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Howsam v. Dean Witter Reynolds, Inc.

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Robert W. DiUbaldo

Date Promulgated: December 10, 2002

Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct. 588 (2002)

Court: U.S. Supreme Court

Issue Decided:  Whether interpretation and application of an arbitral organization’s rule that requires parties to commence arbitration within a specified time period involves a question of arbitrability to be resolved by the court or an issue left for the arbitrator to determine?

Dean Witter Reynolds, Inc. (“Dean Witter”) provided investment advice to its client, Karen Howsam.  A dispute arose between the parties concerning the quality of the advice, and Howsam commenced arbitration before the National Association of Securities Dealers (“NASD”) pursuant to an arbitration provision in Dean Witter’s Client Service Agreement.  The clause provided that the parties would arbitrate “all controversies…concerning or arising from…any account, any transaction…, or …the construction, performance or breach of … any … agreement” between the parties.

In order to commence arbitration, Howsam signed the NASD’s Uniform Submission Agreement, which specified that the “matter in controversy” was submitted for arbitration “in accordance with” the NASD’s “Code of Arbitration Procedure”. The Code contained a provision stating that no dispute “shall be eligible for submission…where six (6) years have elapsed from the occurrence or event giving rise to the …dispute.”

After the Uniform Submission Agreement was executed, Dean Witter filed a lawsuit in federal district court seeking a declaration that the dispute was “ineligible for arbitration” because it was not brought within the six-year time period set forth in the Code.  The district court dismissed the action, holding that the NASD arbitrator, not the court, should interpret and apply the Code’s time limit rule.  But the U.S. Court of Appeals for the Tenth Circuit reversed, finding that the operative rule involved a question of the underlying dispute’s arbitrability, which should be decided by the court.

Initially, the Supreme Court recognized that federal circuit courts had reached different conclusions about whether a court or arbitrator should decide the NASD rule at issue.  The Court distinguished between issues of “substantive arbitrability”, which are ordinarily for courts to decide (in the absence of an agreement to the contrary), and issues of “procedural arbitrability”, such as time limit provisions, notice, laches, estoppel and other conditions precedent to arbitration, which are typically for arbitrators to address.  Pursuant to this analysis, the Supreme Court reversed the Tenth Circuit’s decision, holding that the NASD time limit rule is a matter presumptively for the arbitrator to decide, and not the court.  In so ruling, the Supreme Court noted that the relevant arbitration provision did not contain any specific language indicating that the parties intended to leave resolution of the NASD rule to the court, and thus the presumption that courts ordinarily determine questions of arbitrability did not apply to the procedural rule in question.

[1] Rob DiUbaldo is a Partner at Carlton Fields Jorden Burt, whose practices focuses on insurance, reinsurance and commercial litigation and arbitration.