Arbitration agreements have been standard features of commercial contracts since the 1920s, but their use and entrenchment as key features of those contracts have vastly expanded in the past one hundred years.[1] Arbitration is a method of dispute resolution, meant to “eliminate the expense of litigation, to save delays in legal proceedings…and to substitute the decisions of practical business men for those of inexperienced juries.”[2] Parties would turn to arbitration to solve their disputes, but courts would often impede their efforts by refusing to enforce the arbitration agreements.[3] Without outside enforcement, parties have no assurance that they will not have to eventually end up in court, and that despite attempts to lower costs and speed up the dispute resolution process, they would not just end up wasting time and money pursuing an unenforceable agreement.
In 1925 Congress passed the Federal Arbitration Act (“FAA”), which made arbitration agreements “valid, irrevocable and enforceable.”[4] The Supreme Court has ruled that agreements are enforceable only when there is ‘clear and unmistakable evidence” that the parties intended to arbitrate.[5] The FAA’s effect was further extended in 1984 when the Supreme Court interpreted the FAA as adopting a national policy favoring arbitration in both federal and state courts.[6] The enforceability of various provisions and types of arbitration agreements continues to be in dispute and subject to still-changing law.[7] Because they are used frequently in many different types of contracts, including and especially major financial dealings, arbitration agreements remain an active issue.[8]
The Supreme Court will address one question of enforceability in the current session. Henry Schein Inc. v. Archer & White Sales Inc. is scheduled for argument on December 8, 2020.[9] The Supreme Court heard the same case in October 2018[10], remanded it back to the Fifth Circuit, and now have accepted it again to review the Fifth Court’s denial of motions to compel arbitration.[11]
Henry Schein centers on a contract between a dental equipment distributor and a dental equipment manufacturer. The contract provided for the arbitration of any dispute arising under or relating to the agreement, with some exceptions, including for actions seeking injunctive relief.[12] In 2012, Archer filed an antitrust lawsuit against Schein.[13] The issue is whether a court can compel arbitration for the antitrust dispute. Specifically, the question presented is “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.”[14]
The Court could decide this case on narrow grounds. The Court could rule that including the rules of the parties’ chosen arbitrator, the American Arbitration Association, into the contract is a sufficiently clear agreement. Another narrow ruling would determine that the exceptions in their contract are not “wholly groundless.” The “wholly groundless” exception is a judicially created exception to the FAA which has been adopted by some circuit courts, including the Fifth.[15] If the Court finds that the exceptions in the Henry Schein contract are not of this category, no decision would be provided on the legitimacy of the category itself. Both of these decisions would send this particular case to arbitration without any definite decision about the “wholly groundless” exception itself.[16]
The Court could also decide this decision on broader grounds that would be consequential for the role of arbitration in the American legal system. This case “will test the limits of the Court’s commitment to the enforcement of arbitration agreements.”[17] Strengthening arbitration agreements would affect many industries and types of contracts. In some cases, disputes arise between two sophisticated business entities, such as Henry Schein and Archer & White. However, arbitration agreements are also commonly used in other areas, such as against individual employers, consumers, or small businesses, who all tend to benefit from court intervention in unfair arbitration clauses.[18]
In recent years, Supreme Court decisions regarding arbitration clauses have tended to be decided on partisan lines, with the five conservative justices making up the pro-arbitration majority.[19] Generally speaking, arbitration is more favored by the conservative Justices on the Court, reflecting their tendency to value businesses’ ability to contract over unsophisticated individuals who tend to be taken advantage of in these contracts.[20] The last time this case was before the Supreme Court, the Justices delivered a unanimous opinion that reflected a favoring of arbitrating over court intervention.[21] The lack of liberal protest may be attributed to the lack of a sympathetic individual litigant, though the decision in this case may eventually affect cases that do feature such an imbalance of power. However, lower court decisions on similar questions are not consistently decided on partisan lines.[22] Because of the recent unprecedented Republican rush to confirm Justice Barrett on the eve of the 2020 presidential election, a partisan line decision would look like a 6-3 decision in favor of enforceability.[23] This case is worth paying attention to when it is heard in December, but the decision may be decided on such narrow grounds that ends up having no real effect outside on other outcomes. Either way, the enforceability of arbitration agreements will remain an important topic that the Court will likely continue to confront.
