Law School Case Brief
First Options of Chi., Inc. v. Kaplan - 514 U.S. 938, 115 S. Ct. 1920 (1995)
A party who does not agree to arbitrate will normally have a right to a court's decision about the merits of its dispute. But, where the party agrees to arbitrate, he or she, in effect, relinquishes much of that right's practical value. The party still can ask a court to review the arbitrator's decision, but the court will set that decision aside only in very unusual circumstances, 9 U.S.C.S. § 10, such as an award procured by corruption, fraud, or undue means or where the arbitrator exceeds his powers. The parties bound by the arbitrator's decision are not in manifest disregard of the law.
The clearinghouse cleared stock trades for the investment company, which incurred substantial losses in its trading account. The clearinghouse and the investment company entered into an agreement for repayment of the debt. When the investment company lost additional money, the clearinghouse demanded immediate repayment and insisted that the stock trader and his wife personally pay any deficiency. The clearinghouse sought arbitration under the Arbitration Act, 9 U.S.C.S. § 1 et seq. Neither the stock trader nor his wife had personally signed the repayment agreement. The arbitrators found in favor of clearinghouse in its dispute with the stock trader, his wife, and his wholly owned investment company, for payment of a debt. The award was confirmed by the district court. On appeal, the United States Court of Appeals for the Third Circuit reversed. The couple contesting the arbitrability of the dispute with the clearinghouse in each proceeding.
Was the court of appeals correct in finding that the arbitrability of the dispute between the firm and the couple was subject to independent review by the courts?
The Court affirmed the judgment of the court of appeals. The Court held (1) the record did not show that the stock trader and his wife clearly agreed to have the arbitrators decide the question of arbitrability, (2) the court of appeals correctly held the arbitrability of the dispute between the clearinghouse and the stock trader and his wife was subject to independent review by the courts, and (3) the court of appeals used the proper standard in reviewing the district court's arbitrability determinations by reviewing questions of fact under a clearly erroneous standard and questions of law de novo.
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