Originially from: World Arbitration and Mediation Review (WAMR) 2003 Vol. 14, No. 2

Supreme Court Rules That Arbitrators Have Sole Authority for Deciding Their
Jurisdiction
By
Daniel Q Posin
Securities Arbitration Editor
The United States Supreme Court on December 10, 2002, decided that National
Association of Securities Dealers arbitrators have the sole authority to ascertain whether claims
are eligible for arbitration under NASD rules. The case overruled a federal appeals court which
granted that power to the courts. Howsam v. Dean Witter Reynolds, Inc., 123 S.Ct. 588 (Dec. 10,
2002).
We have been following this case closely for readers of the WAMR and we recapitulate
here our earlier discussion of the background of the case and then analyze the Court’s decision.
Karen Howsam, a customer of Dean Witter Reynolds, was advised in March and April
1986 to invest in four limited partnerships through two Dean Witter brokers. Howsam remained
a customer of Dean Witter until 1994, when she closed her accounts with Dean Witter and
moved them elsewhere. In 1992, while she was a customer of Dean Witter, Howsam entered
into a standard ACCESS Client Service Agreement. This was drafted by Dean Witter and signed
by both sides. This agreement stated:
The Client agrees that all controversies between the Client and
Dean Witter and/or any of its officers, directors, or employees, present or
former, concerning or arising from (i) any account maintained with Dean
Witter by Client; (ii) any transaction involving Dean Witter and Client,
whether or not such transaction occurred in such account or accounts; or
(iii) the construction, performance or breach of this or any other
agreement between us, whether such controversy arose prior to, on or
subsequent to the date hereof, shall be determined by arbitration before
any self-regulatory organization or exchange of which Dean Witter is a
member. The Client may elect which of these arbitration forums shall
hear the matter...
In addition, the 1992 ACCESS Agreement specified that the Agreement would be construed and
enforced in accordance with the law of the state New York, “without reference to choice of law
doctrine.”
In the spring 1997, Howsam initiated an arbitration proceeding before the National Association
of Securities Dealers concerning Dean Witter’s recommendation that she invest in the four
limited partnerships. The gravamen of Howsam’s complaint was that Dean Witter, through its
agents and brokers Howard and Siler, made material misrepresentations concerning the limited
partnerships. Howsam also alleged that the investments were “unsuitable” for her, given her lack