First Options of Chicago, Inc. v. Kaplan

Supreme Court of the United States · 1995 · Contracts

514 U.S. 938 (1995)

Updated July 26, 2026

ContractsArbitrationFAAarbitrabilitydelegationclear and unmistakable evidencede novo reviewordinary standards of review

Facts

First Options had disputes with MK Investments, Inc. and with Manuel and Carol Kaplan arising from a workout agreement after trading losses. MKI signed the only one of four workout documents containing an arbitration clause and accepted arbitration, but the Kaplans did not personally sign that document and objected in writing to arbitration before the panel. The arbitrators nonetheless decided they could rule on the dispute and entered an award for First Options. The key dispute before the Court was not the merits, but whether the Kaplans had agreed to let arbitrators decide arbitrability and what standards courts should use in reviewing those decisions.

Issue

When arbitrators decide whether parties agreed to arbitrate, should courts review that arbitrability decision deferentially or independently when the resisting party argued arbitrability to the arbitrators? And when a court of appeals reviews a district court decision confirming or refusing to vacate an arbitration award, should it apply ordinary review standards or a special abuse-of-discretion standard?

Rule

A court must defer to an arbitrator's decision on arbitrability only if the parties agreed to submit the arbitrability question itself to arbitration. Courts decide whether such an agreement exists by applying ordinary state-law principles of contract formation, but they should not assume the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence of that agreement. Courts of appeals reviewing district court decisions confirming or refusing to vacate arbitration awards apply ordinary standards of appellate review, not a special arbitration-specific abuse-of-discretion standard.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Orion Field Services and Dana Mercer signed a consulting agreement requiring arbitration of payment disputes. The agreement said nothing about who would decide whether a claim was arbitrable. When Orion filed arbitration over an alleged noncompete breach, Dana objected that the claim was outside the agreement, but the arbitrator ruled that arbitrability was for the panel and then reached the merits.

If Dana asks a court to vacate the award on the ground that she never agreed to let the arbitrator decide arbitrability, what standard should the court use to review the arbitrator's arbitrability ruling?

Explanation. A court defers to an arbitrator's ruling on arbitrability only if the parties agreed to submit that gateway question itself to arbitration. Absent clear and unmistakable evidence of such an agreement, the court decides arbitrability independently. Silence about who decides arbitrability is not enough to require deference. (Derived from First Options of Chicago, Inc. v. Kaplan (1995).)