Opinion ID: 480157
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Heading: Arbitrability of Claims Under Section 10(b) of the Securities Exchange Act of 1934

Text: 19 This issue currently divides the circuits. The Second, Third, Fifth, Sixth, Seventh, Ninth, Tenth and Eleventh Circuits have adopted a rule of nonarbitrability. 4 The Eighth Circuit, standing alone, has recently ruled that, where the parties agree, arbitration can be allowed. 5 We are persuaded by the result reached by the Eighth Circuit, although for somewhat different reasons, and rule that, where private parties agree to arbitrate a 10b-5 dispute, this agreement is legally enforceable. 20 The Supreme Court, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985), set out the standard by which lower courts are to assess the arbitrability of federal statutory claims. First, it is imperative that the agreement to arbitrate be a valid one, and it is our role to ... remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds 'for the revocation of any contract.'  Id. 105 S.Ct. at 3354 (citing 9 U.S.C. Sec. 2; Southland Corp. v. Keating, 465 U.S. 1, 16, n. 11, 104 S.Ct. 852, 861, n. 11, 79 L.Ed.2d 1 (1984); The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 1916, 32 L.Ed.2d 513 (1972)). We therefore conclude that, because there has been no challenge to the agreement qua agreement in this case, Mitsubishi requires us to give it credence, and forbids indulgent presumptions as to systemic overreaching in the investor-broker context. Id. 105 S.Ct. at 3357. 6 21 Given the existence of a valid agreement to arbitrate, and even where a federal statutory right is involved, the Supreme Court has made clear that it is our obligation to enforce the agreement unless we find that the Congressional intent in enacting the statute was to preclude the waiver of judicial remedies. Mitsubishi, supra, at 3355. The dilemma before us, therefore, is whether Congress, in enacting the Securities Exchange Act of 1934 (1934 Act), intended to preclude parties from agreeing to arbitrate disputes involving Rule 10b-5. 22 In Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), the Supreme Court ruled that, despite the United States Arbitration Act, 9 U.S.C. Sec. 1 et seq., private parties cannot agree to arbitrate disputes arising under Sec. 12(2) of the Securities Act of 1933 (1933 Act), 15 U.S.C. Sec. 771(2) (1982). The Court offered two central justifications for this holding. First, it noted that, in Sec. 22(a) of the 1933 Act, Congress provided individuals an express right of action in federal and state courts, and that therefore, such an express right of action amounted to a provision of the Act that, under Sec. 14, 7 could not be waived. Id. at 434-435, 74 S.Ct. at 186. Second, the Court concluded that Congress regarded the determination of rights under the 1933 Act as an area of vital federal concern that could only be entrusted to the federal courts, the express assumption being that arbitration provides an ineffective forum for the vindication of federal statutory rights. Id. at 435-437, 74 S.Ct. at 186-188. 23 In determining whether the Wilko rule of nonarbitrability should be extended to claims under the 1934 Act, courts have focused on both prongs of the Wilko analysis. Examination of the first prong--i.e., whether the right to a judicial forum can be regarded as a nonwaivable provision of the 1934 Act subject to its similar anti-waiver clause 8 --leads us to conclude that arbitration cannot be barred. As Justice White noted in Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 1244, 84 L.Ed.2d 158 (1985), and as five members of the court observed in Scherk v. Alberto-Culver Co., 417 U.S. 506, 513-514, 94 S.Ct. 2449, 2454, 41 L.Ed.2d 270 (1974), the 1934 Act, unlike the 1933 Act, does not expressly provide individuals a right to a judicial forum. 9 Because of the absence of any express provision for a judicial forum under the 1934 Act, we conclude that the 1934 Act's anti-waiver clause, by itself, does not suffice to indicate a Congressional intent to preclude arbitration. 24 We now address what we regard as the second prong of Wilko, supra. The issue here is whether, due to the legislative history or any other provision of the Securities Act of 1934, we can infer that Congress regarded the securities laws as an area of critical federal import such that the adjudication of such federal statutory rights can only be entrusted to the federal judiciary. For reasons stated more fully below, we reject both the conclusion that Congress' unmistakable intent was to preclude arbitration of 1934 Act claims, as well as the predicate assumption that, with respect to this particular federal statute, arbitration does not provide an effective forum for the resolution of disputes. 