Earlier this week, on remand from the Supreme Court, the Fifth Circuit issued its decision in Archer & White Sales, Inc. v. Henry Schein, Inc., No. 16-41674 (5th Cir. Aug. 14, 2019) (click here for a copy of the decision). The decision is a worthwhile read for anyone drafting a sophisticated arbitration clause, particularly if the arbitration clause contains carve-outs or exemptions. The Fifth Circuit issued a carefully-reasoned, thoughtful opinion exploring the language of the arbitration clause.
The clause at issue was construed as delegating arbitrability issues to the arbitrator, and the clause also contained a carve-out provision for certain disputes, including “actions seeking injunctive relief.” The Fifth Circuit, analyzing the intersection of the delegation clause and the carve-out provision, determined that the arbitration agreement delegated arbitrability of all disputes to the arbitrator, except for those disputes within the carve-out. In effect, because of the carve-out, arbitrability disputes regarding injunctive relief are for the court to resolve.
Turning to the arbitrability issue involving injunctive relief, the Fifth Circuit next addressed whether the carve-out provision (“actions seeking injunctive relief”) applied to a lawsuit seeking both damages and injunctive relief. In other words, would the plaintiff’s damage claim go to arbitration, while the plaintiff’s claim for injunctive relief stay in court, or would all claims continue in court? The Fifth Circuit noted that the carve out clause applied to “actions seeking injunctive relief,” and the court reasoned that the entire lawsuit was exempt from arbitration because the action at issue literally was seeking injunctive relief (albeit together with requests for monetary relief.) The Fifth Circuit suggested that different wording in the carve-out clause could have resulted in a different outcome (such as a carve-out for “actions seeking ONLY injunctive relief,” or “actions for injunctive relief in aid of an arbitrator’s award”).
The lesson from the Fifth Circuit’s opinion is that arbitration clauses should be carefully drafted and not merely copied and pasted from other agreements without a close analysis. For example, the AAA has a standard, recommended clause for commercial disputes, available on the AAA’s website and through the AAA’s clause-builder tool. However, if a party desires a broad arbitration clause, I would not use the AAA’s recommended clause. I believe the AAA’s suggested clause could be improved and more carefully drafted. The Fifth Circuit in this new Archer case engages in a close, careful, piercing analysis of the text of the arbitration clause, and I don’t frequently see such a close analysis in other court decisions. I’ve seen other courts enforce sloppily-drafted arbitration clauses, relying on a purported national policy in favor of arbitration. If more courts applied the same thoughtful, careful analysis of the Fifth Circuit, there may be fewer judicial orders compelling arbitration.