[1] See generally Rachel Donnelly, A Historical View of Arbitration Agreements and their Rise in Employment Agreements, Tyson & Mendes (June 3, 2019, 10:00 AM), https://www.tysonmendes.com/historical-view-arbitration-agreements-rise-employment-agreements/.
[2] Sabra A. Jones, Historical Development of Commercial Arbitration in the United States, 12 Minn. L. Rev. 240, 240 (1928).
[3] See id. at 261.
[4] Pub. L. 68-401, 43 Stat. 883 (1925) (current version at 9 U.S.C. § 1).
[5] Henry Schein Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 531 (2019).
[6] See Southland Corp. v. Keating, 435 U.S. 1, 10, 15-18 (1984) (finding a “broad principle of enforceability.”).
[7] See Donnelly, supra note 1.
[8] See, e.g., Alexander J.S. Colvin, The Growing Use of Mandatory Arbitration, Economic Policy Institute (April 6, 2018), https://www.epi.org/publication/the-growing-use-of-mandatory-arbitration-access-to-the-courts-is-now-barred-for-more-than-60-million-american-workers/.
[9] October Term 2020, Sup. Ct. U.S. (2020), https://www.supremecourt.gov/oral_arguments/argument_calendars/MonthlyArgumentCalDecember2020.pdf.
[10] Schein, supra note 5.
[11] Henry Schein Inc. v. Archer & White Sales, Inc. 207 L.Ed.2d 1050 (U.S. 2020).
[12] Petition for a Writ Certiorari at 6, Henry Schein Inc. v. Archer & White Sales, Inc. (2020) (No. 19-963), 2020 U.S. S. Ct. Briefs Lexis 365.
[13] Archer & White Sales, Inc. v. Henry Schein, Inc., No. 2:12-CV-572-JRG-RSP, 2013 U.S. Dist. LEXIS 201338 (E.D. Tex. May 28, 2013).
[14] Question Presented, Henry Schein Inc. v. Archer & White Sales, Inc. (2020) (No. 19-963), https://www.supremecourt.gov/docket/docketfiles/html/qp/19-00963qp.pdf.
[15] See, e.g., Qualcomm, Inc. v. Nokia Corp., 466 F.3d 1366 (Fed. Cir. 2006).
[16] Daniel Thies, Henry Schien, Inc. v. Archer & White Sales Inc., 46 ABA Sup. Ct. R. 4-6 (Mar. 5, 2020), https://www.americanbar.org/groups/public_education/publications/preview_home/volume/46/issue-2/article-1/.
[17] Id. at 6.
[18] See Jessica Silver-Greenberg & Robert Gebeloff, Arbitration Everywhere, Stacking the Deck of Justice, N.Y. Times, Oct. 31, 2015, https://www.nytimes.com/2015/11/01/business/dealbook/arbitration-everywhere-stacking-the-deck-of-justice.html.
[19] See, e.g., AT&T Mobility LLC v. Concepcion 563 U.S. 333 (2011) (holding that the FAA preempts states from conditioning the enforcement of an arbitration agreement on the availability of class-wide arbitration procedures); Am. Express Co. v. Italian Colors Rest., 570 U.S. 228 (2013) (holding that American Express’s arbitration clause prohibiting class action suits is enforceable even though it would compel arbitration of antitrust claims); Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018) (holding that the National Labor Relations Act does not prohibit enforcement of an agreement requiring employees to resolve disputes with the employer through individual arbitration under the FAA).
[20] See supra note 16.
[21] Henry Schein Inc. v. Archer and White Sales Inc., Oyez, www.oyez.org/cases/2018/17-1272 (last visited Oct. 29, 2020).
[22] See Thies, supra note 15.
[23] See Brent Kendall & Jess Bravin, Amy Coney Barrett: What Comes Next and How the Supreme Court Will Change, Oct. 25, 2020, https://www.wsj.com/articles/amy-coney-barrett-what-comes-next-and-how-the-supreme-court-will-change-11603642087.
