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.
Between 1980 and 1982, respondents Eugene and Julia McMahon, individually and as trustees for various pension and profit-sharing plans, were customers of petitioner Shearson/American
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
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
We granted certiorari, 479 U.S. 812 (1986), to resolve the conflict among the Courts of Appeals regarding the arbitrability of § 10(b)
The Federal Arbitration Act, 9 U. S. C. § 1 et seq., provides the starting point for answering the questions raised in this case. The Act was intended to "revers[e] centuries of judicial hostility to arbitration agreements," Scherk v. Alberto-Culver Co., supra, at 510, by "plac[ing] arbitration
The Arbitration Act thus establishes a "federal policy favoring arbitration," Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983), requiring that "we rigorously enforce agreements to arbitrate." Dean Witter Reynolds Inc. v. Byrd, supra, at 221. This duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights. As we observed in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., "we are well past the time when judicial suspicion of the desirability of arbitration and of the competence of arbitral tribunals" should inhibit enforcement of the Act " `in controversies based on statutes.' " 473 U. S., at 626-627, quoting Wilko v. Swan, supra, at 432. Absent a well-founded claim that an arbitration agreement resulted from the sort of fraud or excessive economic power that "would provide grounds `for the revocation of any contract,' " 473 U. S., at 627, the Arbitration Act "provides no basis for disfavoring agreements to arbitrate statutory claims by skewing the otherwise hospitable inquiry into arbitrability." Ibid.
The Arbitration Act, standing alone, therefore mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the Arbitration Act's mandate may be overridden by a contrary congressional command.
To defeat application of the Arbitration Act in this case, therefore, the McMahons must demonstrate that Congress intended to make an exception to the Arbitration Act for claims arising under RICO and the Exchange Act, an intention discernible from the text, history, or purposes of the statute. We examine the McMahons' arguments regarding the Exchange Act and RICO in turn.
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:
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
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.
The second argument offered by the McMahons is that the arbitration agreement effects an impermissible waiver of the substantive protections of the Exchange Act. Ordinarily, "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather
We decline to give Wilko a reading so far at odds with the plain language of § 14, or to adopt such an unlikely interpretation of § 29(a). The concern that § 29(a) is directed against is evident from the statute's plain language: it is a concern with whether an agreement "waive[s] compliance with [a] provision" of the Exchange Act. The voluntariness of the agreement is irrelevant to this inquiry: if a stipulation waives compliance with a statutory duty, it is void under § 29(a), whether voluntary or not. Thus, a customer cannot negotiate a reduction in commissions in exchange for a waiver of compliance with the requirements of the Exchange Act, even if the customer knowingly and voluntarily agreed to the bargain. Section 29(a) is concerned, not with whether brokers "maneuver[ed customers] into" an agreement, but with whether the agreement "weaken[s] their ability to recover under the [Exchange] Act." 346 U. S., at 432. The former is grounds for revoking the contract under ordinary
The other reason advanced by the McMahons for finding a waiver of their § 10(b) rights is that arbitration does "weaken their ability to recover under the [Exchange] Act." Ibid. That is the heart of the Court's decision in Wilko, and respondents urge that we should follow its reasoning. Wilko listed several grounds why, in the Court's view, the "effectiveness [of the Act's provisions] in application is lessened in arbitration." 346 U. S., at 435. First, the Wilko Court believed that arbitration proceedings were not suited to cases requiring "subjective findings on the purpose and knowledge of an alleged violator." Id., at 435-436. Wilko also was concerned that arbitrators must make legal determinations "without judicial instruction on the law," and that an arbitration award "may be made without explanation of [the arbitrator's] reasons and without a complete record of their proceedings." Id., at 436. Finally, Wilko noted that the "[p]ower to vacate an award is limited," and that "interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation." Id., at 436-437. Wilko concluded that in view of these drawbacks to arbitration, § 12(2) claims "require[d] the exercise of judicial direction to fairly assure their effectiveness." Id., at 437.
