An Arbitration Agreement as a Contract to Constrain the Power of Federal Courts: The Impact of ‘Henry Schein’

When the 68th Congress in 1925 enacted the U.S. Arbitration Act (more commonly known as the Federal Arbitration Act or FAA), it was addressing directly a prevailing hostility to arbitration and laying the foundation for arbitration to become a fixture as an alternative to litigation for commercial disputes. To the extent there remain areas in which courts play a role in defining the scope of arbitrable disputes, the U.S. Supreme Court has taken a step to reduce that role in further deference to arbitration. In its recent decision in Henry Schein v. Archer & White Sales, 139 S. Ct. 524 (2019), the Supreme Court concluded that Congress stripped federal courts of authority to adjudicate any aspect of the gateway issue of arbitrability between parties who have an existing arbitration agreement which delegates that issue to the arbitrator(s). Does this decision portend further deference to empower arbitrators, and not courts, to decide other gateway issues, and what does this possibility mean for parties negotiating arbitration agreements or considering litigation notwithstanding such an agreement?

Addressing a lawsuit alleging antitrust violations and seeking both money damages and injunctive relief in federal court despite the existence of a valid arbitration agreement between the parties incorporating the American Arbitration Association (AAA) Rules, the Supreme Court in Henry Schein held that when parties have delegated the question of arbitrability to the arbitrator(s), “[i]n those circumstances, a court possesses no power to decide the arbitrability issue.” Id. at 529 (emphasis added). In so holding, the Supreme Court reversed the decision of the U.S. Court of Appeals for the Fifth Circuit that the appellant’s invocation of the arbitration agreement was “wholly groundless” since the arbitration agreement expressly excluded “actions seeking injunctive relief.” Id. at 528. Justice Kavanaugh, writing for a unanimous court, concluded that allowing a court to override the parties’ written agreement that an arbitrator determine the arbitrability of any dispute “is inconsistent with the text of the [Federal Arbitration] Act.” Id. at 529 (quoting 9 U.S.C. §2 (Written agreements to arbitrate “shall be valid, irrevocable, and enforceable.”)). Rather than serve a discretionary gatekeeping function to ferret out spurious claims of arbitrability, courts retain a single threshold task before referring a dispute to an arbitrator: determining “whether a valid arbitration agreement exists.” Id. at 530. Henry Schein clarified that “if a valid agreement exists, and if the agreement delegates the arbitrability issue to an arbitrator, a court may not decide the arbitrability issue.” Id.