Arbitration Day at Supreme Court: Will ‘Super Statute’ Prevail?

The conservative majority hasn’t lost its appetite for defining the contours of arbitration law, two cases that will be argued at the U.S. Supreme Court Oct. 29 show.

An antitrust issue underlies one case, and a workplace data breach underlies the other. But both turn on questions of how to interpret contracts under the Federal Arbitration Act.

In the view of the majority justices, the FAA functions as a “super statute,” plaintiffs’ attorney Deepak Gupta told Bloomberg Law. “It eats other statutes in its path, and it has real sweep.”

These cases and a third already argued show that the court is still interested in the FAA and policing the lower courts’ interpretation of it, Gupta said. He’s the founding principal of Gupta Wessler PLLC, a Washington public interest law firm that represents consumers and workers.

“The big question is whether these cases will mark off any limits in terms of the Supreme Court’s expansive approach to interpreting the act,” Charlotte Garden, a labor law professor at Seattle University, told Bloomberg Law.

Wholly Groundless Exception

The first case up, Henry Schein Inc. v. Archer & White Sales Inc., arises out of an alleged antitrust conspiracy in the dental equipment market.

It presents the court with a circuit split over whether a court can refuse to enforce the parties’ agreement to have an arbitrator decide whether the dispute should be arbitrated by finding the demand for arbitration is “wholly groundless.”

Defense attorney Liz Kramer said she’s watched the circuit split develop and the issue has come up in a number of her cases. Kramer represents businesses in complex litigation for Stinson Leonard Street LLP in Minneapolis, and writes for her firm’s blog Arbitration Nation.

She cites pushback from lower courts, stemming either from confusion or actual resistance on their part. The Supreme Court can clear this up by barring the wholly groundless exception, she said.

But giving arbitrators the power to interpret delegation clauses can lead to bizarre results, Gupta said.

“If you’re going to figure out what the parties’ intent is and how to construe the contract, I’m not sure you can get away with not construing what the delegation clause actually means and what it covers,” he said.

The case shows the need for a “safety valve in the system to prevent things from being sent needlessly to arbitration where it’s rather obvious that they shouldn’t go there,” he said.

Silent on Class Arbitration

The second case, Lamps Plus Inc. v. Varela, asks the court to consider if classwide arbitration is allowed when the arbitration agreement doesn’t expressly permit or forbid it.

Lamps Plus employee Frank Varela filed the case as a class action after his personal information was shared by a fellow employee who fell for a phishing attack. The company sought to resolve the case in individual arbitration, but the courts agreed with Varela that state contract law authorized class arbitration.

The case gives the court the opportunity to create a rule for what language the arbitration provision must contain to bar class arbitration, Kramer told Bloomberg Law.

The Supreme Court has held that class arbitration is so different from individual arbitration that an arbitrator can’t presume the parties agreed to it. It has left unanswered what magic words must be used to show the parties authorized class arbitration.

But to do so the court will have to confront a “pretty thorny federalism problem” the justices have ducked in the past: How can courts police the state’s articulation of its own state contract law? Gupta said.

Garden pointed to a number of recent, closely divided Supreme Court opinions emphasizing that it sees arbitration as a bilateral process.

“The question is whether the court will put its thumb on the scale in favor of bilateral arbitration, or instead let state contract law do its work on a neutral basis,” she said.

Is New Prime Instructive?

The justices heard arguments in another arbitration case, New Prime Inc. v. Oliveira, Oct. 3. It concerns whether independent contractors fall under the FAA’s exemption for transportation workers.

Chief Justice John G. Roberts Jr. and Justice Neil M. Gorsuch raised a few eyebrows during oral arguments by seeming sympathetic to the worker’s position—not their usual stance in arbitration cases.

The case presents a “clash of the titans” between two of the majority’s favorite topics: arbitration and textualism, Kramer said. “In a clash between those two things, this current majority is going to go with textualism, especially where it sees that it is only going to reverse arbitration course for a narrow group of people.”

Gupta stressed the case won’t represent a sea change in its view on arbitration even if it rules for the employee. But it serves as a reminder tough questions lurk in these cases, he said.

The cases are Henry Schein, Inc. v. Archer & White Sales, Inc., U.S., No. 17-1272, argument 10/29/18 and Lamps Plus, Inc. v. Varela, U.S., No. 17-988, argument 10/29/18.