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Smith Currie Oles Morrison

High court decision means arbitrators must decide a case — even without jurisdiction

Tue Jan 22, 2019

Thomas Krider and Daniel Culicover authored the below article which appeared in The Daily Journal of Commerce on January 17, 2019.

Last week, the U.S. Supreme Court clarified the rules surrounding arbitration in the case of Henry Schein Inc. v. Archer & White Sales Inc. It held that courts must compel arbitration if the arbitration agreement delegates the question of arbitration to the arbitrator, even if the arbitrator cannot decide the case.

Many contracts in the construction industry contain arbitration provisions. A common provision in almost every set of arbitration rules published by groups like the American Arbitration Association requires that the arbitrator decide whether the arbitrator or a court will decide the dispute: this is called arbitrability.

For example, the AAA’s Construction Arbitration rules provide that the arbitrator decides “his or her own jurisdiction,” and “the existence, scope, or validity of the arbitration agreement.”

The Supreme Court has repeatedly enforced clauses like the AAA’s. It has found that such provisions require arbitrators to resolve questions of arbitrability. But what happens if the dispute involves issues that the arbitrators have no ability to resolve, like injunctive relief? As it turns out, that doesn’t matter.

In the Henry Schein v. Archer & White case, the court held that an agreement that requires the parties to submit all disputes to an arbitration means just that. In short, if an arbitration agreement requires that arbitrators decide arbitrability, then the court must send the dispute to arbitration. No exception exists for cases where “the court thinks that the argument that the arbitration agreement applies to a particular dispute is wholly groundless.”

The effect of this decision is narrow but important. Contractors, engineers and architects can have certainty that arbitration agreements that delegate arbitrability to the arbitrators will go to arbitration, even if the arbitrator ultimately decides that she does not have jurisdiction to hear the underlying case.