As Justice Frankfurter noted in his dissent in Wilko, the Court's opinion did not rest on any evidence, either "in the record . . . [or] in the facts of which [it could] take judicial notice," that "the arbitral system . . . would not afford the plaintiff the rights to which he is entitled." Id., at 439. Instead, the reasons given in Wilko reflect a general suspicion of the desirability of arbitration and the competence of arbitral tribunals — most apply with no greater force to the arbitration of securities disputes than to the arbitration of legal disputes generally. It is difficult to reconcile Wilko's mistrust of the arbitral process with this Court's subsequent
Indeed, most of the reasons given in Wilko have been rejected subsequently by the Court as a basis for holding claims to be nonarbitrable. In Mitsubishi, for example, we recognized that arbitral tribunals are readily capable of handling the factual and legal complexities of antitrust claims, notwithstanding the absence of judicial instruction and supervision. See 473 U. S., at 633-634. Likewise, we have concluded that the streamlined procedures of arbitration do not entail any consequential restriction on substantive rights. Id., at 628. Finally, we have indicated that there is no reason to assume at the outset that arbitrators will not follow the law; although judicial scrutiny of arbitration awards necessarily is limited, such review is sufficient to ensure that arbitrators comply with the requirements of the statute. See id., at 636-637, and n. 19 (declining to assume that arbitration will not be resolved in accordance with statutory law, but reserving consideration of "effect of an arbitral tribunal's failure to take cognizance of the statutory cause of action on the claimant's capacity to reinstate suit in federal court").
The suitability of arbitration as a means of enforcing Exchange Act rights is evident from our decision in Scherk. Although the holding in that case was limited to international agreements, the competence of arbitral tribunals to resolve § 10(b) claims is the same in both settings. Courts likewise have routinely enforced agreements to arbitrate § 10(b) claims where both parties are members of a securities exchange or the National Association of Securities Dealers (NASD), suggesting that arbitral tribunals are fully capable of handling such matters. See, e. g., Axelrod & Co. v. Kordich, Victor
Thus, the mistrust of arbitration that formed the basis for the Wilko opinion in 1953 is difficult to square with the assessment of arbitration that has prevailed since that time. This is especially so in light of the intervening changes in the regulatory structure of the securities laws. Even if Wilko's assumptions regarding arbitration were valid at the time Wilko was decided, most certainly they do not hold true today for arbitration procedures subject to the SEC's oversight authority.
In 1953, when Wilko was decided, the Commission had only limited authority over the rules governing self-regulatory organizations (SROs) — the national securities exchanges and registered securities associations — and this authority appears not to have included any authority at all over their arbitration rules. See Brief for Securities and Exchange Commission as Amicus Curiae 14-15. Since the 1975 amendments to § 19 of the Exchange Act, however, the Commission has had expansive power to ensure the adequacy of the arbitration procedures employed by the SROs. No proposed rule change may take effect unless the SEC finds that the proposed rule is consistent with the requirements of the Exchange Act, 15 U. S. C. § 78s(b)(2); and the Commission has the power, on its own initiative, to "abrogate, add to, and delete from" any SRO rule if it finds such changes necessary or appropriate to further the objectives of the Act, 15 U. S. C. § 78s(c). In short, the Commission has broad authority to oversee and to
In the exercise of its regulatory authority, the SEC has specifically approved the arbitration procedures of the New York Stock Exchange, the American Stock Exchange, and the NASD, the organizations mentioned in the arbitration agreement at issue in this case. We conclude that where, as in this case, the prescribed procedures are subject to the Commission's § 19 authority, an arbitration agreement does not effect a waiver of the protections of the Act. While stare decisis concerns may counsel against upsetting Wilko's contrary conclusion under the Securities Act, we refuse to extend Wilko's reasoning to the Exchange Act in light of these intervening regulatory developments. The McMahons' agreement to submit to arbitration therefore is not tantamount to an impermissible waiver of the McMahons' rights under § 10(b), and the agreement is not void on that basis under § 29(a).
The final argument offered by the McMahons is that even if § 29(a) as enacted does not void predispute arbitration agreements, Congress subsequently has indicated that it desires § 29(a) to be so interpreted. According to the McMahons, Congress expressed this intent when it failed to make more
The chief aim of this provision was to preserve the selfregulatory role of the securities exchanges, by giving the exchanges a means of enforcing their rules against their members. See, e. g., Tullis v. Kohlmeyer & Co., 551 F.2d 632, 638 (CA5 1977) ("[P]reserv[ing] for the stock exchanges a major self-regulatory role . . . is the basis of § 28(b)"); Axelrod & Co. v. Kordich, Victor & Neufeld, 451 F. 2d, at 840-841. In 1975, Congress made extensive revisions to the Exchange Act intended to "clarify the scope of the selfregulatory responsibilities of national securities exchanges and registered securities associations . . . and the manner in which they are to exercise those responsibilities." S. Rep. No. 94-75, p. 22 (1975). In making these changes, the Senate Report observed: "The self-regulatory organizations must exercise governmental-type powers if they are to carry out their responsibilities under the Exchange Act. When a member violates the Act or a self-regulatory organization's rules, the organization must be in a position to impose appropriate penalties or to revoke relevant privileges." Id., at 24.
