A Two-Time Supreme Court Arbitration Matter Is Ready to Settle

By Russ Bleemer

The long-running price-fixing matter between dental equipment suppliers that turned into an epic arbitration procedure fight, with two separate visits to the U.S. Supreme Court, appears to be over.

Documents have been filed in a Texas federal court indicating that the parties have reached an agreement in Archer and White Sales Inc. v. Henry Schein Inc, et al., Civil Action No. 2:12-CV-00572-JRG. Texas Eastern U.S. District Court Chief Judge Rodney Gilstrap, of Marshall, Texas, yesterday signed an order issuing a 30-day stay “of all deadlines” in the case because the parties “have agreed in principle on a settlement agreement and are in the process of finalizing the agreement.” Attorneys from both sides signed and submitted the stay request last week.

Just a few months ago, the case was argued before the U.S. Supreme Court a second time on the issue of who decides whether a case is arbitrated, a court or an arbitrator. The hour-long December arguments resulted in a nine-word per curiam decision on Jan. 25, when the nation’s top Court announced that the writ of certiorari was improvidently granted, and it dismissed the case.

The problem for the Court appeared to be that another issue, on the effectiveness of the incorporation of American Arbitration Association rules that speak to the decision-maker question, was needed to decide the case. 

But the Court last June had turned down a cross-petition on the incorporation-of-rules issue, which still figured heavily in the December oral arguments. The sole issue that the Court had expected to decide the abandoned case was on “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 result was that the Texas Eastern District federal court was readying the case for trial, because the Supreme Court ruling meant that the Fifth U.S. Circuit Court of Appeals case declining to send the case to arbitration stood as the law of the case.

The appeals court decision was unusual, too, in that it found that a clause effectively delegated the arbitration decision to the arbitrator via the incorporation of the AAA rules to that effect. Nevertheless, the panel didn’t compel arbitration.  It found that because of the way the clause was drafted, a  carve-out from arbitration for injunctions still applied to the contract. Archer & White Sales, Inc. v. Henry Schein Inc., 935 F.3d 274 (5th Cir. 2019) (available at https://bit.ly/2NC7EmL).

That’s the state of the case that was put on pause by Gilstrap’s order yesterday.

But it’s also only half of the arbitration history. The Supreme Court already had decided an arbitration point in the case less than two years before the December oral arguments. In Henry Schein Inc. v. Archer and White Sales Inc., 139 S. Ct. 524 (Jan. 19, 2019) (available at https://bit.ly/338gdLT), the Court held that the “wholly groundless” exception to arbitrability is inconsistent with the Federal Arbitration Act and the Court’s precedent.

Archer and White had argued that the dispute was not subject to arbitration because its complaint sought injunctive relief, at least in part. Henry Schein contended that because the rules governing the contract provide that arbitrators have the power to resolve arbitrability questions, an arbitrator—not the court—should decide whether the arbitration agreement applied. Archer and White countered that Schein’s argument for arbitration was wholly groundless–at the time, an exception to arbitration.

The Texas trial court and the Fifth Circuit agreed, but the Supreme Court, in January 2019, reversed, unanimously, and sent the case back to the Fifth Circuit.  Still, Justice Brett Kavanaugh, in his first Supreme Court opinion, wrote that the Court declined to determine “whether the parties agreed to arbitrate arbitrability” as indicated by “clear and unmistakable evidence.”

That began a road that had the case back in front of the Court again last December, and the Fifth Circuit’s reassessment that found that there still was not clear and unmistakable evidence that the parties wanted the injunctive relief arbitrated.  

Lost in the public arbitration morass was the dispute itself—a complicated antitrust matter. In 2012, Archer and White Sales Inc., a distributor, seller, and servicer for dental equipment manufacturers based in Plano, Texas, filed suit against Henry Schein Inc., a Melville, N.Y.‐based distributor and manufacturer of dental equipment, and subsidiaries of Washington, D.C.’s Danaher Corp., in U.S. federal court alleging that the defendants violated U.S. federal and state antitrust laws by conspiring to fix prices and refusing to compete with each other.

Specifically, Archer and White maintained that its competitor Henry Schein conspired with Danaher to terminate or reduce Archer and White’s distribution territory because the plaintiff was selling dental equipment at discounted prices. Archer and White sought millions of dollars in damages and injunctive relief.

The defendants had moved to compel arbitration based on the arbitration clause in the distributor contract between Archer and White and Danaher, which provided:

Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane [Henry Schein succeeded Pelton in the contract with Archer]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association. The place of arbitration shall be in Charlotte, North Carolina.

There were no settlement details in last week’s request or Judge Gilstrap’s stay order, which was first reported yesterday for Bloomberg subscribers here.

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CPR Speaks has watched the arbitration developments in the matter closely.  For information, see:

Analysis of the first U.S. Supreme Court case in the matter is available using the search features at CPR Speaks and altnewsletter.com.  A good starting point on this blog is Philip J. Loree Jr., Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court (Feb. 19, 2020).

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The author edits Alternatives to the High Cost of Litigation for CPR.

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