Henry Schein, Inc. v. Archer & White Sales, Inc.

(Slip Opinion) OCTOBER TERM, 2018 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U.S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
HENRY SCHEIN, INC., ET AL. v. ARCHER & WHITE
SALES, INC.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE FIFTH CIRCUIT
No. 17–1272. Argued October 29, 2018—Decided January 8, 2019
Respondent Archer & White Sales, Inc., sued petitioner Henry Schein,
Inc., alleging violations of federal and state antitrust law and seeking
both money damages and injunctive relief. The relevant contract be-
tween the parties provided for arbitration of any dispute arising
under or related to the agreement, except for, among other things, ac-
tions seeking injunctive relief. Invoking the Federal Arbitration Act,
Schein asked the District Court to refer the matter to arbitration, but
Archer & White argued that the dispute was not subject to arbitra-
tion because its complaint sought injunctive relief, at least in part.
Schein contended that because the rules governing the contract pro-
vide that arbitrators have the power to resolve arbitrability ques-
tions, an arbitrator—not the court—should decide whether the arbi-
tration agreement applied. Archer & White countered that Schein’s
argument for arbitration was wholly groundless, so the District Court
could resolve the threshold arbitrability question. The District Court
agreed with Archer & White and denied Schein’s motion to compel
arbitration. The Fifth Circuit affirmed.
Held: The “wholly groundless” exception to arbitrability is inconsistent
with the Federal Arbitration Act and this Court’s precedent. Under
the Act, arbitration is a matter of contract, and courts must enforce
arbitration contracts according to their terms. Rent-A-Center, West,
Inc. v. Jackson, 561 U.S. 63, 67. The parties to such a contract may
agree to have an arbitrator decide not only the merits of a particular
dispute, but also “ ‘gateway’ questions of ‘arbitrability.’ ” Id., at 68–
69. Therefore, when the parties’ contract delegates the arbitrability
question to an arbitrator, a court may not override the contract, even
if the court thinks that the arbitrability claim is wholly groundless.
2 HENRY SCHEIN, INC. v. ARCHER & WHITE SALES, INC.
Syllabus
That conclusion follows also from this Court’s precedent. See AT&T
Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649–
650.
Archer & White’s counterarguments are unpersuasive. First, its
argument that §§3 and 4 of the Act should be interpreted to mean
that a court must always resolve questions of arbitrability has al-
ready been addressed and rejected by this Court. See, e.g., First Op-
tions of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944. Second, its ar-
gument that §10 of the Act—which provides for back-end judicial
review of an arbitrator’s decision if an arbitrator has “exceeded” his
or her “powers”—supports the conclusion that the court at the front
end should also be able to say that the underlying issue is not arbi-
trable is inconsistent with the way Congress designed the Act. And it
is not this Court’s proper role to redesign the Act. Third, its argu-
ment that it would be a waste of the parties’ time and money to send
wholly groundless arbitrability questions to an arbitrator ignores the
fact that the Act contains no “wholly groundless” exception. This
Court may not engraft its own exceptions onto the statutory text.
Nor is it likely that the exception would save time and money system-
ically even if it might do so in some individual cases. Fourth, its ar-
gument that the exception is necessary to deter frivolous motions to
compel arbitration overstates the potential problem. Arbitrators are
already capable of efficiently disposing of frivolous cases and deter-
ring frivolous motions, and such motions do not appear to have
caused a substantial problem in those Circuits that have not recog-
nized a “wholly groundless” exception.
The Fifth Circuit may address the question whether the contract at
issue in fact delegated the arbitrability question to an arbitrator, as
well as other properly preserved arguments, on remand. Pp. 4–8.
878 F.3d 488, vacated and remanded.
KAVANAUGH, J., delivered the opinion for a unanimous Court.
Cite as: 586 U. S. ____ (2019) 1
Opinion of the Court
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SUPREME COURT OF THE UNITED STATES
_________________
No. 17–1272
_________________
HENRY SCHEIN, INC., ET AL., PETITIONERS v.
ARCHER AND WHITE SALES, INC.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE FIFTH CIRCUIT
[January 8, 2019]
JUSTICE KAVANAUGH delivered the opinion of the Court.
