The U.S. Supreme Court fall term is young, but it has already heard three arguments in cases involving the Federal Arbitration Act, a likely sign of its continuing interest in fortifying arbitration and protecting it from meddling by courts and class actions.
But the two arguments aired Monday suggested the court’s pro-arbitration momentum still faces some obstacles, in the form of liberal justices who may be skeptical of arbitration’s omnipresence. The more conservative justices, including newly confirmed Brett Kavanaugh, asked far fewer questions.
In the case Henry Schein v. Archer and White Sales, the issue before the court was whether a court can block a threshold step in arbitration—whether the arbitrator decides a given dispute is subject to arbitration—by declaring that the demand for arbitration is “wholly groundless.” The dispute was over an alleged antitrust conspiracy in the dental equipment industry.
Williams & Connolly partner Kannon Shanmugam, representing Schein, asserted that when parties have agreed to delegate the question of arbitrability to the arbitrator, “the [Federal] Arbitration Act requires a court to honor that agreement. A court does not have the power to decide the issue of arbitrability for itself and to short-circuit the arbitrator’s ability to do so.”
Justice Stephen Breyer tested the absoluteness of Shanmugam’s assertion with a whimsical hypothetical that Breyer is known for. What if the arbitration claim is “really weird,” Breyer said. “I mean, you want to say no exception at all? He says my claim here is that a Martian told me to do it. OK?”
Shanmugam held to his position, with or without the Martian. “There is no exception no matter what,” he said, “but there are remedies available where a party makes a truly frivolous claim.”
For Shanmugam, the argument was in the first of three of his cases that were granted review on a single day in late June, a rarity. “It’s going to be a busy summer,” Shanmugam said at the time.
In the second case argued Monday, Lamps Plus v. Varela, the issue was: can state law be used to authorize class arbitration when an arbitration agreement is silent on the subject? Mayer Brown partner Andrew Pincus, who successfully argued a class arbitration case in 2011 in favor of AT&T, argued against class arbitration in Monday’s case. Unless there is a contractual basis allowing for class arbitration, a party cannot be compelled into class arbitration under the Federal Arbitration Act, Pincus said.
Like Shanmugam, Pincus drew questioning from the liberal side of the court. “I didn’t think the FAA in any way undoes state law, unless the basis of the state law is directed only at arbitration, which isn’t the case here,” said Justice Sonia Sotomayor. “There’s language that’s in favor of each side’s position,” Justice Elena Kagan said.
On Oct. 3, the court heard arguments in New Prime v. Oliveira, an FAA case with a narrower focus: whether an arbitration exemption in the law applies to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”