The amendments to § 28 reflect this objective. Paragraph (3) of § 28(b) was deleted and replaced with new § 28(c), which provided that the validity of any disciplinary action taken by an SRO would not be affected by a subsequent decision by the SEC to stay or modify the sanction. See 15 U. S. C.
Thus, the amended version of § 28(b), like the original, mentions neither customers nor arbitration. It is directed at an entirely different problem: enhancing the self-regulatory function of the SROs under the Exchange Act.
The McMahons nonetheless argue that we should find it significant that Congress did not take this opportunity to address the general question of the arbitrability of Exchange Act claims. Their argument is based entirely on a sentence from the Conference Report, which they contend amounts to a ratification of Wilko's extension to Exchange Act claims. The Conference Report states:
The McMahons contend that the conferees would not have acknowledged Wilko in a revision of the Exchange Act unless they were aware of lower court decisions extending Wilko to § 10(b) claims and intended to approve them. We find this argument fraught with difficulties. We cannot see how Congress could extend Wilko to the Exchange Act without enacting into law any provision remotely addressing that subject. See Train v. City of New York, 420 U.S. 35, 45 (1975). And even if it could, there is little reason to interpret the Report as the McMahons suggest. At the outset, the committee may well have mentioned Wilko for a reason entirely different from the one postulated by the McMahons — lower courts had applied § 28(b) to the Securities Act, see, e. g., Axelrod & Co. v. Kordich, Victor & Neufeld, supra, at 843, and the committee may simply have wished to make clear that the amendment to § 28(b) was not otherwise intended to affect Wilko's construction of the Securities Act. Moreover, even if the committee were referring to the arbitrability of § 10(b) claims, the quoted sentence does not disclose what committee members thought "existing law" provided. The conference members might have had in mind the two Court of Appeals decisions extending Wilko to the Exchange Act, as the McMahons contend. See Greater Continental Corp. v. Schechter, 422 F.2d 1100 (CA2 1970); Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242 (CA3 1968). It is equally likely, however, that the committee had in mind this Court's decision the year before expressing doubts as to whether Wilko should be extended to § 10 (b) claims. See Scherk v. Alberto-Culver Co., 417 U. S., at 513 ("[A] colorable argument could be made that even the
We conclude, therefore, that Congress did not intend for § 29(a) to bar enforcement of all predispute arbitration agreements. In this case, where the SEC has sufficient statutory authority to ensure that arbitration is adequate to vindicate Exchange Act rights, enforcement does not effect a waiver of "compliance with any provision" of the Exchange Act under § 29(a). Accordingly, we hold the McMahons' agreements to arbitrate Exchange Act claims "enforce[able] . . . in accord with the explicit provisions of the Arbitration Act." Scherk v. Alberto-Culver Co., supra, at 520.
Unlike the Exchange Act, there is nothing in the text of the RICO statute that even arguably evinces congressional intent to exclude civil RICO claims from the dictates of the Arbitration Act. This silence in the text is matched by silence in the statute's legislative history. The private treble-damages provision codified as 18 U. S. C. § 1964(c) was added to the House version of the bill after the bill had been passed by the Senate, and it received only abbreviated discussion in either House. See Sedima, S. P. R. L. v. Imrex Co., 473 U.S. 479, 486-488 (1985). There is no hint in these legislative debates that Congress intended for RICO treble-damages claims to be excluded from the ambit of the Arbitration Act. See Genesco, Inc. v. T. Kakiuchi & Co., Ltd.,
Because RICO's text and legislative history fail to reveal any intent to override the provisions of the Arbitration Act, the McMahons must argue that there is an irreconcilable conflict between arbitration and RICO's underlying purposes. Our decision in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), however, already has addressed many of the grounds given by the McMahons to support this claim. In Mitsubishi, we held that nothing in the nature of the federal antitrust laws prohibits parties from agreeing to arbitrate antitrust claims arising out of international commercial transactions. Although the holding in Mitsubishi was limited to the international context, see id., at 629, much of its reasoning is equally applicable here. Thus, for example, the McMahons have argued that RICO claims are too complex to be subject to arbitration. We determined in Mitsubishi, however, that "potential complexity should not suffice to ward off arbitration." Id., at 633. Antitrust matters are every bit as complex as RICO claims, but we found that the "adaptability and access to expertise" characteristic of arbitration rebutted the view "that an arbitral tribunal could not properly handle an antitrust matter." Id., at 633-634.
