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U.S. Supreme Court

SHEARSON/AMERICAN EXPRESS INC. v. McMAHON, 482 U.S. 220
(1987)

482 U.S. 220

SHEARSON/AMERICAN EXPRESS INC. ET AL. v. MCMAHON ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

No. 86-44.

Argued March 3, 1987
Decided June 8, 1987

 

Respondents were customers of petitioner Shearson/American Express Inc. (Shearson), a brokerage firm registered with the Securities and Exchange Commission (SEC), under customer agreements providing for arbitration of any controversy relating to their accounts. Respondents filed suit in Federal District Court against Shearson and its representative (also a petitioner here) who handled their accounts, alleging violations of the antifraud provisions in 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and SEC Rule 10b-5, and of the Racketeer Influenced and Corrupt Organizations Act (RICO). Petitioners moved to compel arbitration of the claims pursuant to 3 of the Federal Arbitration Act, which requires a court to stay its proceedings if it is satisfied that an issue before it is arbitrable under an arbitration agreement. The District Court held that respondents' Exchange Act claims were arbitrable, but that their RICO claim was not. The Court of Appeals affirmed as to the RICO claim, but reversed as to the Exchange Act claims.

Held:
1. The Arbitration Act establishes a federal policy favoring arbitration, requiring that the courts rigorously enforce arbitration agreements. This duty is not diminished when a party bound by an agreement raises a claim founded on statutory rights. The Act's mandate may be overridden by a contrary congressional command, but the burden is on the party opposing arbitration to show that Congress intended to preclude a waiver of judicial remedies for the statutory rights at issue. Such intent may be discernible from the statute's text, history, or purposes. Pp. 225-227.

2. Respondents' Exchange Act claims are arbitrable under the provisions of the Arbitration Act. Congressional intent to require a judicial forum for the resolution of 10(b) claims cannot be deduced from 29(a) of the Exchange Act, which declares void an agreement to waive "compliance with any provision of [the Act]." Section 29(a) only prohibits waiver of the Act's substantive obligations and thus does not void waiver of 27 of the Act, which confers exclusive district court jurisdiction of violations of the Act, but which does not impose any [482 U.S. 220, 221] statutory duties. Wilko v. Swan, 346 U.S. 427 , which held that claims arising under the Securities Act of 1933, which has similar antiwaiver and jurisdictional provisions, were not subject to compulsory arbitration under an arbitration agreement, does not control here. That case must be read as barring waiver of a judicial forum only where arbitration is inadequate to protect the substantive rights at issue. Cf. Scherk v. Alberto-Culver Co., 417 U.S. 506 . There is no merit to respondents' contention, based on Wilko, that their arbitration agreements effected an impermissible waiver of the Exchange Act's substantive protections. Even if Wilko's assumptions regarding arbitration were valid at the time it was decided - when there was judicial mistrust of the arbitral process - such assumptions do not hold true today for arbitration procedures (such as those involved here) subject to the SEC's oversight authority under the intervening changes in the regulatory structure of the securities laws. Nor does the legislative history support respondents' argument that even if 29(a) as enacted does not void predispute arbitration agreements, Congress subsequently has indicated that 29(a) should be so interpreted. Pp. 227-238.

3. Respondents' RICO claim is also arbitrable under the Arbitration Act. Nothing in RICO's text or legislative history even arguably evinces congressional intent to exclude civil RICO claims for treble damages under 18 U.S.C. 1964(c) from the Arbitration Act's dictates. Nor is there any irreconcilable conflict between arbitration and RICO's underlying purposes. Cf. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 . Neither the potential complexity of RICO claims, nor the "overlap" between RICO's civil and criminal provisions, renders 1964(c) claims nonarbitrable. Moreover, the public interest in the enforcement of RICO does not preclude submission of such claims to arbitration. The legislative history of 1964(c) emphasized the remedial role of the treble-damages provision. Its policing function, although important, was a secondary concern. The private attorney general role for the typical RICO plaintiff does not support a finding that there is an irreconcilable conflict between arbitration and enforcement of RICO. Pp. 238-242.
788 F.2d 94, reversed and remanded.

O'CONNOR, J., delivered the opinion of the Court, in which REHNQUIST, C. J., and WHITE, POWELL, and SCALIA, JJ., joined, and in Parts I, II, and IV of which BRENNAN, MARSHALL, BLACKMUN, and STEVENS, JJ., joined. BLACKMUN, J., filed an opinion concurring in part and dissenting in part, in which BRENNAN and MARSHALL, JJ., joined, post, p. 242. STEVENS, J., filed an opinion concurring in part and dissenting in part, post, p. 268. [482 U.S. 220, 222]

Theodore A. Krebsbach argued the cause and filed briefs for petitioners.

Richard G. Taranto argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Fried, Deputy Solicitor General Cohen, Daniel L. Goelzer, Paul Gonson, Jacob H. Stillman, and David A. Sirignano.
Theodore G. Eppenstein argued the cause for respondents. With him on the brief was Madelaine Eppenstein. *

[ Footnote * ] Briefs of amici curiae urging reversal were filed for the American Arbitration Association by Michael F. Hoellering, Joseph T. McLaughlin, Rosemary S. Page, Thomas Thacher, Gerald Aksen, Sheldon L. Berens, Richard S. Lombard, Robert MacCrate, John R. Stevenson, and Robert B. von Mehren; and for the Attorneys for Securities Industry Association, Inc., et al. by Joseph G. Riemer III, Judith Welcom, Paul Windels III, William J. Fitzpatrick, Donald B. McNelley, Steven N. Machtinger, Paul J. Dubow, and Joseph McLaughlin.

Briefs of amici curiae urging affirmance were filed for Willie D. Chandler et al. by Stirling Lathrop and Richard D. Greenfield; and for Bruce Cordray et al. by Denis A. Downey.

JUSTICE O'CONNOR delivered the opinion of the Court.

This case presents two questions regarding the enforceability of predispute arbitration agreements between brokerage firms and their customers. The first is whether a claim brought under 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 48 Stat. 891, 15 U.S.C. 78j(b), must be sent to arbitration in accordance with the terms of an arbitration agreement. The second is whether a claim brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. 1961 et seq., must be arbitrated in accordance with the terms of such an agreement.


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