Opinion ID: 458963
Heading Depth: 1
Heading Rank: 4

Heading: arbitrability of disputes between securities dealers involving securities act claims

Text: 12 The Federal Arbitration Act, 9 U.S.C. Secs. 1-14, provides 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. Sec. 2. The arbitration agreement in this matter is found in a rule of the Municipal Securities Rulemaking Board; the Board regulates municipal securities brokers and dealers; appellant and appellee are both members. Appellant does not contest the applicability of the rule, but contends that under Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), claims under sections 12(2) and 15 of the Securities Act are not arbitrable. 13 It is Wilko, of course, that creates a tension between the Arbitration Act and the securities laws. In Wilko, the Court held a pre-dispute arbitration agreement unenforceable with respect to claims under section 12(2) of the Securities Act. The Court relied on section 14, which voids any stipulation ... binding any person acquiring any security to waive compliance with any provision of the Act, and section 12(2) which creates a special federal right to recover. The Court also noted that the purpose of the Securities Act, protection of buyers, would be more effectively secured in judicial proceedings. 346 U.S. at 435, 74 S.Ct. at 186. 14 Under the law of this circuit, however, Wilko does not apply to disputes between two members of the New York Stock Exchange. Tullis v. Kohlmeyer & Co., 551 F.2d 632 (5th Cir.1977). In Tullis, the plaintiffs were two partners in a failed firm and sued the firm and individual members of the firm under several theories, including a claim under section 12(2) of the Securities Act. The court upheld application of an arbitration agreement that invoked the arbitration procedures of the Exchange. 15 The Tullis court relied on section 28(b) of the 1934 Act, 15 U.S.C. Sec. 78bb(b), which provides that nothing in this chapter shall be construed to modify any existing law with regard to exchanges settling disputes among their members. The court found that this provision overcame the nonwaiver provisions of the 1933 Act, and noted that this indicated Congress's intent to preserve a major self-regulatory role for the exchanges. 551 F.2d at 638. The Tullis court also noted that due to the scope of the different remedial provisions in the securities laws, plaintiffs could easily avoid arbitration rules of self-regulatory bodies by stating their disputes in the terms of the 1933 Act. 551 F.2d at 638. 16 We believe that the Tullis decision is controlling. The current version of 15 U.S.C. Sec. 78bb(b) specifically refers to the procedure established by the Municipal Securities Rulemaking Board to settle disputes between municipal securities dealers and municipal securities brokers. This provision indicates that Congress intended that the Municipal Securities Rulemaking Board, and not the federal courts, would settle disputes between the parties in the current action. We can think of no reason, nor does appellant advance one, 2 why disputes between members of a stock exchange should be arbitrable, but disputes between municipal bond dealers should not be. Finally, we note that two members of the Supreme Court have called into question the scope of the Wilko doctrine. Dean Witter Reynolds, Inc. v. Byrd, 105 S.Ct. at 1244 (White, J., concurring) (questioning application of the Wilko doctrine to 1934 Act claims). In Alberto-Culver Co. v. Scherk, 484 F.2d 611, 615-18 (7th Cir.1973), rev'd 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), then Judge Stevens noted in dissent that there have been important developments [i]n the two decades since the Supreme Court considered the collision between the two conflicting policies which made Wilko v. Swan such a close case. We hold, therefore, that the Wilko doctrine does not override the arbitration procedures of the Municipal Securities Rulemaking Board in disputes between two municipal securities dealers.