Supreme Court Returns Schein To Its Docket, With a Focus on Arbitrability

By Russ Bleemer & Heather Cameron

Schein is back.

The U.S. Supreme Court this morning agreed to hear a new arbitration petition on an old case. 

The Court granted cert today on the issue of “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”

The case, Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, is expected to be scheduled in the Court’s 2020-2021 term beginning in October. The Court’s docket page is available at https://bit.ly/30L3gX4.

The issue will be on the delegation agreement in the arbitration contract in a case the Court saw and decided last year, Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw).

The new case, which comes at the request of New York-based health care supplier Schein, will likely center on whether the arbitration agreement’s exclusion of injunctive relief from an arbitrator decision in favor of a court overrides the agreement’s delegation to an arbitrator a decision on whether the matter should be arbitrated.

But that’s also only half the Court’s arbitration story today.  It also denied a cross petition in the case by Texas dental supply company Archer & White Sales on two more arbitration issues that still could still work their way into the decision or, at the least, are guaranteed to see more litigation in state and circuit courts. 

The cross-petition cert denied issues were

(1) Whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and

(2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.

A question related to the latter issue already appeared just this month in the Court’s decision in an international arbitration case, GE Energy Power Conversion France SAS Corp. v. Outokumpu Stainless USALLC, et al., No. 18-1048 (available at https://bit.ly/2XogerH) (see a CPR Speaks article and video analysis at https://bit.ly/2U1QrDs).

When the Court first decided Schein in January 2019, it reversed the Fifth Circuit and unanimously held that under the Federal Arbitration Act, an arbitrator, not the court, should determine the threshold question of arbitrability—whether an arbitration agreement applies to a particular dispute—when the parties have clearly and unmistakably delegated that question to an arbitrator via delegation agreement, even if the argument for arbitrability is “wholly groundless.” See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. at 526 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw).

The case was remanded to the Fifth Circuit to determine whether the parties’ contract contained a delegation agreement, sending the determination of arbitrability to a tribunal rather than a court, and satisfied the Supreme Court’s “clear and unmistakable” intent standard established in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995) (available at https://www.oyez.org/cases/1994/94-560).

Rule 7(a) of the AAA Commercial Arbitration Rules, which the parties incorporated into their contract in the case, explicitly gives the arbitrator power to determine his or her own jurisdiction as well as the arbitrability of any claim or counterclaim. (available at https://www.adr.org/Rules).

Following circuit precedent, the Fifth Circuit noted that by incorporating the AAA’s rules, the parties had indeed entered into a delegation agreement for at least some disputes. But in its remand, the Fifth Circuit also found an explicit “carve-out” exception in the contract for disputes, like the one at hand, seeking injunctive relief.

The appeals court, therefore, affirmed the district court’s denial of Schein’s motion to compel arbitration. Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/33Cb78g).

Schein petitioned the Supreme Court again to challenge that decision. That’s the case and the issue the Court agreed to hear today, while Archer & White’s conditional cross-petition issues were not accepted.

For more on the case and an in-depth discussion of the issues involved, see Philip J. Loree Jr., CPR Speaks, “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court” (Feb. 19, 2020) (available at http://bit.ly/3bQXQgl); Richard D. Faulkner & Philip J. Loree Jr., “Schein’s Remand Decision: Should Scotus Review the Provider Rule Incorporation-by-Reference Issue?” 38 Alternatives 70 (May 2020) (available at https://bit.ly/2C6Ksap), and Richard D. Faulkner & Philip J. Loree Jr., “Why the U.S. Supreme Court Should Review Whether Arbitrability May Be Incorporated by Reference,” 38 Alternatives 87 (June 2020) (available athttps://bit.ly/2YB0zVj).

* * *

Bleemer edits Alternatives at altnewsletter.com for the CPR Institute.  Cameron, a second-year Fordham University School of Law student, is a CPR Institute 2020 Summer Intern.

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