Source: http://supreme.justia.com/cases/federal/us/482/220/case.html
Timestamp: 2013-12-12 19:47:51
Document Index: 472167272

Matched Legal Cases: ['§ 10', '§ 29', '§ 27', '§ 29', '§ 29', '§ 3', '§ 3', 'art. 618', '§ 10', '§ 12', '§ 771', '§ 10', '§ 10', '§ 1', '§ 2', '§ 3', '§ 4', '§ 12', '§ 14', '§ 29', '§ 29', '§ 29', '§ 29', '§ 10', '§ 10', '§ 10', '§ 19']

Shearson/American Express v. McMahon - 482 U.S. 220 (1987) :: Justia US Supreme Court Center
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Shearson/American Express v. McMahon - 482 U.S. 220 (1987)
Case	U.S. Supreme CourtShearson/American Express v. McMahon, 482 U.S. 220 (1987)Shearson/American Express, Inc. v. McMahonNo. 86-44Argued March 3, 1987Decided June 8, 1987482 U.S. 220CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
2. Respondents' Exchange Act claims are arbitrable under the provisions of the Arbitration Act. Congressional intent to require a judicial forum for the resolution of § 10(b) claims cannot be deduced from § 29(a) of the Exchange Act, which declares void an agreement to waive "compliance with any provision of [the Act]." Section 29(a) only prohibits waiver of the Act's substantive obligations, and thus does not void waiver of § 27 of the Act, which confers exclusive district court jurisdiction of violations of the Act, but which does not impose any statutory duties. Page 482 U. S. 221 Wilko v. Swan, 346 U. S. 427, which held that claims arising under the Securities Act of 1933, which has similar anti-waiver and jurisdictional provisions, were not subject to compulsory arbitration under an arbitration agreement, does not control here. That case must be read as barring waiver of a judicial forum only where arbitration is inadequate to protect the substantive rights at issue. Cf. Scherk v. Alberto-Culver Co., 417 U. S. 506. There is no merit to respondents' contention, based on Wilko, that their arbitration agreements effected an impermissible waiver of the Exchange Act's substantive protections. Even if Wilko's assumptions regarding arbitration were valid at the time it was decided -- when there was judicial mistrust of the arbitral process -- such assumptions do not hold true today for arbitration procedures (such as those involved here) subject to the SEC's oversight authority under the intervening changes in the regulatory structure of the securities laws. Nor does the legislative history support respondents' argument that, even if § 29(a) as enacted does not void predispute arbitration agreements, Congress subsequently has indicated that § 29(a) should be so interpreted. Pp. 482 U. S. 227-238.
O'CONNOR, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, POWELL, and SCALIA, JJ., joined, and in Parts I, II, and IV of which BRENNAN, MARSHALL, BLACKMUN, and STEVENS, JJ., joined. BLACKMUN, J., filed an opinion concurring in part and dissenting in part, in which BRENNAN and MARSHALL, JJ., joined, post p. 482 U. S. 242. STEVENS, J., filed an opinion concurring in part and dissenting in part, post p. 482 U. S. 268. Page 482 U. S. 222
Between 1980 and 1982, respondents Eugene and Julia McMahon, individually and as trustees for various pension and profit-sharing plans, were customers of petitioner Shearson/American Page 482 U. S. 223 Express Inc. (Shearson), a brokerage firm registered with the Securities and Exchange Commission (SEC or Commission). Two customer agreements signed by Julia McMahon provided for arbitration of any controversy relating to the accounts the McMahons maintained with Shearson. The arbitration provision provided in relevant part as follows:
Relying on the customer agreements, petitioners moved to compel arbitration of the McMahons' claims pursuant to § 3 of the Federal Arbitration Act, 9 U.S.C. § 3. The District Court granted the motion in part. 618 F.Supp. 384 (1985). The court first rejected the McMahons' contention that the arbitration agreements were unenforceable as contracts of Page 482 U. S. 224 adhesion. It then found that the McMahons' § 10(b) claims were arbitrable under the terms of the agreement, concluding that such a result followed from this Court's decision in Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213 (1985), and the "strong national policy favoring the enforcement of arbitration agreements." 618 F.Supp. at 388. The District Court also held that the McMahons' state law claims were arbitrable under Dean Witter Reynolds Inc. v. Byrd, supra. It concluded, however, that the McMahons' RICO claim was not arbitrable "because of the important federal policies inherent in the enforcement of RICO by the federal courts." 618 F.Supp. at 387.
With respect to respondents' Exchange Act claims, the Court of Appeals noted that, under Wilko v. Swan, 346 U. S. 427 (1953), claims arising under § 12(2) of the Securities Act of 1933 (Securities Act), 48 Stat. 84, 15 U.S.C. § 771(2), are not subject to compulsory arbitration. The Court of Appeals Page 482 U. S. 225 observed that it previously had extended the Wilko rule to claims arising under § 10(b) of the Exchange Act and Rule 10b-5. See, e.g., Allegaert v. Perot, 548 F.2d 432 (CA2), cert. denied, 432 U.S. 910 (1977); Greater Continental Corp. v. Schechter, 422 F.2d 1100 (CA2 1970). The court acknowledged that Scherk v. Alberto-Culver Co., 417 U. S. 506 (1974), and Dean Witter Reynolds Inc. v. Byrd, supra, had "cast some doubt on the applicability of Wilko to claims under § 10(b)." 788 F.2d at 97. The Court of Appeals nevertheless concluded that it was bound by the "clear judicial precedent in this Circuit," and held that Wilko must be applied to Exchange Act claims. 788 F.2d at 98.
