America

November 01, 2018

US Supreme Court hears oral arguments in cases regarding Federal Arbitration Act


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On October 29, the Federal Arbitration Act (FAA) took center stage at the US Supreme Court as it heard oral arguments in two separate cases involving the statute.

• In the first case, i.e., Henry Schein Inc. v. Archer and White Sales Inc., involving FAA, the question was “Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is ‘wholly groundless’.”

In this case, Henry Schein, Inc. argued that to honor such an agreement, the court must allow the arbitrator to decide gateway questions of arbitrability, even if the case clearly belongs in the court. Henry Schein contended that under the FAA, courts must allow arbitrators to decide the merits of claims delegated to arbitrators by contract, even if the merits are not arguable.

On the other hand, Archer and White Sales, Inc. countered that if a claim to arbitrability is “wholly groundless,” the court does not have to make the arbitrator evaluate the claim. Archer and White asserted that the FAA does not ask courts to compel arbitration when plaintiffs file claims where they clearly belong—in court.

• In the second case, i.e., Lamps Plus Inc. v. Varela, involving FAA, the question was “Whether the Federal Arbitration Act precludes using state law principles of contract interpretation to understand commonly used language in a standard form arbitration agreement as authorizing class arbitrations.” The question as framed for the Court by the Parties was “Whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements.”

Lamps Plus argued that as the FAA requires a contractual basis showing the parties’ intent to arbitrate class actions, the court could not read in an agreement to class arbitration based on language relating to personal disputes. Further, Lamps Plus argued that even if the agreement is ambiguous as to that intent, Supreme Court precedent indicates that courts must resolve such ambiguity in favor of arbitration.

On the other hand, Varela countered that issues of jurisdiction and standing prevent the Supreme Court from deciding this case and that even if the Court were to examine the case on the merits, California contract-law interpretive principles used by the lower court were neutral, applied properly, and thus, permissible.

In addition to these two cases, the Court heard oral arguments in four other cases as well, which included the propriety of cy pres class-action settlements and the immunity afforded to international organizations.

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