Justice Kavanaugh's First Opinion

A unanimous opinion in favor of arbitration.

Today the Supreme Court issued two opinions, one of which was the first opinion in an argued case written by Justice Brett Kavanaugh. The opinion in Henry Schien v. Archer and White Sales was unanimous (as have been all four other opinions released thus far this term). As is often the case with opinions by junior justices -- and first opinions in particular -- the case concerns a narrow question, lacks significant political overtones, and was issued without a recorded dissent.

Here is how Justice Kavanaugh described the case in the opinion:

Under the Federal Arbitration Act, parties to a contract may agree that an arbitrator rather than a court will resolve disputes arising out of the contract. When a dispute arises, the parties sometimes may disagree not only about the merits of the dispute but also about the threshold arbitrability question—that is, whether their arbitration agreement applies to the particular dispute. Who decides that threshold arbitrability question? Under the Act and this Court's cases, the question of who decides arbitrability is itself a question of contract. The Act allows parties to agree by contract that an arbitrator, rather than a court, will resolve threshold arbitrability questions as well as underlying merits disputes. Rent-A-Center, West, Inc. v. Jackson, 561 U. S. 63, 68?70 (2010); First Options of Chicago, Inc. v. Kaplan, 514 U. S. 938, 943?944 (1995).

Even when a contract delegates the arbitrability question to an arbitrator, some federal courts nonetheless will short-circuit the process and decide the arbitrability question themselves if the argument that the arbitration agreement applies to the particular dispute is "wholly groundless." The question presented in this case is whether the "wholly groundless" exception is consistent with the Federal Arbitration Act. We conclude that it is not. The Act does not contain a "wholly groundless" exception, and we are not at liberty to rewrite the statute passed by Congress and signed by the President. When the parties' contract delegates the arbitrability question to an arbitrator, the courts must respect the parties' decision as embodied in the contract. We vacate the contrary judgment of the Court of Appeals.

Comments

[Bob from Ohio]

Aren't there laws against hazing?

[Martinned]

That's odd, I would have thought that the "wholly groundless" exception is not about rewriting the statute, but about rewriting/interpreting the contract: Did the parties really intend for even groundless arbitrability questions to be decided by the arbiter, or should the contract be interpreted as reserving only minimally plausible arbitrability questions for the exclusive jurisdiction of the arbiter?

[Lee Moore]

That is precisely what SCOTUS found. The court's job is to interpret the contract to discover (a) whether the contract assigned {the decision on whether something is subject to arbitration} to the arbitrator, or to the courts and (b) in the latter case (but only in the latter case), whether the something is subject to arbitration.

If the court finds that the contract assigned the question of whether a dispute is subject to arbitration to the arbitrator, the court's job is done. Its own opinion on the question of whether the dispute is subject to arbitration is irrelevant. SCOTUS found that the courts below had confused two different questions :

(a) whether or not the contract assigned to the arbitrator the decision on whether the contract makes dispute X subject to arbitration
(b) whether, on the court's own view of the contract, the contract makes dispute X subject to arbitration

SCOTUS told the courts below that their job is (a) not (b) - regardless of whether they are really really really sure about the answer to (b). They only get to (b) if they have already answered (a) in the negative. Simply saying "it's obvious what the answer to (b) is, so we'll not bother with (a) is a foul.

[TheAmazingEmu]

To add to this (since I think this is bad policy but an accurate description of the law), even implausible claims that a question is subject to arbitration must be decided by the arbitrator if questions of whether something is subject to arbitration is to be decided by the arbitrator according to the contract. However, parties have the right to vacate the judgment if the arbitrator exceeded his authority.

In this case, the contract specifically stated that injunctive relief was not to be heard by an arbitrator. The plaintiff requested injunctive relief and the defendant asked for arbitration. The Court said, if the parties had contracted for this jurisdictional question to be heard by an arbitrator, it should be heard by an arbitrator and only after the case has been decided can it be challenged and set aside if the arbitrator exceeded his authority.

[David Welker]

I don't disagree with this opinion. As a matter of law, it strikes me as correctly decided. But, in terms of whether the case has political overtones, I disagree. The FAA has been interpreted in such an expansive way. And research shows that plaintiffs are less likely to win, and when they do win, settlements are for less.

