Kavanaugh says ‘wholly groundless’ arbitration motions trump access to the courts

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Writing for a unanimous court, Justice Brett Kavanaugh issued his first decision as a U.S. Supreme Court justice on Tuesday in Henry Schein, Inc. v. Archer & White Sales, Inc., 2019 DJDAR 147. The case involved the enforceability of an arbitration agreement between the parties and interpretation of the Federal Arbitration Act. The district court had refused to compel arbitration on the grounds that the movants claims were "wholly groundless," relying on an exception to the general rule that where parties agree an arbitrator will decide arbitrability, the court will not rule on the issue in the first instance. The 5th U.S. Circuit Court of Appeals affirmed. The Supreme Court reversed, unanimously holding there is no "wholly groundless" exception to the parties' agreement delegating the determination of arbitrability to the arbitrator, rather than the courts, and remanded for a determination in the first instance of whether the delegation in the contract was sufficiently clear and unmistakable to be enforceable.

Schein and Archer & White had entered into a contract containing an arbitration clause stating: "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 [Schein]), shall be resolved by binding arbitration." Archer & White sued, alleging both injunctive relief claims and other claims, and Schein sought to compel arbitration. The district court found the "wholly groundless" exception available and denied the motion rather than allowing the arbitrator to decide the question in the first instance, due to the explicit carve out of injunctive relief claims.

Kavanaugh's opinion holds that where a contract containing an arbitration agreement includes a "clear and unmistakable" delegation to an arbitrator to determine arbitrability, there is no exception allowing the court to decide arbitrability where a party's assertion of arbitrability is "wholly groundless." Schein had argued that incorporation of the AAA rules which included a rule delegating arbitrability determinations too the arbitrator was sufficient. The Supreme Court remanded the case to the 5th Circuit to determine whether there was a sufficiently clear delegation of arbitrability to the arbitrator, as that issue had not been addressed below.

While several district courts in California have applied the "wholly groundless" standard, the 9th U.S. Circuit Court of Appeals had not opined on whether such an exception was available under the FAA. California law has long allowed the groundlessness exception to delegation of arbitrability decisions. See, e.g., Dream Theater, Inc. v. Dream Theater, 124 Cal. App. 4th 547, 553 (2004), as modified on denial of reh'g (Dec. 28, 2004) ("unless a claim of arbitrability is wholly groundless, the court should stay proceedings pending the arbitrator's determination of his or her own jurisdiction."); see also McCarroll v. Los Angeles County District Council of Carpenters, 49 Cal. 2d 45, 65 (1957) ("court should stay proceedings pending the arbiter's determination of his own jurisdiction unless it is clear that the claim of arbitrability is wholly groundless."). It is not clear that those cases will survive the Supreme Court's decision, though it is likely that this Supreme Court would find them preempted by the FAA if California's courts continue to apply the doctrine.

This is yet another in a long line of blows to consumers' access to justice in favor of private, binding, individualized arbitrations. What was already a difficult hurdle for many plaintiffs -- overcoming an arbitration clause in a contract of adhesion -- is now more difficult because the burden the defendant must meet has been lowered. A party seeking arbitration will now succeed on motions to compel where the arbitration agreement delegates the authority to determine arbitrability to the arbitrator, no matter the substantive merits or likely outcome of such a motion. And even worse, review of the arbitrator's decision on arbitrability is limited under the FAA to after the completion of the proceedings and is subject to the same deferential review other arbitration rulings receive, meaning a bad decision on arbitrability up front will be effectively non-reviewable in many cases.

And while this is Justice Kavanaugh's first decision for the court, the unanimity of the justices demonstrates how far in favor of arbitration the law has moved just eight years since the Supreme Court's decision in AT&T v. Concepcion, 563 U.S. 333 (2011). Concepcion was decided on the familiar liberal conservative split with Justice Kennedy casting the fifth vote with the court's conservative wing. While the court has moved politically to the right since then, replacing Justices Antonin Scalia and Anthony Kennedy with Justices Neil Gorsuch and Kavanaugh, each of the justices who dissented in Concepcion joined Kavanaugh's inaugural opinion in favor of "wholly groundless" arbitration motions in Schein.