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 dis-
pute arises, the parties sometimes may disagree not only
about the merits of the dispute but also about the thresh-
old arbitrability question—that is, whether their arbitra-
tion 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 ques-
tion to an arbitrator, some federal courts nonetheless will
short-circuit the process and decide the arbitrability ques-
tion themselves if the argument that the arbitration
agreement applies to the particular dispute is “wholly
2 HENRY SCHEIN, INC. v. ARCHER & WHITE SALES, INC.
Opinion of the Court
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” excep-
tion, 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.
I
Archer and White is a small business that distributes
dental equipment. Archer and White entered into a con-
tract with Pelton and Crane, a dental equipment manufac-
turer, to distribute Pelton and Crane’s equipment. The
relationship eventually soured. As relevant here, Archer
and White sued Pelton and Crane’s successor-in-interest
and Henry Schein, Inc. (collectively, Schein) in Federal
District Court in Texas. Archer and White’s complaint
alleged violations of federal and state antitrust law, and
sought both money damages and injunctive relief.
The relevant contract between the parties provided:
“Disputes. This Agreement shall be governed by
the laws of the State of North Carolina. Any dispute
arising under or related to this Agreement (except for
actions seeking injunctive relief and disputes related
to trademarks, trade secrets, or other intellectual
property of [Schein]), shall be resolved by binding ar-
bitration in accordance with the arbitration rules of
the American Arbitration Association [(AAA)]. The
place of arbitration shall be in Charlotte, North Caro-
lina.” App. to Pet. for Cert. 3a.
After Archer and White sued, Schein invoked the Federal
Arbitration Act and asked the District Court to refer the
Cite as: 586 U. S. ____ (2019) 3
Opinion of the Court
parties’ antitrust dispute to arbitration. Archer and White
objected, arguing that the dispute was not subject to arbi-
tration because Archer and White’s complaint sought
injunctive relief, at least in part. According to Archer and
White, the parties’ contract barred arbitration of disputes
when the plaintiff sought injunctive relief, even if only in
part.
The question then became: Who decides whether the
antitrust dispute is subject to arbitration? The rules of
the American Arbitration Association provide that arbitra-
tors have the power to resolve arbitrability questions.
Schein contended that the contract’s express incorporation
of the American Arbitration Association’s rules meant that
an arbitrator—not the court—had to decide whether the
arbitration agreement applied to this particular dispute.
Archer and White responded that in cases where the
defendant’s argument for arbitration is wholly ground-
less—as Archer and White argued was the case here—the
District Court itself may resolve the threshold question of
arbitrability.
Relying on Fifth Circuit precedent, the District Court
agreed with Archer and White about the existence of a
“wholly groundless” exception, and ruled that Schein’s
argument for arbitration was wholly groundless. The
District Court therefore denied Schein’s motion to compel
arbitration. The Fifth Circuit affirmed.
In light of disagreement in the Courts of Appeals over
whether the “wholly groundless” exception is consistent
with the Federal Arbitration Act, we granted certiorari,
585 U. S. ___ (2018). Compare 878 F.3d 488 (CA5 2017)
(case below); Simply Wireless, Inc. v. T-Mobile US, Inc.,
877 F.3d 522 (CA4 2017); Douglas v. Regions Bank, 757
F.3d 460 (CA5 2014); Turi v. Main Street Adoption Servs.,
LLP, 633 F.3d 496 (CA6 2011); Qualcomm, Inc. v. Nokia
Corp., 466 F.3d 1366 (CA Fed. 2006), with Belnap v. Iasis
Healthcare, 844 F.3d 1272 (CA10 2017); Jones v. Waffle
4 HENRY SCHEIN, INC. v. ARCHER & WHITE SALES, INC.
Opinion of the Court
House, Inc., 866 F.3d 1257 (CA11 2017); Douglas, 757
F.3d, at 464 (Dennis, J., dissenting).
II
In 1925, Congress passed and President Coolidge signed
the Federal Arbitration Act. As relevant here, the Act
provides:
“A written provision in . . . a contract evidencing a
transaction involving commerce to settle by arbitra-
tion a controversy thereafter arising out of such con-
tract . . . shall be valid, irrevocable, and enforceable,
save upon such grounds as exist at law or in equity for
the revocation of any contract.” 9 U.S. C. §2.
