Court Opinion

ID: 8943585
Source: CourtListenerOpinion
Date Created: 2022-11-27 08:09:21.681408+00
Date Added: 2024-06-11T17:09:47.681203
License: Public Domain

ADAMS, Circuit Judge,
concurring in part and dissenting in part.
These appeals question whether a party may insist on arbitration, pursuant to a predispute agreement, of a claim for relief under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission or under the Racketeer Influenced and Corrupt Organizations Act (RICO). I agree with the majority’s disposition of the nonstatutory issues presented in the case, and, because of controlling precedent in this Circuit, I also agree that claims asserted under § 10(b) and Rule 10b-5 are not arbitrable. However, unlike the majority, I would hold that all RICO actions may be submitted to arbitration pursuant to the parties’ valid agreement. Because my views differ from those expressed by the majority, I write separately.
*1204I.
The question whether Rule 10b-5 actions against brokerage firms may be submitted to arbitration pursuant to a contractual agreement necessitates an analysis of a number of statutes and judicial decisions.
An appropriate starting point is the Federal Arbitration Act, 9 U.S.C. § 1 et seq. (1982), which sets forth a federal policy favoring agreements to arbitrate. Section 2 provides, in part, that so long as the contract evidences a transaction involving commerce it “shall be valid, irrevocable, and enforceable, save upon any grounds as exist at law or in equity for the revocation of any contract.” Section 3 requires that the district court stay pending actions where arbitration is appropriately invoked.
Despite the Federal Arbitration Act, passed in 1925, the Supreme Court held in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), that claims for relief under the antifraud provision in § 12(2) of the Securities Act of 1933, 15 U.S.C. § 111(2) (1982), may proceed in a judicial forum regardless of any arbitration agreement between the parties. The Court reasoned that “§ 12(2) created a special right to recover for misrepresentation which differs substantially from the common-law action in that the seller is made to assume the burden of proving lack of scienter.” 346 U.S. at 431, 74 S.Ct. at 184. In addition, the Supreme Court noted, the 1933 Act affords plaintiffs a choice of state or federal judicial forums, a broad choice of venue, and nationwide service of process. Id.; see § 22(a) of the 1933 Act, 15 U.S.C. § 77v(a) (1982). Because an agreement to arbitrate waives these procedural protections, the Court asserted, it violates the 1933 Act’s “non-waiver” clause:
Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.
§ 14, 15 U.S.C. § 77n (1982).
The Wilko Court explained that arbitration proceedings may lessen the protection Congress aimed to provide to investors through the Securities Act. “As then-award may be made without explanation of their reasons and without a complete record of their proceedings, the arbitrators’ conception of the legal meaning of such statutory requirements as ‘burden of proof,’ ‘reasonable care’ or ‘material fact’ ... cannot be examined.” 346 U.S. at 436, 74 S.Ct. at 187.
Section 10(b) of the 1934 Act is similar in many respects to § 12(2) of the 1933 Act, and the 1934 statute includes a non-waiver provision virtually identical to that found in the 1933 Act and relied upon in Wilko. See § 29(a) of the 1934 Act, 15 U.S.C. § 78cc(a) (1982). Further, the 1934 Act, like the earlier statute, contains special procedural rules, including exclusive federal jurisdiction and nationwide service of process. § 27 codified at 15 U.S.C. § 78aa (1982). Thus, it could be argued that the Wilko holding, when logically extended, bars compelled arbitration of suits based on Rule 10b-5.
However, in Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, 41 L.Ed.2d 270 (1974), a majority of five justices outlined a “colorable argument” that Wilko does not apply to Rule 10b-5 claims. Id., 417 U.S. at 513, 94 S.Ct. at 2454. The Court stressed that unlike § 12(2), which provides an express right of action, the action based on § 10(b) and Rule 10b-5 is merely implied. In interpreting an implied cause of action, the Court suggested, a finding of congressional intent to create an exception to the Arbitration Act may not be warranted. Id. at 513-14, 94 S.Ct. at 2454-55. The four dissenting justices disagreed, arguing that the holding of nonarbitrability in Wilko required a similar result under the 1934 Act. Id. at 525, 94 S.Ct. at 2459. In any event, the majority chose not to resolve the issue, since the case at hand involved a “truly international agreement” implicating unique policies and considerations of comity. Id. at 515, 94 S.Ct. at 2455.