Likewise, the McMahons contend that the "overlap" between RICO's civil and criminal provisions renders § 1964(c) claims nonarbitrable. See Page v. Moseley, Hallgarten, Estabrook & Weeden, Inc., 806 F.2d 291, 299, n. 13 (CA1 1986) ("[T]he makings of a `pattern of racketeering' are not yet clear, but the fact remains that a `pattern' for civil purposes is a `pattern' for criminal purposes"). Yet § 1964(c) is no different in this respect from the federal antitrust laws. In Sedima, S. P. R. L. v. Imrex Co., supra, we rejected the view that § 1964(c) "provide[s] civil remedies for offenses criminal in nature." See 473 U. S., at 492. In doing so, this Court observed: "[T]he fact that conduct can result in
The McMahons' final argument is that the public interest in the enforcement of RICO precludes its submission to arbitration. Mitsubishi again is relevant to the question. In that case we thoroughly examined the legislative intent behind § 4 of the Clayton Act in assaying whether the importance of the private treble-damages remedy in enforcing the antitrust laws precluded arbitration of § 4 claims. We found that "[n]otwithstanding its important incidental policing function, the treble-damages cause of action . . . seeks primarily to enable an injured competitor to gain compensation for that injury." 473 U. S., at 635. Emphasizing the priority of the compensatory function of § 4 over its deterrent function, Mitsubishi concluded that "so 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 637.
The legislative history of § 1964(c) reveals the same emphasis on the remedial role of the treble-damages provision. In introducing the treble-damages provision to the House Judiciary Committee, Representative Steiger stressed that "those who have been wronged by organized crime should at least be given access to a legal remedy." Hearings on S. 30 and Related Proposals before Subcommittee No. 5 of the House Committee on the Judiciary, 91st Cong., 2d Sess., 520 (1970). The policing function of § 1964(c), although important,
Not only does Mitsubishi support the arbitrability of RICO claims, but there is even more reason to suppose that arbitration will adequately serve the purposes of RICO than that it will adequately protect private enforcement of the antitrust laws. Antitrust violations generally have a widespread impact on national markets as a whole, and the antitrust treble-damages provision gives private parties an incentive to bring civil suits that serve to advance the national interest in a competitive economy. See Lindsay, "Public" Rights and Private Forums: Predispute Arbitration Agreements and Securities Litigation, 20 Loyola (LA) L. Rev. 643, 691-692 (1987). RICO's drafters likewise sought to provide vigorous incentives for plaintiffs to pursue RICO claims that would advance society's fight against organized crime. See Sedima,
In sum, we find no basis for concluding that Congress intended to prevent enforcement of agreements to arbitrate RICO claims. The McMahons may effectively vindicate their RICO claim in an arbitral forum, and therefore there is no inherent conflict between arbitration and the purposes underlying § 1964(c). Moreover, nothing in RICO's text or legislative history otherwise demonstrates congressional intent to make an exception to the Arbitration Act for RICO claims. Accordingly, the McMahons, "having made the bargain to arbitrate," will be held to their bargain. Their RICO claim is arbitrable under the terms of the Arbitration Act.
Accordingly, the judgment of the Court of Appeals for the Second Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
I concur in the Court's decision to enforce the arbitration agreement with respect to respondents' RICO claims and thus
Both the Securities Act of 1933 and the Securities Exchange Act of 1934 were enacted to protect investors from predatory behavior of securities industry personnel. In Wilko v. Swan, 346 U.S. 427 (1953), the Court recognized this basic purpose when it declined to enforce a predispute agreement to compel arbitration of claims under the Securities Act. Following that decision, lower courts extended Wilko's reasoning to claims brought under § 10(b) of the Exchange Act, and Congress approved of this extension. In today's decision, however, the Court effectively overrules Wilko by accepting the Securities and Exchange Commission's newly adopted position that arbitration procedures in the securities industry and the Commission's oversight of the self-regulatory organizations (SROs) have improved greatly since Wilko was decided. The Court thus approves the abandonment of the judiciary's role in the resolution of claims under the Exchange Act and leaves such claims to the arbitral forum of the securities industry at a time when the industry's abuses towards investors are more apparent than ever.
