First Tuesday Update is our monthly take on current issues in commercial disputes, international arbitration, and judgment enforcement. In October 2018, we previewed Henry Schein Inc. v. Archer and White Sales, and said that the "Supreme Court may provide firm guidance on a routine 'gateway' issue—who decides arbitrability—the court or the arbitrator." The Court unanimously decided the case on January 8, 2019. See 139 S. Ct. 524 (2019) (Kavanaugh, J.). The Court held that there is no "wholly groundless" exception to its decision in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995). The Court previously held in First Options that parties may delegate gateway issues to an arbitrator so long as the arbitration agreement does so by "clear and unmistakable evidence." Id. at 944; Henry Schein, Inc., 139 S. Ct. at 530. Before Henry Schein, however, even when a contract delegated gateway issues to an arbitrator, certain Courts of Appeals would still decide arbitrability issues if "the argument for arbitration is wholly groundless." Henry Schein at 529 ("Those courts have reasoned that the 'wholly groundless' exception enables courts to block frivolous attempts to transfer disputes from the court system to arbitration."). In Henry Schein, the Court held that the "wholly groundless" exception was inconsistent with the FAA and the Court's precedent. Id.
Most client alerts and news accounts reported that the Court's Henry Schein decision was clear; the United States is a pro arbitration jurisdiction; and the international arbitration doctrine of kompetenz-kompetenz (an arbitral tribunal's competence to determine its own jurisdiction) is alive and well. Not so fast. The key issue—did the parties actually delegate the gateway issue to an arbitrator—is unclear and now remanded. In Henry Schein, the district court denied a motion to compel arbitration finding that even though the parties had delegated arbitrability, the argument for arbitration was "wholly groundless." The Court of Appeals affirmed. The arbitration provision at issue, however, expressly incorporated the AAA rules, which provide that arbitrators have the power to resolve arbitrability. The provision did not specifically provide that arbitrability is to be determined by an arbitrator. Many commercial contracts are exactly the same—silent on delegation but incorporate tribunal rules that permit an arbitrator to decide its own jurisdiction. The Supreme Court, however, expressed "no view" about whether incorporating the AAA rules "in fact delegated the arbitrability question to an arbitrator." On remand, the Court of Appeals will determine if the parties "clearly" and "unmistakably" delegated arbitrability to an arbitrator.
Whether incorporating an arbitral body's rules delegates arbitrability to an arbitrator has been extensively debated in the American Law Institute's draft Restatement of the US Law of International Commercial and Investor-State Arbitration, which will be presented to the ALI for final approval in May 2019. The chief reporter of the restatement, Professor George A. Bermann, filed an amicus curiae brief, which may have affected the Court. Professor Bermann wrote in his brief: "Although a majority of courts have found the incorporation of rules containing such a provision [satisfies the delegation test], the ALI's Restatement … has concluded, after extended debate, that these cases were incorrectly decided . . . ." Br. at 2.
Practically, this means that where an arbitration provision "clearly" and "unmistakably" delegates arbitrability to an arbitrator, a court may not act. What remains undecided is whether incorporating a tribunal's rules that authorize an arbitrator to decide his or her jurisdiction is a "clear and unmistakable" delegation. Professor Bermann's amicus curiae brief and the draft Restatement assert that incorporation of a tribunal's rules should not satisfy First Options. The tribunal's rules are merely a kompetenz-kompetenz provision—which to be sure confers jurisdiction on an arbitrator to decide its own competence but, Professor Bermann argues, these clauses do not provide exclusive jurisdiction nor deprive courts of their authority. In sum, the view of the Professor, and the draft Restatement for which he is the chief reporter, is that the provision confers non-exclusive, concurrent jurisdiction with national courts to decide gateway issues.
Our prediction is that Courts of Appeals will follow their own precedents, the majority of which say that incorporating by reference tribunal rules that authorize the arbitrator to decide its jurisdiction is clear an unmistakable evidence of delegation. Ultimately, this issue will come to the Court again and maybe then it will be answered. In the interim, as these First Tuesday Updates have discussed before, commercial parties should draft their arbitration provisions deliberately and make clear what they do and do not want. Courts will enforce clear provisions.
 See Restatement (Third) US Law of Int'l Comm. Arb. § 2-8 TD No 4 (2015) ("In theory, parties can make such a clear and unmistakable agreement by incorporating by reference in their arbitration agreement arbitration rules that include language sufficient to foreclose judicial consideration of certain defenses to enforcement of the agreement. Many institutional arbitration rules give the arbitral tribunal the authority to rule on such defenses to enforcement, and specify that the tribunal's award is final and binding. These rules, however, do not expressly give the tribunal exclusive authority over these issues.")