Advertising Law Blog

In Henry Schein, Inc. v. Archer & White Sales, Inc., dental equipment distributor Archer & White Sales, Inc. sued competing distributor, Henry Schein, Inc., alleging violations of federal and state antitrust law, seeking both money damages and injunctive relief. The parties’ agreement contained an arbitration provision. Archer & White contended that the dispute was not subject to said arbitration because its complaint sought injunctive relief. Schein countered that pursuant to the agreement, the arbitrators, not the court, have the authority to determine whether the dispute is a proper subject of arbitration. Archer & White averred that Schein’s argument for arbitration was “wholly groundless” and it was therefore appropriate for the court to decide the question of arbitrability. The District Court agreed, denying Schein’s motion to compel arbitration, and the Fifth Circuit affirmed.

The Supreme Court, however, came to a different conclusion. Specifically, the Supreme Court held that the “wholly groundless” exception to arbitrability proffered by Archer & White was inconsistent with the Federal Arbitration Act and Supreme Court precedent. The Supreme Court stated in simple terms that “arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.” Therefore, when the contract between the parties assigns the question of arbitrability to an arbitrator, the court must comply with those terms, even in the case the courts believe that the arbitrability claim is “wholly groundless.” The judgment was vacated and remanded to the Fifth Circuit.

Takeaway: When drafting arbitration provisions, parties should consider if they would prefer the court or an arbitrator to decide the threshold issue of arbitrability. Parties should be aware that if a contract unequivocally delegates the question of arbitrability to an arbitrator, a motion to compel arbitration on this point should be granted without exception.