At the outset, it is useful to review the manner by which the issue decided today has been kept alive inappropriately by this Court. As the majority explains, Wilko was limited to the holding "that a predispute agreement could not be enforced to compel arbitration of a claim arising under § 12(2) of the Securities Act." Ante, at 228. Relying, however, on the reasoning of Wilko and the similarity between the pertinent provisions of the Securities Act and those of the Exchange Act, lower courts extended the Wilko holding to claims under the Exchange Act and refused to enforce predispute agreements to arbitrate them as well. See, e. g., Greater Continental Corp. v. Schechter, 422 F.2d 1100, 1103
In Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974), the Court addressed the question whether a particular predispute agreement to arbitrate § 10(b) claims should be enforced. Because that litigation involved international business concerns and because the case was decided on such grounds, the Court did not reach the issue of the extension of Wilko to § 10(b) claims. The Court, nonetheless, included in its opinion dicta noting that "a colorable argument could be made that even the semantic reasoning of the Wilko opinion does not control the case before us." 417 U. S., at 513. There is no need to discuss in any detail that "colorable argument," which rests on alleged distinctions between pertinent provisions of the Securities Act and those of the Exchange Act, because the Court does not rely upon it today.
One would have thought that, after these amendments, the matter of Wilko's extension to Exchange Act claims at last would be uncontroversial. In the years following the Scherk decision, all the Courts of Appeals treating the issue so interpreted Wilko.
There are essentially two problems with the Court's conclusion that predispute agreements to arbitrate § 10(b) claims may be enforced. First, the Court gives Wilko an overly narrow reading so that it can fit into the syllogism offered by the Commission and accepted by the Court, namely, (1) Wilko
I agree with the Court's observation that, in order to establish an exception to the Arbitration Act, 9 U. S. C. § 1 et seq., for a class of statutory claims, there must be "an intention discernible from the text, history, or purposes of the statute." Ante, at 227. Where the Court first goes wrong, however, is in its failure to acknowledge that the Exchange Act, like the Securities Act, constitutes such an exception. This failure is made possible only by the unduly narrow reading of Wilko that ignores the Court's determination there that the Securities Act was an exception to the Arbitration Act. The Court's reading is particularly starting because it is in direct contradiction to the interpretation of Wilko given by the Court in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985), a decision on which the Court relies for its strong statement of a federal policy in favor of arbitration. But we observed in Mitsubishi:
Such language clearly suggests that, in Mitsubishi, we viewed Wilko as holding that the text and legislative history of the Securities Act — not general problems with arbitration — established that the Securities Act constituted an exception to the Arbitration Act. In a surprising display of logic, the Court uses Mitsubishi as support for the virtues of arbitration and thus as a means for undermining Wilko's holding, but fails to take into account the most pertinent language in Mitsubishi.
It is not necessary to rely just on the statement in Mitsubishi to realize that in Wilko the Court had before it the issue of congressional intent to exempt statutory claims from the reach of the Arbitration Act. One has only to reread the Wilko opinion without the constricted vision of the Court. The Court's misreading is possible because, while extolling the policies of the Arbitration Act, it is insensitive to, and disregards the policies of, the Securities Act. This Act was passed in 1933, eight years after the Arbitration Act of 1925, see 43 Stat. 883, and in response to the market crash of 1929. The Act was designed to remedy abuses in the securities industry, particularly fraud and misrepresentation by securities-industry personnel, that had contributed to that disastrous event. See Malcolm & Segall 730-731. It had as its main goal investor protection, which took the form of an effort to place investors on an equal footing with those in the securities industry by promoting full disclosure of information on investments. See L. Loss, Fundamentals of Securities Regulation 36 (1983).
In the Court's view, the express language, legislative history, and purposes of the Securities Act all made predispute agreements to arbitrate § 12(2) claims unenforceable despite the presence of the Arbitration Act.
