First Options of Chicago, Inc. v. Kaplan

Background

A stock‑trade clearing firm (First Options) and an investment company (MKI) plus Manuel and Carol Kaplan disagreed over debts from the 1987 market crash. MKI had signed one of four workout documents that included an arbitration clause; the Kaplans had not personally signed that document. MKI submitted to arbitration, the Kaplans objected to the arbitrators’ power, and the arbitrators ruled for First Options. A federal district court confirmed the award; the Court of Appeals reversed, finding the Kaplans’ dispute not arbitrable, and the high court reviewed the standards for that decision.

Reasoning

The Court focused on who should decide whether the parties agreed to arbitrate that question. It held that if parties clearly and unmistakably agreed to let arbitrators decide arbitrability, courts must defer to the arbitrator. But courts generally apply ordinary state‑law contract rules to determine whether the parties so agreed, and courts should not presume arbitrators hold that power without clear evidence. On the facts, the Kaplans had not clearly agreed to submit the arbitrability question to arbitration. The Court also said appeals courts should use ordinary standards when reviewing district court decisions that confirm or refuse to vacate arbitration awards, not a special lenient standard.

Real world impact

The decision means judges will often decide whether a party agreed to arbitrate unless the contract clearly assigns that question to an arbitrator. It affects businesses, investors, and lawyers who draft and challenge arbitration clauses. The ruling resolves standards of review but does not decide the case’s underlying contract dispute on the merits.