* This order and judgment is not binding precedent, e xcept under the

doctrines of law of the case, res judicata, and col lateral estoppel. The court generally disfavors the citation of orders and judg ments; nevertheless, an order and judgment may be cited under the terms and condi tions of 10th Cir. R. 36.3.

** Honorable Wesley E. Brown, Senior District Judge, U nited States District Court for the District of Kansas, sitting by design ation. 

## F I L E D United States Court of Appeals Tenth Circuit 

### AUG 3 1999 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

FRANK M. SMITH,

Petitioner-Appellant,

v. CURRENCY TRADING INTERNATIONAL INC., MARIE FINE and JOHN DOE,

Respondents-Appellees. No. 98-1311 (D.C. No. 98-B-577) (D. Colo.)

ORDER AND JUDGMENT *

Before ANDERSON and KELLY , Circuit Judges, and BROWN , ** Senior District Judge.

After examining the briefs and appellate record, th is panel has determined unanimously that oral argument would not materiallyassist the determination of-2-

this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). T he case is therefore ordered submitted without oral argument. Frank M. Smith appeals from the district court’s order vacating an arbitration award in his favor. Mr. Smith commence d an NASD arbitration proceeding in 1996 by filing a statement of claim a gainst defendants in which he alleged fraud in connection with currency optioninvestments and sought compensation for his financial losses. Defendants objected to the arbitration, contending that they had no agreement with Mr. Smith to arbitrate. In the face of this objection, the NASD Arbitration Department pro ceeded to arbitrate the dispute, resulting in a substantial monetary award to Mr. Smith. Defendants did not participate in the proceedings except to regist er objections to NASD arbitration jurisdiction. Mr. Smith then filed a motion in district court seeking confirmation of the arbitration award. Defendants filed a cross motionto vacate the award. After a hearing, the court denied Mr. Smith’s motion and granted defendants’ motion, vacating the arbitration award. Our jurisdiction t o hear this appeal arises from 28 U.S.C. § 1291. We review the district court’s decision under traditional standards, accepting findings of fact unless they are clearly erroneous and reviewing legal questions de novo. See First Options of Chicago, Inc. v. Kaplan ,-3-

514 U.S. 938, 947-48 (1995); P&P Indus., Inc. v. Sutter Corp. , No. 98-6358, 1999 WL 339699, at *9 (10th Cir. May 28, 1999). The district court ruled in defendants’ favor because it concluded that, in the face of the challenge to the existence of an ag reement to arbitrate, a judicial determination about the arbitrability of Mr. Smith’ s complaints should have been made before those matters were submitted to arbitration. See Appellant’s App., doc. 7 at 2. Under Section 4 of the Federal Arbitr ation Act, any party “aggrieved by the alleged failure, neglect, or refusal of anot her to arbitrate under a written agreement” may petition the court for an order dire cting arbitration. 9 U.S.C. § 4. On appeal, Mr. Smith contends that the district court’s ruling vacating the arbitration award in this case renders § 4 procedur es mandatory rather than permissive. We disagree with this characterization of the district court’s ruling. The case upon which Mr. Smith relies to maintain that F AA § 4 procedures are permissive, not mandatory, is distinguishable from the facts here. In Standard Magnesium Corp. v. Fuchs , 251 F.2d 455, 458 (10th Cir. 1957), this court he ld that parties need not resort to § 4 procedures in those instances where arbitration can proceed without a court order. As an example o f circumstances where a court order would be needed, we noted a party’s refusal t o appoint an arbitrator where the arbitration agreement provided that each party shall select one. See id. at 458.-4-

This example illustrates that the ruling in Standard Magnesium does not extend to instances where a party disputes the underlying arb itrability of a claim. Further, in light of more recent Supreme Court auth ority, it is clear that Mr. Smith should not have proceeded to arbitration where a clear dispute about the applicability of NASD arbitration jurisdiction was presented. Because the NASD arbitration proceeded in the face of defendant s’ jurisdictional challenge, the arbitrators must have decided that the dispute was arbitrable despite their objections. In First Options of Chicago, Inc. v. Kaplan , a case with similar facts to those presented here, the Supreme Court held that the question of arbitrability “was subject to independent review by the courts.” 514 U.S. at 947. “Courts should not assume that the parties agreed to arbitr ate arbitrability unless there is clear and unmistakable evidence that they did so.” Id. at 944 (quotation omitted). Mr. Smith acknowledges this authority, but argues that a court need not decide the arbitrability question before the arbitration commences. He asserts that, by not participating in the arbitration, defe ndants were taking a chance that a court might later disagree with their positi on. He urges that allowing post-arbitration review of the arbitrability questi on while leaving an arbitration decision in place discourages specious challenges t o arbitration jurisdiction and encourages expeditious and inexpensive resolution of disputes. See Appellant’s Br. at 12. This argument ignores an important reas on behind resolving the-5-

arbitrability question first: the principle “that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration.” See First Options , 514 U.S. at 945. Arbitration is a matter of cont ract, and therefore deciding who is to resolve the parties’ dispute is a critical decision. See id. at 942, 943. Even the laudable goals of discouragi ng baseless claims and the efficient resolution of disputes cannot support an interpretation of the law that essentially compels a party to arbitrate before the matter of arbitrability is decided or risk default. Therefore we agree with the district court that the NASD arbitration panel exceeded its authority by pr oceeding before a judicial determination of arbitrability. In light of our agreement with the district court’s decision, we also agree with defendants that the issue whether there existe d an enforceable agreement to arbitrate is not properly before us. The judgment of the United States District Court for the District of Colorado is AFFIRMED.

Entered for the Court

Stephen H. Anderson Circuit Judge