The Court's decision in Scherk is consistent with this reading of Wilko, despite the Court's suggestion to the contrary. See ante, at 229. Indeed, in reading Scherk as a case turning on the adequacy of arbitration, the Court completely ignores the central thrust of that decision. As the Court itself notes, ante, at 229, in Scherk the Court assumed that Wilko's prohibition on enforcing predispute arbitration agreements ordinarily would extend to § 10(b) claims, such as those at issue in Scherk. The Scherk Court relied on a crucial difference between the international business situation presented to it and that before the Court in Wilko, where the laws of the United States, particularly the securities laws, clearly governed the dispute. Scherk, in contrast, presented
In sum, the same reasons that led the Court to find an exception to the Arbitration Act for § 12(2) claims exist for
Even if I were to accept the Court's narrow reading of Wilko as a case dealing only with the inadequacies of arbitration in 1953,
As the Court observes, ante, at 231, in Wilko the Court was disturbed by several characteristics of arbitration that made such a process inadequate to safeguard the special position in which the Securities Act had placed the investor. The Court concluded that judicial review of the arbitrators' application of the securities laws would be difficult because arbitrators were required neither to give the reasons for their decisions nor to make a complete record of their proceedings. See 346 U. S., at 436. The Court also observed that the grounds for vacating an arbitration award were limited. The Court noted that, under the Arbitration Act, there were only
The Court today appears to argue that the Wilko Court's assessment of arbitration's inadequacy is outdated, first, because arbitration has improved since 1953, and second, because the Court no longer considers the criticisms of arbitration made in Wilko to be valid reasons why statutory claims, such as those under § 10(b), should not be sent to arbitration.
Furthermore, there remains the danger that, at worst, compelling an investor to arbitrate securities claims puts him in a forum controlled by the securities industry. This result directly contradicts the goal of both securities Acts to free the investor from the control of the market professional. The Uniform Code provides some safeguards
More surprising than the Court's acceptance of the present adequacy of arbitration for the resolution of securities claims is its confidence in the Commission's oversight of the arbitration procedures of the SROs to ensure this adequacy. Such confidence amounts to a wholesale acceptance of the Commission's present position that this oversight undermines the force of Wilko and that arbitration therefore should be compelled because the Commission has supervisory authority
The Court is swayed by the power given to the Commission by the 1975 amendments to the Exchange Act in order to permit the Commission to oversee the rules and procedures of the SROs, including those dealing with arbitration. See ante, at 233-234. Subsequent to the passage of these amendments, however, the Commission has taken the consistent position that predispute arbitration agreements,
Finally, the Court's complacent acceptance of the Commission's oversight is alarming when almost every day brings another example of illegality on Wall Street. See, e. g., N. Y. Times, Jan. 2, 1987, p. B6, col. 3. Many of the abuses recently
There is, fortunately, a remedy for investors. In part as a result of the Commission's position in this case, Congress has begun to look into the adequacy of the self-regulatory arbitration and the Commission's oversight of the SROs. In a letter dated February 11, 1987, Representative Dingell, Chairman of the House Subcommittee on Oversight and Investigations, notified the Chairman of the Commission that the Subcommittee is "conducting an inquiry into the adequacy of the current self-regulatory system and the Commission's
In the meantime, the Court leaves lower courts with some authority, albeit limited, to protect investors before Congress acts. Courts should take seriously their duty to review the results of arbitration to the extent possible under the Arbitration Act. As we explained in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., "courts should remain attuned to well-supported claims that the agreement to arbitrate resulted from the sort of fraud or overwhelming economic power that would provide grounds `for the revocation of any contract.' " 473 U. S., at 627, quoting 9 U. S. C. § 2. Indeed, in light of today's decision compelling the enforcement of predispute arbitration agreements, it is likely
I therefore respectfully dissent in part.
JUSTICE STEVENS, concurring in part and dissenting in part.
Gaps in the law must, of course, be filled by judicial construction. But after a statute has been construed, either by this Court or by a consistent course of decision by other federal judges and agencies, it acquires a meaning that should be as clear as if the judicial gloss had been drafted by the Congress itself. This position reflects both respect for Congress' role, see Boys Market, Inc. v. Retail Clerks, 398 U.S. 235, 257-258 (1970) (Black, J., dissenting), and the compelling need to preserve the courts' limited resources, see B. Cardozo, The Nature of the Judicial Process 149 (1921).
