## Facts

- First Options of Chicago, Inc., a securities clearing firm, had a dispute arising from debts incurred after the October 1987 market crash by MK Investments, Inc. (MKI) and, allegedly, MKI’s owners Manuel and Carol Kaplan.
- The parties negotiated a “workout” arrangement embodied in four documents.
- Only one document contained an arbitration clause, and only MKI signed that document; the Kaplans did not sign it.
- After MKI later suffered additional losses, First Options liquidated certain MKI assets, demanded immediate repayment of MKI’s debt, and asserted the Kaplans were personally responsible for any deficiency.
- First Options initiated arbitration before a Philadelphia Stock Exchange panel.
- MKI participated in arbitration; the Kaplans objected in writing that their dispute with First Options was not subject to arbitration.
- The arbitration panel ruled it had authority to decide the dispute, and it issued an award in First Options’ favor, including against the Kaplans.
- The Kaplans sought to vacate the award in federal district court; First Options sought confirmation.

## Issues

1. When a party disputes arbitrability, what standard should a court use to review an arbitrator’s determination that the dispute is arbitrable: de novo review or a deferential standard?
2. What standard should a court of appeals apply when reviewing a district court judgment confirming or vacating an arbitration award: a special “abuse of discretion” standard or ordinary appellate standards?

## Decision

- The Supreme Court affirmed the court of appeals.
- Courts must independently decide arbitrability unless there is clear and unmistakable evidence that the parties agreed to submit arbitrability to the arbitrators.
- Because the Kaplans did not clearly agree to arbitrate arbitrability, the arbitrability of their dispute was subject to independent judicial review.
- A party’s participation in arbitration procedures while objecting to arbitrability does not, by itself, establish consent to have arbitrators decide arbitrability.
- Courts of appeals should apply ordinary appellate standards when reviewing district court decisions confirming or vacating arbitration awards (e.g., de novo review of legal questions).

## Legal Principles

- Arbitration is a matter of contract; a party cannot be required to arbitrate issues absent an agreement to do so.
- The “who decides arbitrability” question depends on party consent; courts defer to arbitrators on arbitrability only if the parties agreed to submit that question to arbitration.
- Courts should not presume an agreement to arbitrate arbitrability; the agreement must be shown by “clear and unmistakable” evidence, applying ordinary state-law contract principles.
- Federal policy favoring arbitration supports enforcing agreed arbitration obligations, but it does not substitute for consent to arbitrate arbitrability.
- Appellate review of district court arbitration decisions proceeds under ordinary standards, not a special, heightened deference regime.

## Conclusion

The Court held that, without clear and unmistakable agreement to submit arbitrability to arbitrators, courts decide arbitrability independently, and that appellate courts review district court rulings on arbitration awards under ordinary appellate standards rather than a special abuse-of-discretion approach.


First Options of Chi., Inc. v. Kaplan, 514 U.S. 938 (1995)