Henry Schein, Inc. v. Archer & White Sales, Inc.

Archer and White Sales, Inc. (Archer and White) (plaintiff), a dental-equipment distributor, entered into a distribution agreement with Pelton and Crane, a dental-equipment manufacturer, to distribute its equipment. The agreement contained an arbitration clause that required any disputes arising from the agreement to be resolved in binding arbitration, except for actions seeking injunctive relief and claims related to intellectual property. The agreement also provided that the arbitration was to be conducted under the rules of the American Arbitration Association (AAA). The relationship between the parties eventually soured, and Archer and White sued Pelton and Crane’s successor-in-interest Henry Schein, Inc. (Schein) (defendant) in Texas federal district court alleging violations of federal and state antitrust law and sought money damages and injunctive relief. Schein invoked the Federal Arbitration Act (FAA) and asked the district court to refer the antitrust matter to arbitration. Archer and White objected, arguing that the dispute was not subject to arbitration because its complaint sought injunctive relief, which was excepted in the arbitration clause for claims that must go to arbitration, even if the injunctive relief was sought as a partial relief. Schein countered, arguing that under the FAA, an arbitrator, not the court, must decide whether the dispute was subject to resolution in arbitration. Archer and White responded that Schein’s argument for arbitration was wholly groundless and that therefore the court could resolve the threshold issue of arbitrability. The court agreed, citing precedent from the Fifth Circuit allowing for a “wholly groundless” exception to the FAA rule on deciding arbitrability, and therefore denied Shein’s motion to compel arbitration. Schein appealed.