Originally from:

Journal of American Arbitration (JAA) - Vol. 2, No. 1

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ARTICLES

Howsam v. Dean Witter Reynolds, Inc.: The United States
Supreme Court Decides that Arbitrators, not the Courts,
Determine Procedural Questions Under the NASD Code of
Arbitration
By William Parker Sanders

I. OVERVIEW
In order to receive investment advice, Karen Howsam agreed to an
arbitration clause contained in a Client Service Agreement she executed
with Dean Witter Reynolds, Inc. (Dean Witter). Sometime between 1986
and 1994, Dean Witter advised Howsam to invest in, and hold, an interest
in four limited partnerships. Howsam alleged Dean Witter misrepresented
the benefits of the investment. As permitted in the arbitration
clause, Howsam chose to arbitrate before the National Association of
Securities Dealers (NASD) and, therefore, agreed to the NASD’s
Uniform Submission Agreement. The Uniform Submission Agreement
required the NASD’s Code of Arbitration to apply. Section 10304 of the
NASD Code of Arbitration precludes arbitration where the event from
which the dispute arose occurred more than six years ago.
Dean Witter filed suit in the United States District Court for the
District of Colorado, requesting the dispute to be declared “ineligible for
arbitration” under section 10304 of the NASD’s Code of Arbitration.
Dean Witter also sought an injunction to prevent Howsam from
proceeding in arbitration. The district court dismissed Dean Witter’s suit,
holding that the NASD arbitrator should consider the NASD code. The
United States Court of Appeals for the Tenth Circuit, however, reversed
by finding the NASD rule presented a question as to the underlining
“arbitrability” of the dispute and thus the court is the proper forum. The
United States Supreme Court reversed the Tenth Circuit and held that
presumptively an NASD arbitrator, and not the court, is to determine
gateway nonsubstantive or procedural questions arising under the
application of NASD rules. Howsam v. Dean Witter Reynolds, Inc., 123
S. Ct. 588 (2002).