Under the Act, arbitration is a matter of contract, and
courts must enforce arbitration contracts according to
their terms. Rent-A-Center, 561 U.S., at 67. Applying the
Act, we have held that parties may agree to have an arbi-
trator decide not only the merits of a particular dispute
but also “ ‘gateway’ questions of ‘arbitrability,’ such as
whether the parties have agreed to arbitrate or whether
their agreement covers a particular controversy.” Id., at
68–69; see also First Options, 514 U.S., at 943. We have
explained that an “agreement to arbitrate a gateway issue
is simply an additional, antecedent agreement the party
seeking arbitration asks the federal court to enforce, and
the FAA operates on this additional arbitration agree-
ment just as it does on any other.” Rent-A-Center, 561 U.S.,
at 70.
Even when the parties’ contract delegates the threshold
arbitrability question to an arbitrator, the Fifth Circuit
and some other Courts of Appeals have determined that
the court rather than an arbitrator should decide the
threshold arbitrability question if, under the contract, the
argument for arbitration is wholly groundless. Those
courts have reasoned that the “wholly groundless” excep-
Cite as: 586 U. S. ____ (2019) 5
Opinion of the Court
tion enables courts to block frivolous attempts to transfer
disputes from the court system to arbitration.
We conclude that the “wholly groundless” exception
is inconsistent with the text of the Act and with our
precedent.
We must interpret the Act as written, and the Act in
turn requires that we interpret the contract as written.
When the parties’ contract delegates the arbitrability
question to an arbitrator, a court may not override the
contract. In those circumstances, a court possesses no
power to decide the arbitrability issue. That is true even if
the court thinks that the argument that the arbitration
agreement applies to a particular dispute is wholly
groundless.
That conclusion follows not only from the text of the Act
but also from precedent. We have held that a court may
not “rule on the potential merits of the underlying” claim
that is assigned by contract to an arbitrator, “even if it
appears to the court to be frivolous.” AT&T Technologies,
Inc. v. Communications Workers, 475 U.S. 643, 649–650
(1986). A court has “ ‘no business weighing the merits of
the grievance’ ” because the “ ‘agreement is to submit all
grievances to arbitration, not merely those which the court
will deem meritorious.’ ” Id., at 650 (quoting Steelworkers
v. American Mfg. Co., 363 U.S. 564, 568 (1960)).
That AT&T Technologies principle applies with equal
force to the threshold issue of arbitrability. Just as a court
may not decide a merits question that the parties have
delegated to an arbitrator, a court may not decide an
arbitrability question that the parties have delegated to
an arbitrator.
In an attempt to overcome the statutory text and this
Court’s cases, Archer and White advances four main ar-
guments. None is persuasive.
First, Archer and White points to §§3 and 4 of the Fed-
eral Arbitration Act. Section 3 provides that a court must
6 HENRY SCHEIN, INC. v. ARCHER & WHITE SALES, INC.
Opinion of the Court
stay litigation “upon being satisfied that the issue” is
“referable to arbitration” under the “agreement.” Section
4 says that a court, in response to a motion by an ag-
grieved party, must compel arbitration “in accordance
with the terms of the agreement” when the court is “satis-
fied that the making of the agreement for arbitration or
the failure to comply therewith is not in issue.”
Archer and White interprets those provisions to mean,
in essence, that a court must always resolve questions of
arbitrability and that an arbitrator never may do so. But
that ship has sailed. This Court has consistently held that
parties may delegate threshold arbitrability questions to
the arbitrator, so long as the parties’ agreement does so by
“clear and unmistakable” evidence. First Options, 514
U.S., at 944 (alterations omitted); see also Rent-A-Center,
561 U.S., at 69, n. 1. To be sure, before referring a dis-
pute to an arbitrator, the court determines whether a
valid arbitration agreement exists. See 9 U.S. C. §2. But
if a valid agreement exists, and if the agreement delegates
the arbitrability issue to an arbitrator, a court may not
decide the arbitrability issue.
