U.S. Supreme Court holds that arbitrators should decide timeliness of securities dispute.

Byline: David Ziemer

Whether a securities dispute was timely submitted for arbitration to the National Association of Securities Dealers (NASD) is for the arbitrator to decide, rather than a court, the United States Supreme Court held on Dec. 10.

At some time between 1986 and 1994, Dean Witter Reynolds, Inc. (Dean Witter), recommended to its client, Karen Howsam, that she buy and hold interests in four limited partnerships. According to a dispute filed by Howsam in 1997, Dean Witter misrepresented the virtues of the partnerships.

The parties had a standard Client Service Agreement, with an arbitration clause providing: "all controversies ... concerning or arising from ... any account ... , any transaction ... , or ... the construction, performance or breach of ... any ... agreement between us ... shall be determined by arbitration before any self-regulatory organization or exchange of which Dean Witter is a member."

The agreement also provides that Howsam can select the arbitration forum, and Howsam chose arbitration before the NASD.

NASD Code 10304 provides that no dispute, "shall be eligible for submission ... where six (6) years have elapsed from the occurrence or event giving rise to the ... dispute."

Dean Witter filed a suit in federal district court in Colorado, asking the court to declare that the dispute was ineligible for arbitration because it was more than six years old.

The district court dismissed the action, holding that the NASD arbitrator, not the court, should interpret and apply the NASD rule. On appeal, however, the Court of Appeals for the Tenth Circuit, reversed, holding that the district court was the proper forum.

The U.S. Supreme Court granted certiorari, and reversed the Tenth Circuit in a decision by Justice Stephen Breyer that agreed with the district court that the issue is for the arbitrator to decide.

The Question of Arbitrability

The court acknowledged the general rule that an issue on whether parties have submitted a particular dispute to arbitration Co the "question of arbitrability" Co is an issue for judicial determination unless the parties clearly and unmistakably provide otherwise, citing AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649 (1986).

The court further acknowledged prior precedent holding various arbitrability issues to be the province of the courts: whether an arbitration contract bound parties who did not sign the agreement; whether an arbitration agreement survived a...