Arbitrator to Decide Whether Dispute is Subject to Arbitration Even if Argument is “Wholly Groundless,” Supreme Court Holds

The U.S. Supreme Court ruled yesterday that parties to a contract may agree that an arbitrator, not the court, will decide whether a dispute is subject to arbitration (known as “arbitrability”).  The case, Henry Schein, Inc. v. Archer & White Sales, Inc., involved an exception applied by some lower courts, which allowed the court to decide the issue when it thinks the parties’ argument that the arbitration agreements applies in a specific case is “wholly groundless.”  In his first Supreme Court opinion, Justice Kavanagh, writing for a unanimous Court, held that the Federal Arbitration Act (FAA) does not allow for a “wholly groundless” exception. 

The parties, the manufacturer and distributor of dental equipment had agreed to arbitrate most disputes including the issue of arbitrability, except if the parties sought an injunction. The manufacturer moved to compel arbitration and the distributor opposed the motion since it was seeking an injunction. Both the trial court and Fifth Circuit Court of Appeals found that, because the manufacturer’s arguments were “wholly groundless,” the court could decide whether the dispute was subject to arbitration even though the parties’ contract committed that decision to the arbitrator.

Reversing, the Supreme Court found that the FAA provided no basis for a “wholly groundless” exception, even if it would avoid the waste of time and resources. If the parties agreed in their contract that the arbitrator would decide the issue of arbitrability, the courts must allow the arbitrator to decide that issue, even if the parties’ argument is frivolous or “wholly groundless.” The Court’s decision is one in a long line of Supreme Court precedents strongly favoring the ability of parties to contractually choose an arbitrator over the courts to resolve their disputes.

For more information on this decision or the Federal Arbitration Act please contact Kathleen Barnett Einhorn, Esq., Chair of the Firm’s Complex Commercial Litigation Group, at keinhorn@genovaburns.com or Jennifer Borek, Esq., Partner in the Complex Commercial Litigation Group, at jborek@genovaburns.com.