During the 32 years immediately following this Court's decision in Wilko v. Swan, 346 U.S. 427 (1953), each of the eight Circuits that addressed the issue concluded that the holding of Wilko was fully applicable to claims arising under the Securities Exchange Act of 1934.
For this reason, I respectfully dissent from the portion of the Court's judgment that holds Wilko inapplicable to the 1934 Act. Like JUSTICE BLACKMUN, however, I join Parts I, II, and IV of the Court's opinion.
Commentators, almost uniformly, have rejected the "colorable argument." See, e. g., Comment, Predispute Arbitration Agreements Between Brokers and Investors: The Extension of Wilko to Section 10(b) Claims, 46 Md. L. Rev. 339, 364-366 (1987) (Maryland Comment); Brown, Shell, & Tyson, Arbitration of Customer-Broker Disputes Arising Under the Federal Securities Laws and RICO, 15 Sec. Reg. L. J. 3, 18-19 (1987) (Brown, Shell, & Tyson); Malcolm & Segall, The Arbitrability of Claims Arising Under Section 10(b) of the Securities Exchange Act: Should Wilko Be Extended?, 50 Albany L. Rev. 725, 748-751 (1986) (Malcolm & Segall); Note, Arbitrability of Claims Arising Under the Securities Exchange Act of 1934, 1986 Duke L. J. 548, 565-570 (Duke Note). But see Note, Arbitrability of Implied Rights of Action Under Section 10(b) of the Securities Exchange Act, 61 N. Y. U. L. Rev. 506, 520-526 (1986).
"This legislation represents the product of nearly 4 years of studies, investigations, and hearings. It has been carefully designed to improve the efficiency of the securities markets and to increase investor protection. It is reform legislation in the very best sense, for it will lay the foundation for a stronger and more profitable securities industry while assuring that investors are more economically and effectively served." Hearings 1.
Other courts reaffirmed their pre-Byrd holdings that § 10(b) claims were nonarbitrable. See Sterne v. Dean Witter Reynolds, Inc., 808 F.2d 480, 483 (CA6 1987); Jacobson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 797 F.2d 1197, 1202 (CA3 1986), cert. pending, No. 86-487; King v. Drexel Burnham Lambert, Inc., 796 F.2d 59, 60 (CA5 1986), cert. pending, No. 86-282; 788 F.2d 94, 98 (CA2 1986) (case below). Two courts, which reexamined the issue, came to the same result on the basis of the similarities between the provisions of both Acts and the policies underlying them. See Conover v. Dean Witter Reynolds, Inc., 794 F. 2d, at 527; Wolfe v. E. F. Hutton & Co., 800 F.2d 1032, 1036-1037 (CA11 1986) (en banc), cert. pending, No. 86-1218.
To a certain extent, the new popularity of the "colorable argument" was not unrelated to the belief that the judicial attitude toward arbitration had changed and that Wilko should be reconsidered because of this change. See Phillips v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 795 F. 2d, at 1395, 1398, n. 16. One commentator observed: "The differences adduced by Justice White merely act as a wedge to hold the door open for this policy favoring arbitration." Maryland Comment 356, n. 149.
In Wilko, the Court did not discuss the situation where parties, after a dispute has arisen, enter into an agreement to arbitrate. 346 U. S., at 438 (Jackson, J., concurring). Courts have generally allowed enforcement of arbitration agreements in such circumstances despite the language of § 14, provided that the investor has made an informed waiver. See, e. g., Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1213 (CA2), cert. denied, 406 U.S. 949 (1972); Moran v. Paine, Webber, Jackson & Curtis, 389 F.2d 242, 245-246 (CA3 1968); see also Duke Note 558, and nn. 59, 60. This distinction makes sense when one considers that the Court's reading of § 14 to bar an investor's "waiver" of the judicial forum in the predispute setting emphasized the moment when this waiver occurred — "at a time when he is less able to judge the weight of the handicap the Securities Act places upon his adversary." 346 U. S., at 435. An investor would not be working under this disadvantage once a dispute has arisen. With the awareness — heightened by the reality of an actual dispute — of the possible benefits he would derive from proceeding in court and the possible burdens that his adversary would have to undergo, an investor might forgo the judicial forum for the quick resolution of the conflict in arbitration. He thus would remain master of the situation and in the special position Congress intended him to have.