The Federal Arbitration Act, 9 U.S.C. § 1 et seq., provides the starting point for answering the questions raised in this case. The Act was intended to "revers[e] centuries of judicial hostility to arbitration agreements," Scherk v. Alberto-Culver Co., supra, at 417 U. S. 510, by "plac[ing] arbitration Page 482 U. S. 226 agreements upon the same footing as other contracts.'" 417 U.S. at 417 U. S. 511, quoting H.R.Rep. No. 96, 68th Cong., 1st Sess., 1, 2 (1924). The Arbitration Act accomplishes this purpose by providing that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Act also provides that a court must stay its proceedings if it is satisfied that an issue before it is arbitrable under the agreement, § 3; and it authorizes a federal district court to issue an order compelling arbitration if there has been a "failure, neglect, or refusal" to comply with the arbitration agreement, § 4.
The Arbitration Act, standing alone, therefore mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command. Page 482 U. S. 227 The burden is on the party opposing arbitration, however, to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue. See id. at 473 U. S. 628. If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent "will be deducible from [the statute's] text or legislative history," ibid., or from an inherent conflict between arbitration and the statute's underlying purposes. See id. at 473 U. S. 632-637; Dean Witter Reynolds v. Byrd, 470 U.S. at 470 U. S. 217.
"The district courts of the United States . . . shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder. "Page 482 U. S. 228
Id. at 347 U. S. 437. Wilko must be understood, therefore, as holding that the plaintiff's waiver Page 482 U. S. 229 of the "right to select the judicial forum," id. at 347 U. S. 435, was unenforceable only because arbitration was judged inadequate to enforce the statutory rights created by § 12(2).
"[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather Page 482 U. S. 230 than a judicial, forum."
We decline to give Wilko a reading so far at odds with the plain language of § 14, or to adopt such an unlikely interpretation of § 29(a). The concern that § 29(a) is directed against is evident from the statute's plain language: it is a concern with whether an agreement "waive[s] compliance with [a] provision" of the Exchange Act. The voluntariness of the agreement is irrelevant to this inquiry: if a stipulation waives compliance with a statutory duty, it is void under § 29(a), whether voluntary or not. Thus, a customer cannot negotiate a reduction in commissions in exchange for a waiver of compliance with the requirements of the Exchange Act, even if the customer knowingly and voluntarily agreed to the bargain. Section 29(a) is concerned, not with whether brokers "maneuver[ed customers] into" an agreement, but with whether the agreement "weaken[s] their ability to recover under the [Exchange] Act." 346 U.S. at 346 U. S. 432. The former is grounds for revoking the contract under ordinary Page 482 U. S. 231 principles of contract law; the latter is grounds for voiding the agreement under § 29(a).
As Justice Frankfurter noted in his dissent in Wilko, the Court's opinion did not rest on any evidence, either "in the record . . . [or] in the facts of which [it could] take judicial notice," that "the arbitral system . . . would not afford the plaintiff the rights to which he is entitled." Id. at 346 U. S. 439. Instead, the reasons given in Wilko reflect a general suspicion of the desirability of arbitration and the competence of arbitral tribunals -- most apply with no greater force to the arbitration of securities disputes than to the arbitration of legal disputes generally. It is difficult to reconcile Wilko's mistrust of the arbitral process with this Court's subsequent Page 482 U. S. 232 decisions involving the Arbitration Act. See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., supra; Dean Witter Reynolds Inc. v. Byrd, 470 U. S. 213 (1985); Southland Corp. v. Keating, 465 U. S. 1 (1984); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U. S. 1 (1983); Scherk v. Alberto-Culver Co., 417 U. S. 506 (1974).
The suitability of arbitration as a means of enforcing Exchange Act rights is evident from our decision in Scherk. Although the holding in that case was limited to international agreements, the competence of arbitral tribunals to resolve § 10(b) claims is the same in both settings. Courts likewise have routinely enforced agreements to arbitrate § 10(b) claims where both parties are members of a securities exchange or the National Association of Securities Dealers (NASD), suggesting that arbitral tribunals are fully capable of handling such matters. See, e.g., Axelrod & Co. v. Kordich, Victor Page 482 U. S. 233 & Neufeld, 320 F.Supp.193 (SDNY 1970), aff'd, 451 F.2d 838 (CA2 1971); Brown v. Gilligan, Will & Co., 287 F.Supp. 766 (SDNY 1968). And courts uniformly have concluded that Wilko does not apply to the submission to arbitration of existing disputes, see, e.g., Gardner v. Shearson, Hammill & Co., 433 F.2d 367 (CA5 1970); Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242 (CA3 1968), even though the inherent suitability of arbitration as a means of resolving § 10(b) claims remains unchanged. Cf. Mitsubishi, 473 U.S. at 473 U. S. 633.
In 1953, when Wilko was decided, the Commission had only limited authority over the rules governing self-regulatory organizations (SROs) -- the national securities exchanges and registered securities associations -- and this authority appears not to have included any authority at all over their arbitration rules. See Brief for Securities and Exchange Commission as Amicus Curiae 14-15. Since the 1975 amendments to § 19 of th