U.S. Supreme Court Holds A Court, Not An Arbitrator, Decides If Exception To Federal Arbitration Act Applies

In its unanimous opinion filed on January 15, 2019, the U.S. Supreme Court addressed the question, “When a contract delegates questions of arbitrability to an arbitrator, must a court leave disputes over the application of §1’s exception for the arbitrator to resolve?”

In answering that question, the U.S. Supreme Court stated: “While a court’s authority under the Arbitration Act to compel arbitration may be considerable, it isn’t unconditional. If two parties agree to arbitrate future disputes between them and one side later seeks to evade the deal, §§3 and 4 of the Act often require a court to stay litigation and compel arbitration “accord[ing to] the terms” of the parties’ agreement. But this authority doesn’t extend to all private contracts, no matter how emphatically they may express a preference for arbitration.”

“Instead, antecedent statutory provisions limit the scope of the court’s powers under §§3 and 4. Section 2 provides that the Act applies only when the parties’ agreement to arbitrate is set forth as a “written provision in any maritime transaction or a contract evidencing a transaction involving commerce.” And §1 helps define §2’s terms. Most relevant for our purposes, §1 warns that “nothing” in the Act “shall apply” to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Why this very particular qualification? By the time it adopted the Arbitration Act in 1925, Congress had already prescribed alternative employment dispute resolution regimes for many transportation workers. And it seems Congress “did not wish to unsettle” those arrangements in favor of whatever arbitration procedures the parties’ private contracts might happen to contemplate. Circuit City Stores, Inc. v. Adams, 532 U. S. 105, 121 (2001).”

Delegation Clause

A delegation clause gives an arbitrator authority to decide even the initial question whether the parties’ dispute is subject to arbitration. The U.S. Supreme court stated: “Unless a party specifically challenges the validity of the agreement to arbitrate, both sides may be required to take all their disputes—including disputes about the validity of their broader contract—to arbitration.” (emphasis added)

The U.S. Supreme Court stated: “[a] delegation clause is merely a specialized type of arbitration agreement, and the Act “operates on this additional arbitration agreement just as it does on any other” … So a court may use §§3 and 4 to enforce a delegation clause only if the clause appears in a “written provision in . . . a contract evidencing a transaction involving commerce” consistent with §2. And only if the contract in which the clause appears doesn’t trigger §1’s “contracts of employment” exception. In exactly the same way, the Act’s severability principle applies only if the parties’ arbitration agreement appears in a contract that falls within the field §§1 and 2 describe.”

The U.S. Supreme Court held: “Given the statute’s terms and sequencing, we agree with the First Circuit that a court should decide for itself whether §1’s “contracts of employment” exclusion applies before ordering arbitration. After all, to invoke its statutory powers under §§3 and 4 to stay litigation and compel arbitration according to a contract’s terms, a court must first know whether the contract itself falls within or beyond the boundaries of §§1 and 2. The parties’ private agreement may be crystal clear and require arbitration of every question under the sun, but that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.

Source New Prime Inc. v. Oliveira, 586 U. S. ____ (2019).

In its opinion filed one week earlier, on January 8, 2019, the U.S. Supreme Court had held: “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.”

The U.S. Supreme Court in the earlier case stated: “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 … [t]o be sure, before referring a dispute 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.”

The U.S. Supreme Court further stated: “When the parties’ contract assigns a matter to arbitration, a court may not 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.”

The U.S. Supreme Court held in its January 8, 2019 opinion: “we reject the “wholly groundless” exception. The exception is inconsistent with the statutory text and with our precedent. It confuses the question of who decides arbitrability with the separate question of who prevails on arbitrability. When the parties’ contract delegates the arbitrability question to an arbitrator, the courts must respect the parties’ decision as embodied in the contract.”

Source Henry Schein, Inc. v. Archer & White Sales, Inc., 586 U. S. ____ (2019).

How may the January 15, 2019 U.S. Supreme Court opinion be important in the context of a nursing home arbitration agreement wherein a resident of the nursing home agrees to arbitrate disputes that may arise, including nursing home negligence claims that result in injury to a resident?

For example, the Nebraska Supreme Court held in its opinion filed on June 15, 2018 that: (1) in the absence of a contractual provision evidencing clear and unmistakable intent to the contrary, the issue of whether an arbitration agreement is enforceable is for a court to decide and not an arbitrator, and (2) the district court did not err in determining that the nursing home arbitration agreement at issue in the case was not binding upon the resident or her estate: “The FAA makes arbitration agreements ‘valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.’ Under § 2 of the FAA, arbitration agreements can be declared unenforceable ‘upon such grounds as exist at law or in equity for the revocation of any contract,’ including contract defenses like fraud or unconscionability. State law governs the formation of contracts, as well as the validity, revocability, and enforceability of contracts generally. The U.S. Supreme Court has declared that state contract law applies to contracts with arbitration agreements governed by the FAA.”

The Nebraska Supreme Court held: “Recognizing that direct evidence is not required in fraud cases, and viewing the evidence in the light most favorable to [the plaintiff], we find [the plaintiff] satisfied each element required for a claim of fraudulent representation and the determination that the ADR Agreement is not binding upon [the resident]. We conclude from our review that the evidence supports the outcome reached by the district court.”

Cullinane v. Beverly Enterprises – Nebraska, Inc., 300 Neb. 210.

If you or a loved one suffered injuries (or worse) while a resident of a nursing home in the United States due to nursing home neglect, nursing home negligence, nursing home abuse, nursing home under-staffing, or the nursing home failing to properly care for a vulnerable adult, you should promptly find a nursing home claim lawyer in your U.S. state who may investigate your nursing home claim for you and file a nursing home claim on your behalf or behalf of your loved one, if appropriate.

Click here to visit our website to be connected with medical malpractice attorneys (nursing home claim attorneys) in your U.S. state who may assist you with your nursing home claim, or call us toll-free in the United States at 800-295-3959.

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This entry was posted on Friday, January 18th, 2019 at 5:26 am. Both comments and pings are currently closed.

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