Court Opinion

ID: 9443543
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:24:29.211193+00
Date Added: 2024-06-11T17:29:31.972207
License: Public Domain

CLARK, Circuit Judge
(dissenting) :
Judge Goddard’s incisively reasoned opinion, D.C.S.D.N.Y., 107 F.Supp. 75, and the able supporting arguments of the Securities and Exchange Commission are to me very convincing. Commercial arbitration has been highly successful in bringing a businessman’s adjudication to business questions. But it would be vastly unfortunate if it became usable as a device to blunt or break social legislation. Here the intent of the contracting party having the superior bargaining power is not concealed. The seventeen finely printed paragraphs of obligation and waiver, covering six pages of the printed record, imposed by this brokerage firm upon customers are designed to secure just as much exculpation as can be devised, contrary to the spirit and the letter of the Securities Act of 1933. The court’s opinion herewith declares at least one of the paragraphs illegal. More extensive examination may well bring others into doubt. As the apex to this series of burdens placed upon the investor there appears the arbitration requirement in issue. This is rather naturally and obviously intended to secure an expert or business judgment. But here the persons to give such judgment would naturally come from the regulated business itself. Adjudication by such arbitrators may, indeed, provide a business solution of the problem if that is the real desire; but it is surely not a way of assuring the customer that objective and sympathetic consideration of his claim which is envisaged by the Securities Act.
To uphold the provision for arbitration, it must be held, as it is here, that the investor, at the initiation of his dealings with the broker, may relinquish certain important rights accorded him by the Securities Act. Of these, the most vital appears to be that of the burden of proof placed upon the broker to establish lack of knowledge and inability upon the exercise of reasonable care to know of an untruth or omission in statement in the sale of securities — thus changing the rule of caveat emptor to that of caveat venditor, as the S. E. C. happily phrases it. The suggestion that perhaps the business arbitrators will be able or inclined to manipulate the burden of proof like lawyers and judges seems to me completely unreal. After all, the great purpose of arbitration is to get away from ordinary legal restrictions as to evidence and proof, and substitute the informed knowledge of the tribunal for the imperfect knowledge *446■of technical matters acquired through ordinary court processes. But the role of the burden-of-proof concept is to canalize and control the evidence; it may often be the •decisive factor in the case. Since the very purpose of arbitration is to be rid of fancy legalisms, the chief reason for arbitration is gone if the arbitrators are to act only like lawyers and judges. Actually the suggestion cannot be carried out in any real ■sense; the arbitrators will act according to their business background and there will be no way — unless they volunteer foolish explanations in their decision — of checking what they do. So what is most desirable in the ordinary arbitration becomes a clear loss of statutory right here.
Another valuable right here perforce foregone is that of suit in any available court, state or federal, at the choice of the •customer. This is indeed an actual means by which the investor can avoid congestion in the courts, since it is well known that •calendar congestion occurs in those, courts •of general jurisdiction where personal injury cases abound. So the Act permits him to select a court to avoid this congestion. The suggestion in the opinion that arbitration may be more speedy I fear promises too much. In the light of the law’s confusion, as now construed, it is reasonably obvious that no matter how time consuming may be the-arbitration itself, it must necessarily be succeeded by lengthy judicial proceedings before the award is legally enforceable.
It is suggested that had Congress intended to include such arbitration provisions in the extensive waiver clause, § 14, 15 U.S.C.A. § 77n, it would so have specified. But I submit that such a course would have been neither a usual nor a safe and proper method of draftmanship. Here was intended a broad and general prohibition of limiting •contracts. Had particular devices of restriction then been individually considered, it would nevertheless have been unwise to single them out for separate reference. For that would have suggested that other unrecalled devices were permissible. The language chosen is broad and general, as befits the intent. It seems to me wholly adequate and effective to safeguard the investor against loss of his right of suit under the Act and the important burden of proof which it grants in his favor.
While I do not think decision on the point now necessary, I do submit with all deference that there is the greatest difference between a binding agreement for compulsory arbitration at the beginning of any transaction and an arbitration mutually acceptable after a breach as a method of settlement of an already existing dispute. The analogy of releases under the Federal Employers’ Liability Act, 45 U.S.C.A. § 51 et seq., invalid prior to any accident, but valid if fairly and reasonably made in settlement of an existing claim, seems persuasive. See Callen v. Pennsylvania R. Co., 332 U.S. 625, 68 S.Ct. 296, 92 L.Ed. 242; Krenger v. Pennsylvania R. Co., 2 Cir., 174 F.2d 556, certiorari denied Pennsylvania R. Co. v. Krenger, 338 U.S. 866, 70 S.Ct. 140, 94 L.Ed. 531; Boyd v. Grand Trunk Western R. Co., 338 U.S. 263, 70 S.Ct. 26, 94 L.Ed. 55.
Because I believe important rights under this notable first of a series of famous Acts for the benefit of the investing public should not be capable of nullification by long fine-print restrictions of the broker’s devising, I think the ruling below wise and beneficent. I would affirm.