Archer and White Sales, Inc. v. Henry Schein, Inc., 122117 FED5, 16-41674

Docket Nº:16-41674
Opinion Judge:PATRICK E. HIGGINBOTHAM, CIRCUIT JUDGE.
Party Name:ARCHER AND WHITE SALES, INC., Plaintiff-Appellee v. HENRY SCHEIN, INC., DANAHER CORPORATION, INSTRUMENTARIUM DENTAL INC., DENTAL EQUIPMENT LLC, KAVO DENTAL TECHNOLOGIES LLC, AND DENTAL IMAGING TECHNOLOGIES CORPORATION, Defendants-Appellants
Judge Panel:Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.
Case Date:December 21, 2017
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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ARCHER AND WHITE SALES, INC., Plaintiff-Appellee

v.

HENRY SCHEIN, INC., DANAHER CORPORATION, INSTRUMENTARIUM DENTAL INC., DENTAL EQUIPMENT LLC, KAVO DENTAL TECHNOLOGIES LLC, AND DENTAL IMAGING TECHNOLOGIES CORPORATION, Defendants-Appellants

No. 16-41674

United States Court of Appeals, Fifth Circuit

December 21, 2017

         Appeals from the United States District Court for the Eastern District of Texas

          Before HIGGINBOTHAM, GRAVES, and HIGGINSON, Circuit Judges.

          PATRICK E. HIGGINBOTHAM, CIRCUIT JUDGE.

         Sued by a competitor for antitrust violations, Defendants-Appellants sought to enforce an arbitration agreement. The magistrate judge granted the motion to compel arbitration, holding that the gateway question of the arbitrability of the claims belonged to an arbitrator. The district court reversed, holding it had the authority to rule on the question of arbitrability and the claims at issue were not arbitrable. We now affirm.

         I.

         Five years ago, Plaintiff-Appellee Archer and White Sales, Inc. ("Archer"), a distributor, seller, and servicer for multiple dental equipment manufacturers, brought this suit against Defendant-Appellants Henry Schein, Inc. and Danaher Corporation, allegedly the largest distributor and manufacturer of dental equipment in the United States, and certain wholly-owned subsidiaries of Danaher.

         The suit alleges violations of Section 1 of the Sherman Antitrust Act and the Texas Free Enterprise and Antitrust Act, contending that the Defendants' activities occurred over the preceding four years and are "continuing" violations, and seeking both damages ("estimated to be in the tens of millions of dollars") and injunctive relief.1 The district court referred the case to a United States Magistrate Judge.

         Defendants moved to compel arbitration pursuant to a clause in a contract between Archer and Pelton & Crane, allegedly a Defendant's predecessor-in-interest (the "Dealer Agreement"). The arbitration clause reads as follows:

Disputes. This Agreement shall be governed by the laws of the State of North Carolina. Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Pelton & Crane), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [(AAA)].

         The place of arbitration shall be in Charlotte, North Carolina.

         Following a hearing, the magistrate judge issued a Memorandum Order holding that: (1) the incorporation of the AAA Rules in the arbitration clause clearly evinced an intent to have the arbitrator decide questions of arbitrability; (2) there is a reasonable construction of the arbitration clause that would call for arbitration in this dispute; and (3) the Grigson equitable estoppel test, which both sides agree is controlling in their dispute, required arbitration against both signatories and non-signatories to the Dealer Agreement.2

         The district court vacated the magistrate judge's order and held that the court could decide the question of arbitrability, and that the dispute was not arbitrable because the plain language of the arbitration clause expressly excluded suits that involved requests for injunctive relief. The court declined to reach the question of equitable estoppel.3

         Defendants appealed.4

         II.

         We review a ruling on a motion to compel arbitration de novo.5"Enforcement of an arbitration agreement involves two analytical steps."[6]First, a court must decide "whether the parties entered into any arbitration agreement at all."7 This inquiry is one of pure contract formation, and it looks only at whether the parties "form[ed] a valid agreement to arbitrate some set of claims."8 The next step is to determine "whether [the dispute at issue] is covered by the arbitration agreement."9 Before this step, however, the court must answer a third question: "[w]ho should have the primary power to decide' whether the claim is arbitrable."10 This question turns on "whether the agreement contains a valid delegation clause-'that is, if it evinces an intent to have the arbitrator decide whether a given claim must be arbitrated.'"11

         This determination begins the two-step inquiry adopted in Douglas v. Regions Bank.12 First, whether the parties "clearly and unmistakably" intended to delegate the question of arbitrability to an arbitrator.13 If so, "the motion to compel arbitration should be granted in almost all cases."14 But not "[i]f the argument that the claim at hand is within the scope of the arbitration agreement is 'wholly groundless.'"[15] So Douglas's second step asks whether there is a plausible argument for the arbitrability of the dispute. Where there is no such plausible argument, "the district court may decide the 'gateway' issue of arbitrability despite a valid delegation clause.'"[16]

         The parties agree that the Dealer Agreement contained an arbitration provision, though not whether the arbitration provision applies here.17Specifically, they disagree on whether the court or an arbitrator should decide the gateway question of arbitrability-and relatedly, whether the underlying dispute is arbitrable at all. We turn to the two-step Douglas test.

         A.

         We first ask if the parties "clearly and unmistakably" delegated the issue of arbitrability.[18] Absent a delegation, "the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator."19 "Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question 'who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter.'"20

         A contract need not contain an express delegation clause to meet this standard. An arbitration agreement that expressly incorporates the AAA Rules "presents clear and unmistakable evidence that the parties agreed to arbitrate arbitrability."21 Under AAA Rule 7(a), "the arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement."22

         By the Dealer Agreement, "[a]ny dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of [the predecessor]), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association." The parties dispute the relationship between the carve-out clause-"except for actions seeking injunctive relief and [intellectual property] disputes"-and the incorporation of the AAA Rules.

         The magistrate judge saw three separate parts to the arbitration provision: (1) a general rule compelling arbitration for any dispute related to the agreement, (2) an exemption from arbitration for actions seeking injunctive relief, and (3) a clause incorporating the AAA Rules.23 On this reading, the AAA Rules would apply to all disputes arising under the contract, including those eventually found to fall within the Dealer Agreement's carve-out. The district court disagreed, holding that the carve-out clause removed the disputes from the ambit of both arbitration and the AAA Rules. The district court distinguished Petrofac, where the agreement at issue "did not contain any exclusions[;] [r]ather, it was a standard broad arbitration clause."[24]

         Defendants argue that Petrofac controls; that, by holding otherwise, the district court conflated the issue of whether the dispute is arbitrable with the issue of who decides arbitrability; and that, under the plain language of the clause, disputes about arbitrability do not fall within the carve-out and thus belong to the arbitrator. This court has previously applied Petrofac to arbitration...

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