Despite the reservations expressed by the Supreme Court in Scherk, two years later this Court held that Rule 10b-5 claims *1205are not susceptible to arbitration agreements. Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 538 F.2d 532, 536 (3d Cir.1976), cert. denied, 429 U.S. 1010, 97 S.Ct. 542, 50 L.Ed.2d 619 (1976). Although Ayres’ consideration of the Rule 10b-5 issue was at best an alternative basis of the result reached, the Rule 10b-5 determination subsequently has been cited in this circuit as an independent and controlling holding. Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923, 940 n. 17 (3d Cir.1985).
The Court in Ayres stated that it was not “persuaded that either the differences between the rights granted in the 1933 and 1934 Acts or any consideration of policy” warrants a distinction between the express cause of action under § 12(2) and the implied right under § 10(b). Id. at 536. Similarly, in other circuits there has been “an almost universal tendency in these decisions to distinguish Scherk,” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore, 590 F.2d 823, 828 (10th Cir.1978), and to follow Wilko in interpreting the 1934 Act except in international disputes.1
Ayres paid particular attention to Congress’ apparent acquiescence in the extension of Wilko by lower federal courts to bar arbitration of Rule 10b-5 claims. As the Supreme Court would later make clear, the primary consideration in determining the applicability of the Arbitration Act to a statutory cause of action is the intent of Congress. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, — U.S. -, 105 S.Ct. 3346, 3355, 87 L.Ed.2d 444 (1985). Thus, the Ayres court observed that, in 1975, Congress had amended § 28(b) of the 1934 Act, 15 U.S.C. § 78bb(b) (1982), to provide that disputes between members or participants in self-regulatory organizations, or between municipal securities dealers and brokers, may be arbitrated. The conference committee stated: “It was the clear understanding of the conferees that this amendment did not change existing law, as articulated in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953), concerning the effect of arbitration proceeding provisions in agreements entered into by persons dealing with members and participants of self-regulatory organizations.” H.R.Rep. No. 229, 94th Cong., 1st Sess. 111 (1975), reprinted in 1975 U.S. Code Cong. & Ad.News 321, 342. That the committee included this statement in amending the 1934 Act, the Ayres court concluded, suggests its belief that Wilko applies to causes of action under that Act. See Ayres, 538 F.2d at 537.
Whatever the merits of its reasoning, Ayres has not been undermined by subsequent developments. In Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), the Supreme Court decided that the Arbitration Act required that state law claims pendent to nonarbitrable securities law counts be arbitrated, even if the issues overlap and even if the result is piecemeal litigation. The Court noted that whether Wilko applies to suits under Rule 10b-5 is unresolved, Id., 105 S.Ct. at 1240, n. 1, but again did not decide the issue. Significantly, Justice White, who had joined the dissenters in Scherk, apparently reconsidered his views and wrote a concurring opinion reiterating the reservations expressed by the Scherk majority, “to emphasize that the question remains open and the contrary holdings of the lower courts must be viewed with some doubt.” Id., 105 S.Ct. at 1244. However, Justice White declined to articulate any considerations that were not *1206expressed in Scherk, and therefore not presented to or examined by this Court in Ayres.
The other development since Ayres appears to be the growing judicial appreciation of and deference to arbitration as a means of alternative dispute resolution. This stance may be best discerned in a series of recent Supreme Court decisions enforcing the broad congressional mandate favoring arbitration. See Mitsubishi, supra (antitrust dispute arising out of international agreement is subject to arbitration); Byrd, supra (ordering arbitration of pendent state law claims); Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984) (state laws undercutting the enforceability of arbitration agreements conflict with federal law and violate the Supremacy Clause); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-42, 74 L.Ed.2d 765 (1983) (“The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration”).
Nevertheless, this significant trend does not undermine any of the considerations of congressional intent addressed in Ayres. To be sure, arbitration permits a speedy and much less expensive method of resolving many controversies than would be available in a judicial forum, and this is especially salutary in view of crowded federal dockets and exorbitantly costly litigation. But I do not doubt the power of Congress to forbid arbitration of specified statutory claims. I do doubt, however, whether Congress has in fact forbade arbitration in regard to claims asserted under § 10(b).
While the Supreme Court may later take a different view of the issues addressed in Ayres, stare decisis requires that any panel of this Court adhere to the undisturbed holding of a prior panel. See Miller v. Drexel Burnham Lambert, Inc., 791 F.2d 850, 854 (11th Cir.1986); McMahon v. Shearson/American Express, Inc., 788 F.2d 94, 97 (2d Cir.1986).
Accordingly, although I have some reservations regarding the wisdom of nonarbitrability, I concur in the majority’s conclusion that Ayres dictates in this Circuit the nonarbitrability of causes of action premised on Rule 10b-5.
