COVID-19 UPDATE from Bellas & Wachowski

Articles Tagged with Arbitration Clause

An arbitration agreement is a contract, in which two or more parties agree to settle a dispute outside of court.  Usually, an arbitration agreement is a clause in a larger contract. The arbitration clauses are often subjects to hotly disputed litigation, stemming from the vague verbiage and possible inconsistencies with other parts of the contract.  One of such issues – the admissibility of the “Wholly Groundless Exception” – was decided by the Supreme Court in January in the case of Henry Schein, Inc. v. Archer & White Sales, Inc , 586 U.S. __ (Jan. 8, 2019).  This is a tricky issue for those in the trucking industry who include arbitration clauses in their contracts with drivers.

What Is A Wholly Groundless Exception?

A “wholly groundless exception” was born out of the “delegation clauses” ordinarily found in arbitration agreements.  A delegation clause represents an agreement between parties that an arbitrator, not the court, will determine the threshold issues of enforceability of the arbitration clause and the scope of the arbitration agreement.  In other words, it is up to an arbitrator to decide whether, according to the contract or the rule of law, an issue may be decided by arbitration or needs to be determined by a judge.  These clauses were held to be valid by the Supreme Court in 2010 in Rent-A-Center, West, Inc. v. Jackson, 561 US 63 (2010). Since then, several circuits decided that this provision must be limited; thus creating a so-called “wholly groundless exception” to the delegation clause. This exception lets parties avoid compelling arbitration in cases where the claims are so obviously not within the scope of the agreement, that it would be a waste of time to go through arbitration before filing a lawsuit.