Month: May 2019

On January 8, 2019, the Supreme Court decided Henry Schein Inc. v. Archer and White Sales Inc., a case involving the “wholly groundless” exception to the general rule that courts must enforce contracts that delegate threshold arbitrability questions to an arbitrator. Archer and White Sales is a dental distributor that entered into a business agreement with Pelton and Crane, a dental equipment manufacturer. Henry Schein, Inc. is the successor-in-interest to Pelton and Crane. The business relationship grew tense, and White Sales sued Henry Schein, alleging violations of federal and state antitrust law, seeking monetary and injunctive relief. The contract provided for arbitration of any dispute, except for certain actions seeking injunctive relief. Schein asked the court to refer the matter to arbitration, but Archer and White contended that the matter was not arbitrable because it sought injunctive relief. Schein argued that an arbitrator should decide that question. The district court sided with Archer and White, finding the basis for Schein’s arbitration request to be “wholly groundless.” Schein appealed to the U.S. Court of Appeals for the Fifth Circuit, which affirmed the judgment of the district court.
The Supreme Court granted certiorari, unanimously vacating the judgment of the Fifth Circuit and remanding the case. In an opinion delivered by Justice Kavanaugh, the Supreme Court rejected the “wholly groundless” exception to the general rule that courts must enforce arbitration contracts according to their terms. Such an exception, the Court held, is inconsistent with the Federal Arbitration Act and the Court’s own precedent.

On April 24, 2019, the Supreme Court decided Lamps Plus, Inc. v. Varela, a case considering whether an ambiguous agreement, in this case an employment contract, can provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration. In 2016, a hacking scheme revealed the tax information of about 1,300 employees of Lamps Plus, Inc. Frank Varela, one of the employees affected by this hack, brought a class action suit in federal district court against the company. Lamps Plus responded by seeking to compel individual arbitration, relying on the terms of Varela’s employment contract. The district court rejected Lamps Plus’ request, instead authorizing arbitration on a classwide basis and dismissing Varela’s claims. The U.S. Court of Appeals for the Ninth Circuit affirmed that judgment, determining that the Supreme Court’s 2010 decision in Stolt-Nielsen v. AnimalFeeds Int’l Corp--that a court may not compel classwide arbitration when an agreement is silent on the availability of such arbitration--did not control here because Varela’s employment agreement was ambiguous rather than silent regarding arbitration.
The Supreme Court granted certiorari, and by a vote of 5-4 reversed the judgment of the Ninth Circuit and remanded the case. In an opinion delivered by Chief Justice Roberts, the Supreme Court held that under the Federal Arbitration Act, an ambiguous agreement cannot provide the necessary contractual basis for concluding that the parties agreed to submit to class arbitration. The Chief Justice’s majority opinion was joined by Justices Thomas, Alito, Gorsuch, and Kavanaugh. Justice Thomas filed a concurring opinion. Justice Ginsburg filed a dissenting opinion, joined by Justices Breyer and Sotomayor. Both Justices Breyer and Sotomayor filed dissenting opinions. Justice Kagan filed a dissenting opinion, in which joined Justices Ginsburg and Breyer, and in which Justice Sotomayor joined as to Part II.