In October 1984, the McMahons filed an amended complaint against Shearson and petitioner Mary Ann McNulty, the registered representative who handled their accounts, in the United States District Court for the Southern District of New York. The complaint alleged that McNulty, with Shearson's knowledge, had violated 10(b) of the Exchange Act and Rule 10b-5, 17 CFR 240.10b-5 (1986), by engaging in fraudulent, excessive trading on respondents' accounts and by making false statements and omitting material facts from the advice given to respondents. The complaint also alleged a RICO claim, 18 U.S.C. 1962(c), and state law claims for fraud and breach of fiduciary duties.
Relying on the customer agreements, petitioners moved to compel arbitration of the McMahons' claims pursuant to 3 of the Federal Arbitration Act, 9 U.S.C. 3. The District Court granted the motion in part. 618 F. Supp. 384 (1985). The court first rejected the McMahons' contention that the arbitration agreements were unenforceable as contracts of [482 U.S. 220, 224] adhesion. It then found that the McMahons' 10(b) claims were arbitrable under the terms of the agreement, concluding that such a result followed from this Court's decision in Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985), and the "strong national policy favoring the enforcement of arbitration agreements." 618 F. Supp., at 388. The District Court also held that the McMahons' state law claims were arbitrable under Dean Witter Reynolds Inc. v. Byrd, supra. It concluded, however, that the McMahons' RICO claim was not arbitrable "because of the important federal policies inherent in the enforcement of RICO by the federal courts." 618 F. Supp., at 387.
The Court of Appeals affirmed the District Court on the state law and RICO claims, but it reversed on the Exchange Act claims. 788 F.2d 94 (1986). With respect to the RICO claim, the Court of Appeals concluded that "public policy" considerations made it "inappropriat[e]" to apply the provisions of the Arbitration Act to RICO suits. Id., at 98. The court reasoned that RICO claims are "not merely a private matter." Ibid. Because a RICO plaintiff may be likened to a "private attorney general" protecting the public interest, ibid., the Court of Appeals concluded that such claims should be adjudicated only in a judicial forum. It distinguished this Court's reasoning in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), concerning the arbitrability of antitrust claims, on the ground that it involved international business transactions and did not affect the law "as applied to agreements to arbitrate arising from domestic transactions." 788 F.2d, at 98.
With respect to respondents' Exchange Act claims, the Court of Appeals noted that under Wilko v. Swan, 346 U.S. 427 (1953), claims arising under 12(2) of the Securities Act of 1933 (Securities Act), 48 Stat. 84, 15 U.S.C. 77l(2), are not subject to compulsory arbitration. The Court of Appeals [482 U.S. 220, 225] observed that it previously had extended the Wilko rule to claims arising under 10(b) of the Exchange Act and Rule 10b-5. See, e. g., Allegaert v. Perot, 548 F.2d 432 (CA2), cert. denied, 432 U.S. 910 (1977); Greater Continental Corp. v. Schechter, 422 F.2d 1100 (CA2 1970). The court acknowledged that Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), and Dean Witter Reynolds Inc. v. Byrd, supra, had "cast some doubt on the applicability of Wilko to claims under 10(b)." 788 F.2d, at 97. The Court of Appeals nevertheless concluded that it was bound by the "clear judicial precedent in this Circuit," and held that Wilko must be applied to Exchange Act claims. 788 F.2d, at 98.
We granted certiorari, 479 U.S. 812 (1986), to resolve the conflict among the Courts of Appeals regarding the arbitrability of 10(b) 1 and RICO 2 claims. |
