Supreme Court Docket Report - 2001 Term, Number 10 / February 25, 2002

Co-authored by Ms Miriam R. Nemetz & Mr Andrew H. Schapiro

The Supreme Court granted certiorari in one case of potential interest to the business community. Securities - Arbitration of Investor Claims - Determination of Eligibility for Arbitration. Section 10304 of the National Association of Securities Dealers Code of Arbitration Procedures ("NASD Code") provides that "[n]o dispute, claim, or controversy shall be eligible for submission to arbitration under this Code where six (6) years have elapsed from the occurrence or event giving rise to the act or dispute, claim, or controversy." The Supreme Court granted certiorari in Howsam v. Dean Witter Reynolds, Inc. (No. 01-800), to decide whether a court or the arbitrator should determine whether a claim seeking arbitration is time-barred under Section 10304.

Karen Howsam opened several securities accounts with Dean Witter Reynolds in 1986. In 1992, Howsam signed a customer agreement in which she agreed to submit for arbitration "all controversies" arising out of her accounts, including "the construction * *** of this or any other agreement." In 1997, Howsam filed a claim against Dean Witter Reynolds with the NASD. As required by the NASD, she executed a submission agreement which stated that the arbitration would be conducted according to the NASD Code.

Dean Witter Reynolds filed a complaint seeking declaratory and injunctive relief in the United States District Court for the District of Colorado, asserting that Howsam's claim was time-barred under the NASD Code and thus non-arbitrable by the NASD. The district court granted Howsam's motion to dismiss, ruling that the arbitrators and not the court should decide whether Howsam's claim was eligible for arbitration.

The Tenth Circuit reversed. 261 F.3d 956 (2001). The court of appeals relied on First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995), in which the Supreme Court held that the issue of arbitrability is for the court to decide unless there is "clear and unmistakable evidence" that the parties agreed to have the arbitrators decide that question. According to the Tenth Circuit, Section 10304 imposes "a substantive limit on the claims that the parties have contracted to submit to arbitration." 261 F.3d at 965 (internal citations and quotation marks omitted). It thus concluded that, under First Options, the application of Section 10304 to Howsam's claim was for the court to decide because the parties had not "'clearly and...