The issue whether a 10b-5 claim may be subject to an arbitration agreement is a close and difficult one, however. Neither side of the argument is without merit. It is significant, though, that as the statute requires that any arbitration provision covering a “non-arbitrable” controversy be declared void and unenforceable, 15 U.S.C. § 78cc(a) & (b), the determination that Congress intended to render non-arbitrable implied rights of action under § 10(b) would mean that courts must refuse to give force to all agreements — both pre- and post-dispute — to submit such controversies to arbitration, even after arbitration has taken place.
Given that Barrowclough may have incorrectly treated Ayers as binding authority, and in view of the doubts raised as to the continued wisdom of the Ayers approach in light of subsequent Supreme Court statements and the split among the circuits, it might be advisable to reconsider this important and controversial issue in banc. Because of the split in the circuits and the reservations in Sherk and Ayres, however, some uncertainty necessarily will remain until the Supreme Court speaks authoritatively to this issue. Since commercial relations affecting thousands of investors and scores of brokerage houses will remain in the shadow of doubt until then, an early definitive decision by the Supreme Court would be a helpful development.
II.
These appeals also present the difficult question whether RICO claims may be submitted to arbitration against a party’s *1207wishes, but in accord with a predispute agreement. Here, we are not encumbered by previous holdings since the issue of arbitrability in RICO situations is one of first impression in this Court.
In Mitsubishi, the Supreme Court squarely addressed whether a federal statutory right of action may be the subject of an arbitration agreement, and held that any statutory claim may be arbitrated if congressional intent to the contrary is not evident.
Just as it is the congressional policy manifested in the federal Arbitration Act that requires courts liberally to construe the scope of arbitration agreements covered by that Act, it is the congressional intention expressed in some other statute on which the courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable.
105 S.Ct. at 3355.
As Justice Stevens observed in dissent, the Court had not previously spoken clearly on the issue, although broad language in a series of earlier cases concerning labor arbitration could be read to imply the nonarbitrability of any federal statutory claim. For example, in McDonald v. City of West Branch, 466 U.S. 284, 104 S.Ct. 1799, 80 L.Ed.2d 302 (1984), the Court held that an unappealed arbitral decision pursuant to a collective bargaining agreement did not preclude a later civil rights suit under 42 U.S.C. § 1983 (1982) based on the same facts. The Court decided that “although arbitration is well suited to resolving contractual disputes ... it cannot provide an adequate substitute for a judicial proceeding in protecting the federal statutory and constitutional rights that § 1983 is designed to safeguard.” Id. at 290, 104 S.Ct. at 1803. See also Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) (arbitration does not preclude suit under minimum wage provisions of the Fair Labor Standards Act); Alexander v. Gardner-Denver Co., 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974) (right to sue under Title YII of the Civil Rights Act of 1964 is not precluded by prior arbitral decision).
In Barrowclough v. Kidder, Peabody & Co., 752 F.2d 923 (3d Cir.1985), this Court relied on these cases and ruled that purely statutory ERISA claims within the federal court’s exclusive jurisdiction are not arbitrable. “There is an inherent incompatibility in referring to an arbitrator claims that fall within the exclusive jurisdiction of the federal courts and that arise as part of a comprehensive federal statutory scheme designed to assure protection to those individuals who fall within it.” Id. at 940.
Mitsubishi spurned the basis proffered for this Court’s decision in Barrowclough, stating that “we find no warrant in the Arbitration Act for implying in every contract within its ken a presumption against arbitration of statutory claims.” 105 S.Ct. at 3353. Although Mitsubishi, like Scherk, concerned an agreement to arbitrate disputes arising out of an international transaction, the Mitsubishi Court’s rejection of a rule of nonarbitrability of statutory claims is stated in a portion of its opinion that is not confined to the context of international agreements. Thus, Mitsubishi would appear to limit the effect of McDonald, Barrentine, and Gardner-Denver. At most, those cases may be seen as construing the intent underlying the particular statutes at issue, or as a rule of preclusion and not of arbitrability, or perhaps as a special presumption against labor arbitrators because of their limited expertise outside the labor field. See Alexander, 415 U.S. at 57, 94 S.Ct. at 1024 (“the specialized competence of arbitrators pertains primarily to the law of the shop, not the law of the land.”).
Given that even a statutory cause of action is subject to the Arbitration Act, our task is to examine the text and legislative history of the RICO statute for any congressional intent to preclude arbitration of that private right of action. This search reveals no indication that Congress intended to exempt RICO actions from the provi*1208sions of the Arbitration Act. Further, none of the special statutory features that motivated the Wilko and Ayres decisions are found in the RICO statute. RICO has no non-waiver provision; indeed, even though it creates a private right of action it affords few procedural protections that would be waived by an agreement to arbitrate.2 Not only is the statute silent on the arbitration issue, but the legislative history offers no indication that Congress intended to bar arbitration of private RICO actions.
