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SHEARSON/AMERICAN EXPRESS INC. v. McMAHON |
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III |
When Congress enacted the Exchange Act in 1934, it did not specifically address the question of the arbitrability of 10(b) claims. The McMahons contend, however, that congressional intent to require a judicial forum for the resolution of 10(b) claims can be deduced from 29(a) of the Exchange Act, 15 U.S.C. 78cc(a), which declares void "[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of [the Act]."
First, we reject the McMahons' argument that 29(a) forbids waiver of 27 of the Exchange Act, 15 U.S.C. 78aa. Section 27 provides in relevant part: |
"The district courts of the United States . . . shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder." [482 U.S. 220, 228]
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The McMahons contend that an agreement to waive this jurisdictional provision is unenforceable because 29(a) voids the waiver of "any provision" of the Exchange Act. The language of 29(a), however, does not reach so far. What the antiwaiver provision of 29(a) forbids is enforcement of agreements to waive "compliance" with the provisions of the statute. But 27 itself does not impose any duty with which persons trading in securities must "comply." By its terms, 29(a) only prohibits waiver of the substantive obligations imposed by the Exchange Act. Because 27 does not impose any statutory duties, its waiver does not constitute a waiver of "compliance with any provision" of the Exchange Act under 29(a).
We do not read Wilko v. Swan, 346 U.S. 427 (1953), as compelling a different result. In Wilko, the Court held that a predispute agreement could not be enforced to compel arbitration of a claim arising under 12(2) of the Securities Act, 15 U.S.C. 77l(2). The basis for the ruling was 14 of the Securities Act, which, like 29(a) of the Exchange Act, declares void any stipulation "to waive compliance with any provision" of the statute. At the beginning of its analysis, the Wilko Court stated that the Securities Act's jurisdictional provision was "the kind of `provision' that cannot be waived under 14 of the Securities Act." 346 U.S., at 435 . This statement, however, can only be understood in the context of the Court's ensuing discussion explaining why arbitration was inadequate as a means of enforcing "the provisions of the Securities Act, advantageous to the buyer." Ibid. The conclusion in Wilko was expressly based on the Court's belief that a judicial forum was needed to protect the substantive rights created by the Securities Act: "As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, it seems to us that Congress must have intended 14 . . . to apply to waiver of judicial trial and review." Id., at 437. Wilko must be understood, therefore, as holding that the plaintiff's waiver [482 U.S. 220, 229] of the "right to select the judicial forum," id., at 435, was unenforceable only because arbitration was judged inadequate to enforce the statutory rights created by 12(2).
Indeed, any different reading of Wilko would be inconsistent with this Court's decision in Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974). In Scherk, the Court upheld enforcement of a predispute agreement to arbitrate Exchange Act claims by parties to an international contract. The Scherk Court assumed for purposes of its opinion that Wilko applied to the Exchange Act, but it determined that an international contract "involve[d] considerations and policies significantly different from those found controlling in Wilko." 417 U.S., at 515 . The Court reasoned that arbitration reduced the uncertainty of international contracts and obviated the danger that a dispute might be submitted to a hostile or unfamiliar forum. At the same time, the Court noted that the advantages of judicial resolution were diminished by the possibility that the opposing party would make "speedy resort to a foreign court." Id., at 518. The decision in Scherk thus turned on the Court's judgment that under the circumstances of that case, arbitration was an adequate substitute for adjudication as a means of enforcing the parties' statutory rights. Scherk supports our understanding that Wilko must be read as barring waiver of a judicial forum only where arbitration is inadequate to protect the substantive rights at issue. At the same time, it confirms that where arbitration does provide an adequate means of enforcing the provisions of the Exchange Act, 29(a) does not void a predispute waiver of 27 - Scherk upheld enforcement of just such a waiver. |
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Supreme Court Case
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