[David Bremer]

I agree with you about political overtones. But I'm always skeptical of the argument that arbitration is always worse for plaintiffs. I suspect that it depends on the topic and forum.

For example, FINRA arbitration is extremely claimant-friendly, since motions to dismiss are rare and motions for summary judgment are prohibited. Consequently, there are a lot of claims that go to a hearing/settlement that wouldn't get out of the pleadings stages in court.

[TheAmazingEmu]

For those following precedent, it's a non-political issue. Outside the courts, it obviously is political. The problem is with the law at this point, though, not with the courts following their own precedents.

[James Pollock]

I'm not sure I get this.

Yes, people should be able to contract their way into arbitration and out of court.

But if there are questions about whether the contract itself is valid, then the presumption that the parties have agreed to contract for arbitration is improper. It's a decision in favor of one of the parties, without a hearing or opportunity to present an argument. How does this comport with due process?

[tkamenick]

If I read it correctly, this case doesn't cover the situation you posit. If there are arguments that there is no valid contract at all, that can go to court. But if the parties agree there is a contract, but dispute whether one particular issue is subject to the arbitration contract, THAT dispute can be send to mandatory arbitration.

So - "I never signed that contract!" "Yes you did" - Court
"The contract covers purchases and this issue is about a lease" "It's about a purchase" - Arbitration.

[J.R.]

Agreed. Under the FAA (9 USC 4, I think), if there is a dispute regarding whether the contract was signed or "formed", you go to a summary bench or jury trial on the sole issue of contract formation.

This case is about a situation where the parties agree a contract existed, but disagree about the scope of the arbitration clause and who (court or arbitrator) gets to decide the question of how many claims will be arbitrated.

[James Pollock]

If the parties are disputing whether or not there was an agreement about the scope of the arbitration clause, then they are disputing whether or not a contract exists. (Unless such a term isn't part of the contract, in which case arguing that the case belongs in arbitration instead of in court would be "wholly groundless" And this involves cases where the claim that such agreement DID exist are "wholly groundless"...

So if I don't want to go to court, I'm going to claim that an arbitration clause exists, whether or not there's anything even vaguely like an arbitration clause in the contract.

[jph12]

And then the judge would laugh at you and deny your motion to compel arbitration. And this case wouldn't change that in any way shape or form.

[James Pollock]

What judge? There's an arbitration clause, I tell you!

[jph12]

Yes, we get that you don't understand the case. You don't have to keep pointing it out.

[Lee Moore]

If the parties are disputing whether or not there was an agreement about the scope of the arbitration clause, then they are disputing whether or not a contract exists.

No, they're disputing one of the terms of the contract, which contract both parties accept as existing.

[David Bremer]

But don't you see the problem with this? You basically allow either party to a contract containing an arbitration clause to compel arbitration, no matter how painfully obvious it is that the clause doesn't apply.

For example, we enter a contract involving the sale of widgets. I later sell you anvils. We get in a disagreement about the anvils. You move to compel arbitration, saying that widgets includes anvils. No matter how absurd that argument is, the court must send us to an arbitrator.

Once in arbitration, the arbitrator thinks to himself/herself, "hmmm....I could dismiss this case immediately, or maybe we should take some discovery on this so I can work on the file for awhile."

To J.R.'s point, I'm not sure this outcome is required by Section 4. That section starts out "A party aggrieved by the alleged failure . . . to arbitrate . . . ." You can't know whether someone is really "a party aggrieved" unless you assume that party had at least some basis to compel arbitration.

[Rossami]

re: "You basically allow either party to a contract containing an arbitration clause to compel arbitration, no matter how..."

Yes. And despite your concerns about conflicts of interest, arbitrators have processes and a demonstrated track record of properly disposing of those inappropriate requests for arbitration. (Remember that trial lawyers also have an incentive for conflicts of interest so pushing everything to the court doesn't automatically solve that problem.)

