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(Article from Insurance Law Alert, January 2019)

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The United States Supreme Court ruled that the threshold question of whether a dispute is subject to arbitration is a matter for an arbitration panel, not a court, and that there is no “wholly groundless” exception to this rule.  Schein, Inc. v. Archer & White Sales, Inc., 2019 WL 122164 (U.S. Jan. 8, 2019).

In a contract dispute, Archer & White sued Schein, seeking monetary damages and injunctive relief.  The contract required all disputes to be resolved through arbitration, with the exception of those seeking injunctive relief.  When Schein moved to compel arbitration, Archer & White argued that the dispute was not subject to arbitration in light of the demand for injunctive relief.  The central question was whether the gateway issue of arbitrability should be decided by a court or an arbitration panel.  The federal district court ruled that where, as here, a court finds that an argument for arbitration is “wholly groundless,” a court may resolve the threshold question of arbitrability.  The Fifth Circuit affirmed.

The United States Supreme Court reversed, finding the “wholly groundless” exception inconsistent with the Federal Arbitration Act (“FAA”) and case precedent.  The Court explained that the exception “confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability.”  The Supreme Court rejected Archer & White’s assertion that the FAA implicitly permits a “front end” judicial review by allowing a “back end” judicial review of arbitration awards and the scope of an arbitration panel’s powers.  The Court remanded the matter for a determination of whether the contract at issue delegated the arbitrability question to an arbitrator, noting that courts should not assume that parties agreed to arbitrate arbitrability unless there is a “clear and unmistakable” intent to do so.