Relevant Facts: In order to open retirement accounts with a brokerage firm, a couple signed preprinted customer agreements that contained arbitration clauses among the fine print. The customers subsequently filed RICO, securities fraud, and federal anti-trust claims in federal district court against the firm. The company moved to compel arbitration and succeeded in all but the RICO claims. Relying on the Supreme Court’s precedent in Wilko, the appeals court ruled that in addition to the RICO claim, the fraud claims based on the Securities Act were also non-arbitrable.
Question Before The Court: Whether arbitration clauses in consumer contracts of adhesion are enforceable when the underlying claim is based on a federal statute, and what level of burden must be met by the party challenging the arbitrability of the federal statutory claim.
The Opinion: The Court found that RICO and anti-trust claims could be forced into arbitration, regardless of the fact that the arbitration clause was presented in a pre-printed form by the party with superior bargaining power. In so doing, the Court hollowed out its Wilko decision. The Wilko court, in finding claims under the Securities and Exchange Act were non-arbitrable, expressed concerns about the ability for appropriate factfinding in such complex cases, or in those requiring “subjective findings on the purpose and knowledge of the alleged violator.” Moreover, the Wilko court acknowledged that an arbitrator is tasked with enforcing the terms of a contract, not enforcing the law and that arbitrators must make legal determinations “without judicial instruction of the law.” The Wilko Court expressed reservations about the risk of harm that could arise due to the fact that arbitrators could make grave errors in applying the law, but their decisions “are not subject, in the federal courts, to judicial review.” In a stunning display of hubris, the Shearson Court swatted down those concerns by citing its own extremely recent rulings in Mitsubishi Motors, Dean Witter Reynolds, and Moses Cone, providing, “It is difficult to reconcile Wilko’s mistrust of the arbitral process with this Court’s subsequent decisions involving the Arbitration Act. . . . Most of the reasons given in Wilko have been rejected by the Court as a basis for holding claims to be non-arbitrable.”
The Court went on to provide, “Th[e] duty to enforce arbitration agreements is not diminished when a party bound by an agreement raises a claim founded on statutory rights. . . . The [FAA], standing alone, therefore mandates enforcement of agreements to arbitrate statutory claims. Like any statutory directive, the [FAA’s] mandate may be overridden by contrary congressional command. The burden is on the party opposing arbitration, however, to show that Congress intended to preclude waiver of judicial remedies for the statutory rights at issue. If Congress did intend to limit or prohibit waiver of a judicial forum for a particular claim, such an intent will be deducible from the statute’s text or legislative history, or from inherent conflict between arbitration and the statute’s underlying purposes.”
Of course, when it comes to statutes that were passed prior to the 1980’s, it is highly unlikely that Congress would have documented their thoughts on arbitration in the legislative record because the very notion that substantive statutory rights enacted by the legislature to protect consumers and employees could be shuffled out of a judicial forum by some corporate fine print would likely have been unimaginable to them. Still, the Court’s decision here requires people seeking to enforce their statutory rights in a public court to provide non-existent evidence of the then-unthinkable – a requirement that has undoubtedly stymied the enforcement of civil rights, consumer, and workplace protections.
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