Howsam v. Dean Witter Reynolds, Inc.

PETITIONER: Howsam
RESPONDENT: Dean Witter Reynolds, Inc.
LOCATION: Lawrence County Courthouse

DOCKET NO.: 01-800
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Tenth Circuit

CITATION: 537 US 79 (2002)
ARGUED: Oct 09, 2002
DECIDED: Dec 10, 2002

ADVOCATES:
Alan C. Friedberg - Argued the cause for the petitioners
Deborah M. Zuckerman - for Trial Lawyers for Public Justice et al. as amici curiae
F. Paul Bland, Jr. - for Trial Lawyers for Public Justice et al. as amici curiae
Kenneth W. Starr - Argued the cause for the respondent
Matthew D. Roberts - Argued the case as amicus curiae, supporting the petitioners
Michael R. Schuster - for Trial Lawyers for Public Justice et al. as amici curiae

Facts of the case

According to Dean Witter Reynolds, Inc.'s standard client agreement, Karen Howsam chose to arbitrate her dispute with the company before the National Association of Securities Dealers (NASD). NASD's Code of Arbitration Procedure section 10304 states 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 suit, asking the Federal District Court to declare the dispute ineligible for arbitration because it was more than six years old. The court dismissed the action, stating that the NASD arbitrator should interpret and apply the NASD rule. In reversing, the Court of Appeals found that the rule's application presented a question of the underlying dispute's arbitrability and the presumption is that a court will ordinarily decide an arbitrability question.

Question

Should a federal district court decide whether to interpret and apply the National Association of Securities Dealers' time-limit rule regarding disputes where six years have elapsed since the event that gives rise to the dispute?

Media for Howsam v. Dean Witter Reynolds, Inc.

Audio Transcription for Oral Argument - October 09, 2002 in Howsam v. Dean Witter Reynolds, Inc.

Audio Transcription for Opinion Announcement - December 10, 2002 in Howsam v. Dean Witter Reynolds, Inc.

John Paul Stevens:

Justice Breyer has an opinion to announce.

Stephen G. Breyer:

This case is Howsam v. Dean Witter concerns an arbitration rule of the National Association of Securities Dealers.

The rules says that no dispute "shall be eligible for submission to arbitration where six years have elapsed from the occurrence or event giving rise to the dispute."

It is a kind of a statute of limitation.

Now, that NASD rule ended up being incorporated into an arbitration agreement that Dean Witter had made with a customer, Karen Howsam and it consequently became relevant to the resolution a dispute between them.

Howsam wanted the dispute submitted to NASD arbitration and Dean Witter thought it was too late that the six years had expired and wanted the whole thing dismissed.

Dean Witter went to court to try to get the judge to interpret that particular rule, and the question before us is who should interpret and apply that six-year rule, the court, which is what Dean Witter claims, or the association arbitrator?

Of course, in a sense we should simply look to the arbitration contract between the parties to decide that question for arbitration is a matter of contract but the contract, when you look quite understandably because this is detail and quite typically simply says nothing about the matter.

So, instead, we have to look to certain court-developed rules for guidance about how we ought to interpret this silence in the contract.

Now, if you look at those rules, almost all of them in the area favor looking to arbitration because the court's cases generally favor arbitration, but there is one rule, an interpretive rule that does not favor arbitration and that is the rule that says the "question of arbitrability itself, i.e., whether or not a matter is arbitrable is a matter for the court to decide unless the parties clearly and unmistakably provide otherwise."

Now, Dean Witter, like the Court of Appeals below, says, "Well, the NASD six-year time limit rule is a rule that stands at the gateway of arbitration."

If you fail the rule, you do not get there, and it adds the application of the NASD rule will decide whether the parties can or cannot proceed to arbitration and for that reason, Dean Witter concludes, application of the NASD rule presents a question of arbitrability presumptively for the court, not for the arbitrator.

But, in our view, the statute of limitations-type question at the NASD rule does not raise a question of arbitrability at least as this court's case law has used that phrase.

The NASD rule does not concern such major threshhold matters as whether the parties are bound at all by an arbitration contract and that is pretty much what this Court is meant by question of arbitrability.

Rather, it concerns a procedural manner tied to the workings of the arbitration process itself.

This Court's precedent, commentary on the manner, common sense, all suggest that this kind of procedural issue directly related to arbitration is better handled by arbitrators and that the Court should presume that the arbitration contract, silent on the point, intends to leave the issue to the NASD arbitrator not to judges to decided.

Now, our opinion spells out in some detail why that is so.

We reverse a decision to the contrary by the Court of Appeals.

Justice Thomas has filed an opinion concurring in the judgment.

Justice O'Connor took no part in the consideration or decision of the case.