Rodriguez de Quijas v. Shearson/American Express, Inc.

Syllabus Petitioners, securities investors, signed a standard customer agreement which included an agreement to settle account disputes through binding arbitration unless the agreement was found unenforceable under fede al or state law. When the investments turned sour, petitioners brought suit in the District Court against, inter alias, respondent brokerage firm, alleging that their money was lost in unauthorized and fraudulent transactions in violation of, among other things, the provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. The District Court ordered all but the Securities Act claims to be submitted to arbitration, holding that those claims must proceed in the court action pursuant to the ruling in Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168, that an agreement to arbitrate Securities Act claims is void under § 14 of the Act, which prohibits a binding stipulation "to waive compliance with any provision" of the Act. The Court of Appeals reversed, concluding that the arbitration agreement is enforceable because this Court's subsequent decisions have reduced Wilko to "obsolescence." Held: A predispute agreement to arbitrate claims under the Securities Act of 1933 is enforceable and resolution of the claims only in a judicial forum is not required. Pp. 479-486. (a) Wilko is overruled. It was incorrectly decided and is inconsistent with the prevailing uniform construction of other federal statutes governing arbitration agreements in the setting of business transactions. See, particularly, Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 107 S.Ct. 2332, 96 L.Ed.2d 185 which declined to read § 29(a) of the 1934 Act, which is identical to § 14 of the 1933 Act, to prohibit enforcement of predispute agreements to arbitrate, and which stressed the strong language of the Arbitration Act declaring a federal policy favoring arbitration. It would be undesirable for Wilko and McMahon to exist side by side because their inconsistency is at odds with the principle that the 1933 and 1934 Acts be construed harmoniously in order to discourage litigants from manipulating their allegations merely to cast their claims under one rather than the other securities law. Pp. 479-485. (b) The customary rule of retroactive application-that the law announced in the Court's decision controls the case at bar-is appropriate here. Although the decision to overrule Wilko establishes a new principle of law, the ruling furthers the purpose and effect of the Arbitration Act without undermining those of the Securities Act; it does not produce substantial inequitable results;  and resort to arbitration does not inherently undermine any of petitioners' substantive rights under the Securities Act. Pp. 485-486 845 F.2d 1296 (CA5 1988) affirmed. KENNEDY, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and WHITE, O'CONNOR, and SCALIA, JJ., joined. STEVENS, J., filed a dissenting opinion, in which BRENNAN, MARSHALL, and BLACKMUN, JJ., joined, post, p.. Denis A. Downey, Brownsville, Tex., for petitioners. Theodore A. Krebsbach, Jeffrey L. Friedman, for respondent. Justice KENNEDY delivered the opinion of the Court.