To your anvils/widgets hypothetical, remember that the court must send us to an arbitrator only if, as in this case, we decided ahead of time that arbitratability itself was within the scope of arbitration. Don't like it? Change that clause of the contract before you sign it. But if we both agreed ahead of time that arbitratability itself should be in scope, why should the courts get to second-guess our decision? It's not like this dispute raised any concerns that would be "contrary to public policy" or triggered any of the other safety valves.

[David Bremer]

Well, I can tell you all about arbitrators and their track record of dismissing claims. Look at the number of NASD/FINRA claims where federal courts enjoined claimants from pursuing an arbitration claim barred by its six-year rule (even when arbitrators didn't)....that is until 2001 when the Supreme Court in Howsam v. Dean Reynolds said it's decided by arbitrators. Now it's common to see claims based on investments made 10+ years earlier and arbitrators (many who are not lawyers and few of whom have Westlaw access) deny motions to dismiss.

And here, the parties didn't decide ahead of time anything regarding arbitrability. They simply said they'd use AAA. In fact, the court also noted that it was "express[ing] no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator."

There's a reason why courts were rejecting arbitration based on the "wholly groundless" standard. Because lots of parties were trying to force arbitration based on wholly groundless arguments. At least some of those cases are now going to be forced into arbitration when they shouldn't be. And I suspect it's a higher percentage than you think.

[KenveeB]

"And here, the parties didn't decide ahead of time anything regarding arbitrability. They simply said they'd use AAA. In fact, the court also noted that it was "express[ing] no view about whether the contract at issue in this case in fact delegated the arbitrability question to an arbitrator.""

Which is why the opinion remanded the case to the lower court to, among other things, "address the question whether the contract at issue in fact delegated the arbitrability question to an arbitrator." IOW, the court is directed to look at what they're actually supposed to look at -- did the parties agree for the arbitrator to decide the arbitrability question? -- instead of looking at their own test for whether it's actually arbitrable.

[James Pollock]

"Which is why the opinion remanded the case to the lower court to, among other things, 'address the question whether the contract at issue in fact delegated the arbitrability question to an arbitrator.'"

And if the claims that the arbitratory-ness of this contract are "wholly groundless" can't be considered sufficient to say "no arbitrator on this one", how will that come out?

[Lee Moore]

And if the claims that the arbitratory-ness of this contract are "wholly groundless" can't be considered sufficient to say "no arbitrator on this one", how will that come out?

Claims that the "arbitratory-ness" of the contract is "wholly-groundless" are irrelevant until their is a legal decision that the claims are or are not subject to arbitration. The question in this case is - who makes that legal decision ? And the answer, provided by SCOTUS, is "whoever the contract says is to make it." And it remands that decision to the courts below.

If the courts below conclude that the contract assigns decisions on whether a contractual dispute is arbitratable then it's for the arbitrator to decide that question, whether or not the court itself thinks the arguments for arbitratability are "wholly groundless." It's simply not the courts decision to decide that (unless the contract itself assigns that decision to the courts rather than the arbitrator.) The courts can't assign that task to themselves, unless they first find that the contract assigns it to them.

Note that Kavanaugh explicitly states that it is perfectly possible for two reasonable adjudicators (ie the arbitrator and the judge) to reach different conclusions on whether a claim is "wholly groundless" so there is no justification for a court to say "wholly groundless in our view, so let's not trouble the arbitrator for his opinion."

[Truthteller1]

But think of the children. Remember the children.

[Eddy]

Those kids are plenty old enough to serve as arbitrators.

[An Innocent Man]

They were right: It's just like The Handmaid's Tale with this guy.

[ReaderY]

A difficulty here is that if the contract really and plainly limits arbitrability and doesn't permit arbitrabilitu of an issue, than the arbitrators' decision can be appealed and the courts can overturn it on that ground.

If it's truly manifest that that is the case, then requiring arbitration and then appeal wastes the time and resources that arbitration was supposed to conserve.

[Lee Moore]

And the point is - as Kavanaugh pointed out - what is truly manifest to one fair minded adjudicator may not be truly manifest to another such adjudicator.

And this case is perhaps not the poster child for "stuff the adjudicator, let the courts decide - it's cheaper that way !"