Just one order out of the Supreme Court today (1/24/20) - Setting for an encore in an arbitration related case

(ORDER LIST: 589 U.S.)




The application for stay presented to Justice Alito and by him referred to the Court is granted, and the proceedings in the United States District Court for the Eastern District of Texas, case No. 2:12-cv-572, are stayed pending the timely filing and disposition of a petition for a writ of certiorari. Should the petition for a writ of certiorari be denied, this stay shall terminate automatically. In the event the petition for a writ of certiorari is granted, the stay shall terminate upon the sending down of the judgment of this Court.

Justice Ginsburg would deny the application.

Petitioner’s application for stay.

Holding : The “wholly groundless” exception to the general rule that courts must enforce contracts that delegate threshold arbitrability questions to an arbitrator, not a court, is inconsistent with the Federal Arbitration Act and Supreme Court precedent.

Judgment : Vacated and remanded, 9-0, in an opinion by Justice Kavanaugh on January 8, 2019.

The above was the decision of the Supreme Court on January 8, 2019, when it got this case the first time. It decided in favor of the Petitioner, but remanded to the 5th Circuit for decision on a threshold issue. The 5th Circuit ended up doubling down on its previous ruling, so we will have another go around at the Supreme Court.

I should note the previous opinion by the Supreme Court was unanimous.

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Could you explain this one?

To put it as simple as possible for an arbitration related case. :smile:

The Supreme Court ruled on this case during the last term, on January 8, 2019.

Justice Kavanaugh, writing for a unanimous court said:

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, 130 S.Ct. 2772, 177 L.Ed.2d 403 (2010) ; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943–944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (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.

The Supreme Court vacated and remanded at that time, due to the fact that there were some questions regarding the contract between the Petitioner and Respondent that the 5th Circuit needed to answer before applying the Supreme Court’s judgement.

The below quote is from the current Petitioner’s Application for Stay:

This case is no stranger to this Court. See Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524 (2019). It returns to the Court presenting a question that the Court left open in its earlier decision and that has divided appellate courts across the Nation. Earlier this year, the Court held that, under the Federal Arbitration Act, a court may not assess the merits of a question of arbitrability if the parties clearly and unmistakably delegated such questions to an arbitrator, even if the court believed that the argument in favor of arbitrability was “wholly groundless.” See id. at 528. The Court remanded the case, however, for the court of appeals to determine in the first instance whether such a delegation was present in the parties’ arbitration provision. See id. at 531.

On remand, the court of appeals yet again refused to compel arbitration. See App., infra, 1a-14a. It conceded that the parties had clearly and unmistakably delegated questions of arbitrability to the arbitrator. See id. at 6a-7a. But it then held that the presence of a contractual carve-out provision, which exempted certain claims from the scope of the arbitration provision, negated the parties’ otherwise clear and unmistakable intent. See id. at 9a-10a. Accordingly, the court concluded that it had to determine whether the claims at issue fell outside the scope of the arbitration provision – a paradigmatic question of arbitrability – in order to determine whether the parties had agreed to have an arbitrator decide that very question. See id. at 10a-13a.

The court of appeals’ decision defies common sense and deepens a conflict among federal and state appellate courts regarding the effect of a contractual carve-out provision on an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator. One federal court of appeals and one state court of last resort have held that, because the question of scope is itself a question of arbitrability, the arbitrator must decide that question if there is a clear and unmistakable delegation. By contrast, in addition to the court of appeals in the decision below, one other federal court of appeals and one state court of last resort have held that the presence of a carve-out provision necessarily requires a court to determine whether the claims at issue fall within the scope of the arbitration agreement before sending that very question of arbitrability to the arbitrator. As in many other recent cases, this Court’s review is warranted to correct a lower court’s erroneous application of the Arbitration Act and reaffirm the “emphatic federal policy in favor of arbitral dispute resolution.” Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 631 (1985).

So essentially the 5th Circuit refused again to compel arbitration, though it was the clear intent of the Supreme Court decision to compel arbitration. The 5th Circuit instead decided to frame the issue in a way as to get around the Supreme Court’s decision.

What will likely happen here is that the Supreme Court will reaffirm its previous judgement and if necessary send down a Mandumus to the 5th Circuit to order them to compel arbitration.

What does “threshold” mean here?

An arbitrator being the one to decide what requires arbitration doesn’t sound like it can get off the ground, logically speaking. A case of circularity.

In this case, the threshold question was “Did the contract require the arbitrator to decide arbitrarilality?”

As for your second comment, the Supreme Court ruled the Federal Arbitration Act requires EXACTLY that.

As an aside, I am not a fan of compelled arbitration, I prefer to go to court. However, I do believe the Supreme Court is reaching the correct interpretation of the statute. I would like to see this changed, but CONGRESS must modify or repeal the statute.