25 As to the Congressional intent to preclude arbitration of 1934 Act claims, we cannot deny two central facts. First, Congress expressly provided in the 1934 Act that the jurisdiction of the federal courts is exclusive, thus arguably allowing for the inference that Congress regarded the federal court forum to be an important one. See Conover v. Dean Witter Reynolds, Inc., 794 F.2d 520, 527 (9th Cir.1986). Second, and more importantly, we do not dispute that Congress, in enacting both the 1933 and 1934 Acts, regarded the legislation as establishing significant federal rights in an area of undisputed federal importance. See, e.g., Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194-196, 96 S.Ct. 1375, 1381-1382, 47 L.Ed.2d 668 (1976). 10 26 Given the above realities, as well as our general knowledge of the financial world, we do not believe it reasonable to conclude that the securities laws of this nation are not a matter of federal importance. Neither, however, do we believe it proper after Mitsubishi to hold that the United States Arbitration Act, and the sophisticated commercial arbitration structure which has evolved therefrom, are of any less significance. A balance therefore must be struck, keeping in mind what we consider are certain maxims propounded by Mitsubishi. 27 First, the Mitsubishi Court made clear that the presence of a federal statutory right cannot, without more, prevent private parties from agreeing to arbitrate. Id. 105 S.Ct. at 3354-3355. Thus, it is not enough to find that a federal statute covers an area of federal import. All federal statutes do this, and Mitsubishi teaches that the Arbitration Act, itself a federal statute, deserves at least equal deference. Id. at 3354. 28 The second axiom set forth in Mitsubishi is that, in determining whether federal statutory rights are to be arbitrable, we are not to be influenced by concerns of the alleged inferiority of the arbitral forum in deciding the content of complex federal statutory rights. Id. at 3354, 3357-3358. Thus, we reject the proposition that, after Mitsubishi, courts can consider the alleged ineffectiveness of the arbitral forum in deciding the arbitrability of a federal statutory right. 11 29 The third axiom that we find in Mitsubishi may perhaps serve to distinguish Wilko as well as the Alexander v. Gardner-Denver line of cases. The notion, simply, is that we will not preclude parties from arbitrating disputes involving federal statutory rights unless we find that Congress, either implicitly or explicitly, intended otherwise. Thus, to distinguish Wilko, we rely on the failure of Congress to provide for an express right of action in the 1934 Act. Had Congress regarded an exclusive federal court forum as so critical, it would have been simple for Congress to provide, as it did in the 1933 Act, that individuals be able to bring a cause of action in that forum. To distinguish the Alexander v. Gardner-Denver line of cases, we note the express private right of action contained in the federal statutes at issue there, and that, at least with respect to Alexander and McDonald, the federal statute at issue involved adjudication of the rights of an individual under the Constitution, an inquiry that, with all due respect to arbitration, has historically been the sole province of Article III adjudication. Thus, we regard the central question before us as whether, given the failure of Congress to provide individuals an express right of action under the 1934 Act, it is possible to conclude that the securities laws implicate rights more akin to those present in Alexander, Barrentine, and McDonald, or whether the rights at issue more closely approximate the sort of commercial dispute that, absent a clear indication from Congress to the contrary, we would readily approve as arbitrable. We conclude that disputes involving Rule 10b-5 of the 1934 Act more closely approximate the latter, that a Congressional intent to preclude arbitration of claims arising under the 1934 Act cannot otherwise be readily found, and that therefore, appellants' motion to compel arbitration was improperly denied. 30