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Who Decides Who Decides? The Impact of Arbitration Carve-Outs on Delegation Clauses

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Henry Schein, Inc. v. Archer and White Sales, Inc.,

No. 19-963,
935 F.3d 274 (5th Cir. 2019),
cert. granted, 2020 WL 3146679 (U.S. June 15, 2020).

Oral argument not yet scheduled.

Issue: 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.

Returning to the Supreme Court for a second time, Henry Schein v. Archer and White Sales will resolve whether a federal judge or an arbitrator decides threshold questions of arbitrability under certain circumstances. In 2012, Archer and White, a dental equipment distribution and sales company, sued competitor Henry Schein for antitrust violations, seeking millions of dollars in damages and injunctive relief. Upon suit, Henry Schein moved to compel arbitration of Archer and White’s claims. See Brief for Respondent at 4-5, Henry Schein, Inc. v. Archer and White Sales, Inc., 2020 WL 1373161 (U.S. Mar. 2, 2020) (No. 19-963).  In opposition, Archer and White pointed to an exception in the language of the arbitration clause for injunctive relief claims. Id.  At issue is whether this exception, or carve out, for injunctive relief claims allows a federal court to determine the threshold issue of arbitrability (i.e., whether the excepted claim is arbitrable) even though there is an otherwise clear and unmistakable delegation of that issue to the arbitrator.    

There is a presumption that courts determine gateway issues of arbitrability, but the Supreme Court has held that an arbitrator can decide those issues if the parties clearly and unmistakably delegate the question of arbitrability to an arbitrator, in accordance with the Federal Arbitration Act (FAA), 9 U.S.C. §§ 1-14 (2018). Henry Schein v. Archer and White Sales, Inc, 139 S. Ct. 524, 530 (2019).  Here, Henry Schein asserts that an arbitrator should decide whether Archer and White’s claims are arbitrable, despite the injunctive relief carve-out, because holding otherwise would allow parties to unravel a clear delegation clause by simply requesting injunctive relief.  See Petition for Writ of Certiorari at 13(a), Henry Schein, Inc., v. Archer and White Sales, Inc., 2020 WL 529195 (U.S. Jan. 31, 2020) (No. 19-963).  Archer and White ask the Court to hold that questions of arbitrability only be delegated to an arbitrator when there is clear and unmistakable evidence that the parties intended to do so. Here, because the arbitration agreement contains exceptions to arbitration, Archer and White claims there is no clear delegation of authority to the arbitrator. The Supreme Court must now determine whether the injunctive relief exception negates the delegation clause.

WHAT’S AT STAKE

Mandatory binding arbitration clauses are increasingly common, especially in long-term care settings.  These clauses are problematic because they limit access to courts and often include oppressive terms for consumers.  Consumers who are forced to arbitrate their claims must often do so with limited discovery and can rarely, if ever, seek systemic or class-wide relief.  Arbitrations are confidential, and arbitrators are not required to issue written opinions, limiting transparency.  Arbitrators are free to veer from established law and rules of evidence in rendering a decision. 

Because arbitration clauses disadvantage consumers, it is important that they only be enforced when there is a clear intent to arbitrate. Federal courts are the most appropriate forum to determine arbitrability, absent a clear and unmistakable delegation of that issue to an arbitrator. Here, if the Court determines that an arbitrator can decide the gateway issue of arbitrability, it will expand the power of arbitrators, who ultimately benefit from decisions that favor arbitration. Given the potential disadvantages of arbitration for consumers, it is important that the power to decide gateway issues remain with federal courts absent a clear and unmistakable intent to do so.

Elizabeth Aniskevich

eaniskevich@aarp.org