Accordingly, those seeking to avoid arbitration of RICO claims rely primarily on considerations of public policy. They insist that arbitrators, whose decisions are not subject to thorough review, should not be responsible for developing this evolving area of law, and that RICO embodies vital federal policies which should be litigated in a judicial forum. Relying on these arguments, the Second Circuit recently ruled that agreements to arbitrate RICO claims are unenforceable. McMahon v. Shearson/American Express, Inc., 788 F.2d 94, 98 (2d Cir.1986).3 The Second Circuit rested its view on American Safety Equipment Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir.1968), in which it had held that actions under the Sherman Act are not arbitrable.
In Mitsubishi, however, the Supreme Court declined to accept the American Safety rule as applied to antitrust disputes arising out of international agreements. And although, as McMahon observes, the Court carefully limited its holding to the international context, see Mitsubishi, 105 S.Ct. at 3355, its reasoning casts grave doubt on the Second Circuit’s broad conception of “the inappropriateness of the United States Arbitration Act when strong public policy considerations are involved.” McMahon, 788 F.2d at 98.
The notion that judicially decreed public policy determines the arbitrability of particular disputes is inconsistent with the Supreme Court’s instruction that only the congressional intent expressed in a statute or its legislative history is relevant to the issue. Second, the Mitsubishi Court itself “confess[ed] to some skepticism of certain aspects of the American Safety doctrine.” 105 S.Ct. at 3357. In particular, it rejected the notion that where a statute implicates important public policy a judicial forum is required. Justice Blackmun wrote: “[S]o long as the prospective litigant effectively may vindicate its statutory cause of action in the arbitral forum, the statute will continue to serve both its remedial and deterrent function.” Id. at 3358-59.
It seems clear, therefore, that public policy considerations do not compel the nonarbitrability of RICO claims. To this extent, the majority and I agree. We part company, however, over the notion that the arbitrability of RICO actions turns on the nature of the predicate offenses underlying such actions.
The majority appears to base its position primarily on its concern over the effect of a contrary holding: that Rule 10b-5 claims would not be arbitrable pursuant to the rule of Ayres, while a RICO claim predicated on an identical Rule 10b-5 violation may be submitted to arbitration. In stating that this result is unwarranted, the majori*1209ty declares: “There is no evidence that Congress intended that the availability of RICO remedies for section 10(b) should suspend the operation of the anti-waiver provision of the Securities Exchange Act of 1934.” Majority op. at 1203.
This reasoning, I believe, misconceives the appropriate inquiry. The focus must be on whether in enacting a law Congress intended to prevent waiver of the right to a judicial forum; lack of evidence that Congress intended to allow arbitration is insufficient to defeat the strong presumption in favor of arbitration set forth in the Arbitration Act. “We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, that intention will be deducible from text or legislative history.” Mitsubishi, 105 S.Ct. at 3355.
Further, I do not agree that an action under RICO must be treated for purposes of arbitrability as an action under the securities laws whenever it is based upon a predicate offense that violates Rule 10b-5, as the majority’s statement above would suggest. A private right of action under RICO is a unique and separate claim to which the Arbitration Act logically applies. RICO is a manifestation of congressional concern with the special harm caused by those who engage in a pattern of wrongful offenses, and the private right of action under the RICO statute is distinct from one based on an underlying offense alone.
The structure of the legislation illustrates the distinction. The statute provides a lengthy list of predicate offenses, ranging from broadly described state criminal offenses such as “gambling” and “robbery” to numerous federal criminal, bankruptcy, and securities law provisions. See 18 U.S.C. § 1961(1) (1982). It then proscribes, in part, the operation of any enterprise engaged in or whose activities affect interstate or foreign commerce, using income derived from a “pattern of racketeering activity,” id. at § 1962, defined as the commission of at least two predicate offenses within a ten-year period, id. at § 1961(5). Further, an individual may maintain a private claim for injuries suffered as a result of such racketeering activity. Id. at § 1964(c).
Given the clear distinction between the nature of a RICO violation and any particular predicate offense, the congressional intent in passing the Securities Exchange Act would not appear to be relevant in an inquiry into the legislative purpose animating RICO. And, focusing solely on the latter inquiry, as noted earlier there is simply no indication that Congress intended to foreclose application of the Arbitration Act to RICO claims.
