Howsam v. Dean Witter Reynolds, Inc.
537 U.S. 79 (2002)
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Rule of Law:
Procedural questions that grow out of an arbitrable dispute and bear on its final disposition, such as the application of time limits, are presumptively for an arbitrator to decide, not a court. The 'question of arbitrability' reserved for judicial determination is limited to narrow gateway issues, such as whether the parties have a valid arbitration agreement or whether a specific type of controversy is covered by that agreement.
Facts:
- Between 1986 and 1994, Dean Witter Reynolds, Inc. (Dean Witter) provided investment advice to its client, Karen Howsam.
- Dean Witter recommended that Howsam purchase and hold interests in four limited partnerships.
- Howsam later alleged that Dean Witter misrepresented the quality and nature of these investments.
- Howsam and Dean Witter's Client Service Agreement contained a clause requiring that 'all controversies' be resolved through arbitration.
- The agreement permitted Howsam to choose the arbitration forum, and she selected the National Association of Securities Dealers (NASD).
- Upon selecting the NASD, Howsam signed a Uniform Submission Agreement, which incorporated the NASD Code of Arbitration Procedure.
- The NASD Code (§10304) included a rule stating that no dispute is eligible for submission to arbitration if six years have passed since the event giving rise to the dispute.
Procedural Posture:
- After Howsam initiated arbitration, Dean Witter filed a lawsuit against her in the U.S. District Court.
- Dean Witter sought a declaratory judgment that the dispute was ineligible for arbitration due to the six-year time limit and an injunction to halt the arbitration proceedings.
- The District Court dismissed Dean Witter's lawsuit, holding that the arbitrator should interpret and apply the NASD rule.
- Dean Witter, as appellant, appealed the dismissal to the U.S. Court of Appeals for the Tenth Circuit.
- The Tenth Circuit reversed the District Court's decision, finding that the application of the time limit was a question of arbitrability for the court to decide.
- Howsam, as petitioner, successfully petitioned the U.S. Supreme Court for a writ of certiorari.
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Issue:
Does the application of a contractual time limit for submitting a dispute to arbitration, such as the NASD's six-year eligibility rule, present a 'question of arbitrability' that is presumptively for a court to decide, rather than an arbitrator?
Opinions:
Majority - Justice Breyer
No. The application of the NASD's time limit rule is not a 'question of arbitrability' for a court to decide; it is a procedural issue for the arbitrator. The Court distinguishes between gateway 'questions of arbitrability,' which are for judicial determination, and 'procedural questions,' which are presumptively for the arbitrator. Questions of arbitrability are narrowly defined to include disputes about whether the parties are bound by an arbitration clause or whether that clause applies to a particular type of controversy. In contrast, procedural questions—such as allegations of waiver, delay, or failure to meet a condition precedent like a time limit—are considered to 'grow out of the dispute' and are properly decided by the arbitrator. The NASD's six-year eligibility rule is a procedural condition precedent, not a question of substantive arbitrability. Furthermore, NASD arbitrators have superior expertise in interpreting their own rules, and the NASD Code itself grants them the power to interpret all of its provisions.
Concurring - Justice Thomas
I concur in the judgment. The outcome is correct, but the majority's reasoning is unnecessarily complex. The Client Service Agreement contains a choice-of-law provision specifying that it will be construed under New York law. The New York Court of Appeals has already held that the application of this specific NASD time limit rule is a question for the arbitrator. Under the Federal Arbitration Act, as interpreted in Volt Information Sciences, Inc., courts must enforce the parties' agreement according to its terms, including the choice-of-law provision. Therefore, New York law controls, and the issue is for the arbitrator to decide.
Analysis:
This decision significantly clarifies the division of labor between courts and arbitrators under the Federal Arbitration Act. It narrows the scope of gateway issues that courts may decide, confining judicial review to fundamental questions of contract formation and scope. By classifying time limits and other conditions precedent as 'procedural arbitrability' for the arbitrator, the ruling strengthens the authority of arbitral bodies and limits the ability of parties to use litigation to delay or avoid arbitration. This reinforces the federal policy favoring arbitration by ensuring that once a dispute is properly in arbitration, procedural defenses are handled within that forum, promoting efficiency and reliance on arbitrator expertise.
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