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 “not subject to compulsory arbitration.”
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 burden must be met by the party challenging the arbitrability of the federal statutory claim.
The Opinion: The Court ruled 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 (SEA) were non-arbitrable, expressed concerns about the ability for appropriate fact-finding 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.”
The Court showed its bar for satisfying this threshold would be quite high. The text of the SEA expressly provides, “The district courts of the United States. . . shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder.” Despite that, the Court decided arbitration was an adequate substitute for a judicial forum and upheld the forced arbitration clause in the consumer contract.
When considering the Court’s “contrary congressional command” standard to statutes passed prior to the 1980’s, it is worth noting how highly unlikely it is that Congress would have documented their thoughts on arbitration in the legislative record. At that time the very notion that substantive statutory rights enacted by the legislature to protect consumers and employees could be shuffled out of a judicial forum because of some corporate fine print would likely have been unimaginable to them. Still, the Court’s decision here requires individuals seeking to enforce their statutory rights in a public court provide non-existent evidence of the congressional intent—a requirement that has undoubtedly stymied the enforcement of civil rights, consumer, and workplace protections. To make matters worse, the standard for overriding the FAA with another federal statute articulated here was further narrowed in CompuCredit Corp. v. Greenwood, 132 S. Ct. 665 (2012). In CompuCredit, the Court required parties demonstrate the legislative intent to exclude arbitration. Proof of this intent must be “explicit and particularized,” not merely “discernable from the text, history, or purposes of the statute,” as required here.
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