The Arbitration Clause: Who Determines its Validity and its Personal and Subject Matter Reach?* – Vol. 6 No. 4

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AuthorHans Smit**

Published: December 1995

United States
Contractual Expansion or Limitation of Judicial Review
Recourse Against Award Generally
Review on the Merits

Description: The United States Supreme Court, in a decision whose otherwise laudable brevity stands in inverse proportion to its importance and analytical deficiencies, has endeavored to answer in substantial measure the questions stated in the heading of this Comment. Regrettably, although Justice Breyer, writing for the whole Court, addressed the problems he discussed with a literary muscularity and directness too rarely found in Supreme Court decisions, the Court’s analysis is, to a large extent, unsatisfactory.

This case involved a dispute between First Options of Chicago, Inc., a firm trading on the Philadelphia Stock Exchange, and three of its customers, Manuel Kaplan, his wife, and their wholly owned investment company (MKI). The trades involved had been effectuated under a “workout” agreement embodied in four documents. MKI had signed the only workout document containing an arbitration clause; but the Kaplans had not.

The arbitrators found all three defendants bound by the arbitration agreement and also found against them on the merits. The Kaplans sought to vacate the award as against them (MKI had agreed to arbitrate), but the District Court confirmed it. The Third Circuit reversed as to the Kaplans individually, finding that they had not agreed to arbitrate. The Supreme Court had granted certiorari to consider two questions: first, whether a court should decide independently whether the arbitration panel had jurisdiction over the merits of the dispute; and second, what standard of review an appellate court should apply in reviewing a district court’s ruling on the issue.

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*Arbitral and Judicial Decisions
**Fuld Professor of Law and Director, Parker School of Foreign and Comparative Law, Columbia University in the City of New York.