Opinion ID: 523242
Heading Depth: 2
Heading Rank: 1

Heading: Arbitrability of Federal Claims

Text: 13 Clearly, claims under RICO and Sec. 10(b) of the Exchange Act are arbitrable. The Supreme Court so held in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 (1987). 14 Jeske's Securities Act claim presents a more difficult problem. In Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Supreme Court held that claims under Sec. 12(2) of the Securities Act were non-arbitrable. However, the Supreme Court in McMahon refused to apply Wilko 's holding to preclude arbitration of claims arising under the Exchange Act. Although McMahon did not expressly overrule Wilko, see 482 U.S. at 232-34, 107 S.Ct. at 2341, McMahon repudiated Wilko 's rationale. We conclude that Wilko is no longer good law insofar as it holds that claims under the Securities Act of 1933 are non-arbitrable. 15 The circuits disagree on the question whether Wilko remains binding precedent. Although acknowledging that McMahon has called the rationale of Wilko into question, the Second and Third Circuits still consider Wilko good law. See Chang v. Lin, 824 F.2d 219, 222 (2d Cir.1987); Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 841 F.2d 508, 512 (3rd Cir.1988) (dictum). By contrast, the Fifth Circuit has held that McMahon effectively overruled Wilko, and thus claims under Sec. 12(2) of the Securities Act are arbitrable. Rodriguez De Quijas v. Shearson/Lehman Bros., Inc., 845 F.2d 1296, 1298-99 (5th Cir.1988), cert. granted, --- U.S. ----, 109 S.Ct. 389, 102 L.Ed.2d 379 (1988). See also Noble v. Drexel, Burnham, Lambert, Inc., 823 F.2d 849, 850 n. 3 (5th Cir.1987) (McMahon undercuts every aspect of Wilko v. Swan ...; a formal overruling of Wilko appears inevitable--or, perhaps, superfluous); Peterson v. Shearson/American Express, Inc., 849 F.2d 464, 466 (10th Cir.1988) (In McMahon, the Supreme Court essentially overruled Wilko ). 16 We agree with the Fifth Circuit's opinion in Rodriguez De Quijas. Wilko was premised on a mistrust of arbitration and a suspicion about the competence of arbitral tribunals. See 346 U.S. at 435-37, 74 S.Ct. at 186-88. McMahon, however, declared that Wilko 's assumptions about arbitration no longer have validity: 17 Thus, the mistrust of arbitration that formed the basis for the Wilko opinion in 1953 is difficult to square with the assessment of arbitration that has prevailed since that time. This is especially so in light of the intervening changes in the regulatory structure of the securities laws. Even if Wilko 's assumptions regarding arbitration were valid at the time Wilko was decided, most certainly they do not hold true today for arbitration procedures subject to the SEC's oversight authority. 18 482 U.S. at 232-34, 107 S.Ct. at 2341. The Fifth Circuit has correctly read McMahon as completely undercutting the rationale for the Wilko holding. Rodriguez De Quijas, 845 F.2d at 1299. Thus, Wilko no longer is binding authority on the question of arbitrability of Sec. 12(2) claims under the Securities Act of 1933. 19 We conclude that all of Jeske's federal claims are arbitrable, including the ones arising under the Securities Act. Thus, we must turn to Jeske's assertions that the arbitration clause in the parties' agreement is invalid.