Second, Archer and White cites §10 of the Act, which
provides for back-end judicial review of an arbitrator’s
decision if an arbitrator has “exceeded” his or her “pow-
ers.” §10(a)(4). According to Archer and White, if a court
at the back end can say that the underlying issue was not
arbitrable, the court at the front end should also be able to
say that the underlying issue is not arbitrable. The dis-
positive answer to Archer and White’s §10 argument is
that Congress designed the Act in a specific way, and it is
not our proper role to redesign the statute. Archer and
White’s §10 argument would mean, moreover, that courts
presumably also should decide frivolous merits questions
that have been delegated to an arbitrator. Yet we have
already rejected that argument: When the parties’ con-
tract assigns a matter to arbitration, a court may not
Cite as: 586 U. S. ____ (2019) 7
Opinion of the Court
resolve the merits of the dispute even if the court
thinks that a party’s claim on the merits is frivolous.
AT&T Technologies, 475 U.S., at 649−650. So, too, with
arbitrability.
Third, Archer and White says that, as a practical and
policy matter, it would be a waste of the parties’ time and
money to send the arbitrability question to an arbitrator if
the argument for arbitration is wholly groundless. In
cases like this, as Archer and White sees it, the arbitrator
will inevitably conclude that the dispute is not arbitrable
and then send the case back to the district court. So why
waste the time and money? The short answer is that the
Act contains no “wholly groundless” exception, and we
may not engraft our own exceptions onto the statutory
text. See Exxon Mobil Corp. v. Allapattah Services, Inc.,
545 U.S. 546, 556−557 (2005).
In addition, contrary to Archer and White’s claim, it is
doubtful that the “wholly groundless” exception would
save time and money systemically even if it might do so in
some individual cases. Archer and White assumes that it
is easy to tell when an argument for arbitration of a par-
ticular dispute is wholly groundless. We are dubious. The
exception would inevitably spark collateral litigation (with
briefing, argument, and opinion writing) over whether a
seemingly unmeritorious argument for arbitration is
wholly groundless, as opposed to groundless. We see no
reason to create such a time-consuming sideshow.
Archer and White further assumes that an arbitrator
would inevitably reject arbitration in those cases where a
judge would conclude that the argument for arbitration is
wholly groundless. Not always. After all, an arbitrator
might hold a different view of the arbitrability issue than
a court does, even if the court finds the answer obvious. It
is not unheard-of for one fair-minded adjudicator to think
a decision is obvious in one direction but for another fair-
minded adjudicator to decide the matter the other way.
8 HENRY SCHEIN, INC. v. ARCHER & WHITE SALES, INC.
Opinion of the Court
Fourth, Archer and White asserts another policy argu-
ment: that the “wholly groundless” exception is necessary
to deter frivolous motions to compel arbitration. Again,
we may not rewrite the statute simply to accommodate
that policy concern. In any event, Archer and White over-
states the potential problem. Arbitrators can efficiently
dispose of frivolous cases by quickly ruling that a claim is
not in fact arbitrable. And under certain circumstances,
arbitrators may be able to respond to frivolous arguments
for arbitration by imposing fee-shifting and cost-shifting
sanctions, which in turn will help deter and remedy frivo-
lous motions to compel arbitration. We are not aware that
frivolous motions to compel arbitration have caused a
substantial problem in those Circuits that have not recog-
nized a “wholly groundless” exception.
In sum, we reject the “wholly groundless” exception.
The exception is inconsistent with the statutory text and
with our precedent. It confuses the question of who de-
cides arbitrability with the separate question of who pre-
vails on arbitrability. When the parties’ contract dele-
gates the arbitrability question to an arbitrator, the courts
must respect the parties’ decision as embodied in the
contract.
We express no view about whether the contract at issue
in this case in fact delegated the arbitrability question to
an arbitrator. The Court of Appeals did not decide that
issue. Under our cases, courts “should not assume that
the parties agreed to arbitrate arbitrability unless there is
clear and unmistakable evidence that they did so.” First
Options, 514 U.S., at 944 (alterations omitted). On re-
mand, the Court of Appeals may address that issue in the
first instance, as well as other arguments that Archer and
White has properly preserved.
The judgment of the Court of Appeals is vacated, and
the case is remanded for further proceedings consistent
with this opinion.
It is so ordered.