''First Options of Chicago, Inc. v. Kaplan'', 514 U.S. 938 (1995), was a case decided by the

Supreme Court of the United States The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

on who decides whether a dispute is subject to arbitration, the courts or an arbitrator.

Background

Under the 1924 U.S.

Federal Arbitration Act The United States Arbitration Act (, codified at ), more commonly referred to as the Federal Arbitration Act or FAA, is an act of Congress that provides for judicial facilitation of private dispute resolution through arbitration. It applies in bo ...

and subsequent Supreme Court rulings, there is a strong presumption in favor of arbitration, with the courts generally deferring to the opinions of an arbitrator. This case arose out of disputes over a "workout" agreement, embodied in four documents, which governed the "working out" of debts to First Options of Chicago, Inc. incurred as a result of the

October 1987 stock market crash Black Monday is the name commonly given to the global, sudden, severe, and largely unexpected stock market crash on Monday, October 19, 1987. In Australia and New Zealand, the day is also referred to as ''Black Tuesday'' because of the time zo ...

(and later losses) by Manuel Kaplan, his wife, and his wholly owned investment company, MK Investments, Inc. (MKI). First Options is a firm that clears stock trades on the Philadelphia Stock Exchange. When First Options' demands for payment went unsatisfied, it sought arbitration by a stock exchange panel. MKI, which had signed the only workout document containing an arbitration agreement, submitted to arbitration, but the Kaplans, who had not signed that document, filed objections with the panel, denying that their disagreement with First Options was arbitrable. The arbitrators decided that they had the power to rule on the dispute's merits and ruled in First Options' favor. The District Court confirmed the award, but the

Third Circuit Court of Appeals The United States Court of Appeals for the Third Circuit (in case citations, 3d Cir.) is a federal court with appellate jurisdiction over the district courts for the following districts: * District of Delaware * District of New Jersey * East ...

reversed. The Third Circuit said that courts should independently decide whether an arbitration panel has jurisdiction over a dispute, and that it would apply ordinary standards of review when considering the District Court's denial of the Kaplan's' motion to vacate the arbitration award.

Supreme Court holdings

The Court unanimously agreed with the Third Circuit that arbitrability of the Kaplan—First Options dispute was subject to independent review by the courts. On the narrow question of whether the arbitrators or the courts have the primary power to decide whether the parties agreed to arbitrate a dispute's merits, the Court held that just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question "who has the primary power to decide arbitrability" turns upon whether the parties agreed to submit that question to arbitration. If so, then the court should defer to the arbitrator's arbitrability decision. If not, then the court should decide the question independently. These answers flow inexorably from the fact that arbitration is simply a matter of contract between the parties. Courts generally should apply ordinary state law principles governing contract formation in deciding whether such an agreement exists. However, courts should not assume that the parties agreed to arbitrate arbitrability unless there is "clear and unmistakable" evidence that they did so. The Court also held that courts of appeals should apply ordinary standards when reviewing district court decisions upholding arbitration awards, i.e., accepting

findings of fact In law, a question of law, also known as a point of law, is a question that must be answered by applying relevant legal principles to interpretation of the law. Such a question is distinct from a question of fact, which must be answered by reference ...

that are not "clearly erroneous" but deciding questions of law ''de novo;'' they should not, in those circumstances, apply a special " abuse of discretion" standard. Syllabus, First Options Of Chicago, Inc. V. Kaplan Et Al.
Supreme Court of the United States, No. 94-560. Argued March 22, 1995, Decided May 22, 1995

References

External links

* * {{caselaw source , case = ''First Options of Chicago, Inc. v. Kaplan'', {{ussc, 514, 938, 1995, el=no , cornell =https://www.law.cornell.edu/supct/html/94-560.ZS.html , courtlistener =https://www.courtlistener.com/opinion/117937/first-options-of-chicago-inc-v-kaplan/ , findlaw = https://caselaw.findlaw.com/us-supreme-court/514/938.html , googlescholar = https://scholar.google.com/scholar_case?case=2717778595314053137 , justia =https://supreme.justia.com/cases/federal/us/514/938/ , loc =http://cdn.loc.gov/service/ll/usrep/usrep514/usrep514938/usrep514938.pdf , oyez =https://www.oyez.org/cases/1994/94-560 United States Supreme Court cases United States arbitration case law United States securities case law 1995 in United States case law United States Supreme Court cases of the Rehnquist Court

Background

Supreme Court holdings

See also

References

External links