"Alberto-Culver is an American corporation with its principal place of business and the vast bulk of its activity in this country, while Scherk is a citizen of Germany whose companies were organized under the laws of Germany and Liechtenstein. The negotiations leading to the signing of the contract in Austria and to the closing in Switzerland took place in the United States, England, and Germany, and involved consultations with legal and trademark experts from each of those countries and from Liechtenstein. Finally, and most significantly, the subject matter of the contract concerned the sale of business enterprises organized under the laws of and primarily situated in European countries, whose activities were largely, if not entirely, directed to European markets." 417 U. S., at 515.
The rules of the Uniform Code provide for the selection of arbitrators and the manner in which the proceedings are conducted. See Fifth SICA Report; see also Code of Arbitration Procedure, CCH NASD Manual ¶¶ 3701-3744 (July 1986); Arbitration Rules 600-620, CCH American Stock Exchange Guide ¶¶ 9540-9551J (May 1986); Arbitration Rules 600-634, CCH New York Stock Exchange Guide ¶¶ 2600-2634 (Mar. 1985). Some arbitration agreements permit arbitration before the American Arbitration Association, whose rules are similar to those in the above Codes. Brief for American Arbitration Association as Amicus Curiae 12-13, and App. B.; see also Fletcher 451.
"Unless requested by the arbitrators or a party or parties to a dispute, no record of an arbitration proceeding shall be kept. If a record is kept, it shall be a verbatim record. If a party or parties to a dispute elect to have the record transcribed, the cost of such transcription shall be borne by the party or parties making the request." Fifth SICA Report § 25, p. 36.
"It is the Commission's view that it is misleading to customers to require execution of any customer agreement which does not provide adequate disclosure about the meaning and effect of its terms, particularly any provision which might lead a customer to believe that he or she has waived prospectively rights under the federal securities laws, rules thereunder, or certain rules of any self-regulatory organization. Customers should be made aware prior to signing an agreement containing an arbitration clause that such a prior agreement does not bar a cause of action arising under the federal securities laws. If a broker-dealer customer's agreement contains an arbitration clause, it must be consistent with current judicial decisions regarding the application of the federal securities laws to predispute arbitration agreements.
"The Commission is especially concerned that arbitration clauses continue to be part of form agreements widely used by broker-dealers, despite the number of cases in which these clauses have been held to be unenforceable in whole or in part. Requiring the signing of an arbitration agreement without adequate disclosure as to its meaning and effect violates standards of fair dealing with customers and constitutes conduct that is inconsistent with just and equitable principles of trade. In addition, it may raise serious questions of compliance with the anti-fraud provisions of the federal securities laws." Broker-Dealers Concerning Clauses in Customer Agreements Which Provide for Arbitration of Future Disputes, SEC Exchange Act Rel. No. 15984 (July 2, 1979), 44 Fed. Reg. 40462, 40464 (footnotes omitted).
As the quoted material suggests, the Commission was aware of the court cases concerning such arbitration agreements. In the release, the Commission discussed at length this Court's Wilko decision and cases in which courts had extended it to § 10(b) claims. See 44 Fed. Reg., at 40463. The thrust of the release is that the Commission not only accepted the case law but also, for its own reasons, thought that the arbitration agreements in the predispute context were inappropriate and misleading. See, e. g., Implementation of an Investor Dispute Resolution System, SEC Exchange Act Rel. No. 13470 (Apr. 26, 1977), [1977-1978 Transfer Binder] CCH Fed. Sec. L. Rep. ¶ 81,136, p. 87,907 ("Customer agreements to arbitrate, at the instance of a firm, in margin agreements or elsewhere, should be prohibited"). The Commission acknowledges that in 1975 it even filed an amicus brief in Ayres v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 538 F.2d 532 (CA3), cert. denied, 429 U.S. 1010 (1976), in which it supported the extension of Wilko to § 10(b) claims. See Brief 18, n. 13.
"It shall be a fraudulent, manipulative or deceptive act or practice for a broker or dealer to enter into an agreement with any public customer which purports to bind the customer to the arbitration of future disputes between them arising under the Federal securities laws, or to have in effect such an agreement, pursuant to which it effects transactions with or for a customer." Rule 15c2-2, 17 CFR § 240.15c2-2(a) (1986).