Abstract: Fifth Circuit finds no clear and unmistakable intent to delegate arbitrability to the arbitrators for issues subject to a carve-out in the arbitration clause – Archer and White Sales, Inc. v. Henry Schein, Inc., No. 16-41674 (5th Cir. Aug. 14, 2019).

In January 2019, the United States Supreme Court determined that the “wholly groundless” exception to enforcing an arbitration agreement, upon which the motion to compel arbitration in this case had previously been denied, was inconsistent with the Federal Arbitration Act (the “FAA”). Rather, the Supreme Court held that so long as the relevant agreement clearly and unmistakably delegates questions of arbitrability to the arbitrators, courts are required to enforce that agreement and compel arbitration. The Supreme Court remanded for further proceedings whether the arbitration agreement at issue in this case in fact delegated the threshold arbitrability question to the court or to the arbitrator. On remand, therefore, the Fifth Circuit reviewed the issue de novo in light of the Supreme Court’s instruction.

Plaintiff-Appellee Archer and White Sales, Inc. had originally brought this antitrust suit against Defendant Appellants Henry Schein, Inc., Danaher Corporation, and other subsidiaries seeking monetary damages and injunctive relief. The arbitration clause in this case provided, in relevant part, that “[a]ny 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 Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association (AAA).”

The parties agreed that there was a valid arbitration clause and the Fifth Circuit recognized that incorporation of the AAA rules is “clear and unmistakable evidence” of an intent to arbitrate the issue of arbitrability. But the central question for the court, and the dispute between the parties, was the interplay between the carve-out and the delegation of arbitrability. The court ultimately concluded, based on the specific wording of the provision in this case, that the delegation of arbitrability to the arbitrator did not apply to issues subject to the carve out. Specifically, the court noted that in Crawford Prof’l Drugs, Inc. v. CVS Caremark Corp. it had held that an arbitration agreement with a carve out for injunctive relief for breach of the agreement had delegated the question of arbitrability for all issues to the arbitrator. But the court found that ordering of words in this particular clause, the placement of the carve out before the delegation, was dispositive. The plain language and most natural reading of the provision incorporates the AAA rules for all disputes except those under the carve-out.

After the court determined that it had the power to determine arbitrability, it reviewed the determination that the instant action was not subject to mandatory arbitration. Focusing again solely on the wording of the provision, the Fifth Circuit held that the arbitration clause’s plain language excluded from mandatory arbitration any action seeking injunctive relief. The carve-out provision referred simply to “actions seeking injunctive relief” and not, for example, “actions seeking only injunctive relief” or only to “claims for injunctive relief” so that the carve-out would be more limited. Refusing to re-write the parties’ agreement, the Fifth Circuit would not incorporate limits not found within the four corners of the agreement and refused to send even only those claims seeking monetary damages to arbitration. Similarly, the court rejected concerns that a party could then avoid arbitration by tacking on a request for injunctive relief as this is what the plaint terms of the agreement allowed. The court thus affirmed the district court’s order denying Defendants’ motion to compel arbitration.

Allen Al-Haj of the Dallas office contributed to this summary.

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