SCOTUS: Arbitrability is for Arbitrator not Court

This week, in what happened to be Justice Kavanaugh's first opinion on the U.S. Supreme Court, an arbitration ruling in a case centered on whether courts can prevent arbitrators from deciding if an issue can be arbitrated at all. Many parties prefer to arbitrate claims because the process is sometimes cheaper and faster than traditional litigation in court which also carries a greater risk of large damages awards by juries. This case arose in a contract dispute between a dental equipment distributor and a manufacturer. Their contract provided that disputes arising from the agreement would be resolved in arbitration, except in instances where one party sought an injunction. The Supreme Court found unanimously in Henry Schein, Inc. v. Archer & White Sales, Inc., that under the Federal Arbitration Act (FAA), a lower court must enforce an arbitration agreement that requires the arbitrator to decide whether a dispute should be decided in arbitration, regardless of the court’s view of the merits of the request for arbitration. When a contract allows arbitrators to decide whether a dispute can be resolved through arbitration, “a court may not override the contract." The holding states the “wholly groundless” exception to arbitrability is inconsistent with the FAA and Court precedent. Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms. The Supreme Court has long held that the FAA allows the parties to a contract to decide whether an arbitration agreement will extend to those gateway questions, explaining that courts must compel arbitration of the gateway questions whenever the agreement includes “clear and unmistakable evidence” that the parties delegated the decision of those questions to the arbitrator. See stories here-- https://bit.ly/2FqySH1 and https://fxn.ws/2M2c41x and opinion here-- https://bit.ly/2CXAgPw

Court requires Citi and UBS to arbitrate auction rate securties case

Brokerages UBS AG and Citigroup must arbitrate a healthcare organization's $234 million auction rate securities claim in a dispute over who a "customer" is for purposes of securities arbitration, according to the U.S. 4th Circuit Court of Appeals. The claimant, Carilion, a network of hospitals in Virginia, was not found a "customer" of either firm under the Financial Industry Regulatory Authority's (FINRA) securities arbitration rules. The court ruled Carilon bought "commodities or services" from a FINRA member that were regulated by industry rules. Carilion's decision to issue auction rate securities was based on advice from UBS and Citi, who were involved in purchasing and reselling them to investors. The Wall Street firms are being blamed for losses when the auction rate securities market failed. The brokerages argued Carilion was not their customer because claims did not "relate to a brokerage account or investment relationship" at either firm. Auction rate securities were highly liquid short-term instruments similar money markets, though with higher returns. The economic crisis prompted Carilion to file for arbitration. The appeals court ruled that though the parties agreed in their contracts with one another to litigate disputes in a New York federal court, this did not did not displace UBS and Citi's arbitration obligation of the claim filed with FINRA. See story at - http://reut.rs/W3n2Fs