say about the delegation – or not! – of gateway arbitrability issues and arbitration carveouts. And the justices appear to have determined that this case, for all its complexity, is the vehicle for making that statement.

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