To be sure, the position that all RICO claims are arbitrable, regardless of the predicate offenses averred, would lead to piecemeal litigation. Where a pre-dispute agreement to arbitrate had been entered into, a RICO claim based on Rule 10b-5 violations would proceed in an arbitral forum, while a securities claim based upon similar facts would be litigated in federal court. The issue of what preclusive effect, if any, should be accorded either decision is not before us.
While this may not be an optimum use of adjudicative resources, it is the inevitable result where Congress specifies the nonarbitrability of a few statutory provisions and applies the sweeping Arbitration Act to all others. It is also consistent with the Supreme Court’s action in Byrd, where it adhered to the Act’s mandate and ordered the arbitration of pendent state law claims, while a Rule 10b-5 action concerning the same transactions and alleged wrongs continued in federal court. As the Supreme Court stated in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 20, 103 S.Ct. 927, 939, 74 L.Ed.2d 765 (1983): “[Fjederal law requires piecemeal resolution when necessary to give effect to an arbitration agree-*1210meat" Id., 460 U.S. at 20, 103 S.Ct. at 939 (emphasis in original). Should Congress desire a different result, it, of course, may so legislate.
In contrast to the result suggested by this opinion the majority’s approach not only bifurcates the proceedings, but also compels an unwarranted division of a plaintiff’s single RICO claim. It suggests that where a RICO count is predicated on arbitrable and nonarbitrable offenses the RICO claim itself will be split and heard in separate proceedings. Thus, in Blumenthal v. Dean Witter Reynolds, Inc., No. 85-5552, where plaintiff's complaint states only a single count based on RICO, the result reached by the majority would divide that count in order to allow for arbitration of the mail and wire fraud issues and litigation in a court of the securities issues — despite the fact that the unique RICO offense depends, in this case, on whether the enterprise has engaged in mail and wire fraud as well as securities fraud within a ten-year period.
In my view, the position espoused by the majority today fails to take note of the unique nature of a RICO violation, and the broad directive set forth in the Arbitration Act.
III.
Accordingly, while I concur in the decision regarding the nonarbitrability of Rule 10b-5 claims, primarily because of prior holdings of this Court, and the arbitrability in general of RICO claims, I respectfully dissent to the extent the majority in Blumenthal and in Jacobson v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., Nos. 85-3282, 85-3311 and 85-3343, forbids the arbitration of RICO claims that are predicated on Rule 10b-5 violations.

. See, e.g., Conover v. Dean Witter Reynolds, 794 F.2d 520 (9th Cir.1986), McMahon v. Shearson/American Exp., Inc., 788 F.2d 94 (2d Cir.1986); Sawyer v. Raymond, James & Associates, Inc., 642 F.2d 791 (5th Cir.1981); Manshach v. Prescott, Ball & Turben, 598 F.2d 1017, 1039 (6th Cir.1979); MLPF & S, Inc. v. Moore, 590 F.2d 823 (Dec. 78); Weissbuch v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 558 F.2d 831, 833-35 (7th Cir.1977); Sibley v. Tandy Corp., 543 F.2d 540, 543 (5th Cir.1976), cert. denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977); Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 538 F.2d 532, 536 (3d Cir.), cert. denied, 429 U.S. 1010, 97 S.Ct. 542, 50 L.Ed.2d 619 (1976). However, a split in the circuits has recently emerged with the Eight Circuit’s opinion in Phillips v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 795 F.2d 1393 (8th Cir.1986), holding an arbitration clause valid and enforceable.

. For example, the statute provides for federal jurisdiction over private claims, but does not specify whether such jurisdiction is exclusive. The courts that have addressed the issue are divided on the question. Compare Chas. Kurz Co. v. Lombardi, 595 F.Supp. 373, 381 n. 11 (E.D.Pa.1984) (concurrent) with Kinsey v. Nestor Exploration Ltd. — 1981A, 604 F.Supp. 1365, 1370-71 (E.D.Wash.1985) (exclusive). Cf. Gulf Offshore Co. v. Mobil Oil Corp., 453 U.S. 473, 478, 101 S.Ct. 2870, 2875, 69 L.Ed.2d 784 (1981) (where statute is silent, presumption favors concurrent jurisdiction),

. The Fifth Circuit also reached the conclusion that RICO claims are nonarbitrable, but later vacated that ruling so that the district court could consider the applicability of Mitsubishi to the issue. Smoky Greenhaw Cotton Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 785 F.2d 1274, 1281 (5th Cir.1986), vacated in part, No. 85-1310 (5th Cir. May 13, 1986) (per curiam).