| Shearson/American Express Inc. v. McMahon | |
|---|---|
 | |
| Argued March 3, 1987 Decided June 8, 1987 | |
| Full case name | Shearson/American Express Inc., and Mary Ann McNulty v. Eugene McMahon, Julia McMahon, individually and as Trustees of the David J. Hodder & Son, Inc. Employee Pension Plan; the David J. Hodder & Son Inc. Profit Sharing Plan; the Laurie Funeral Home, Inc. Employee Pension Plan; the Laurie Funeral Home Profit Sharing Plan, Plaintiffs-Appellants-Cross-Appellees |
| Docket no. | 86-44 |
| Citations | 482 U.S. 220 (more) 107 S. Ct. 2332; 96 L. Ed. 2d 185 |
| Argument | Oral argument |
| Case history | |
| Prior | Defense motion to compel arbitration granted, 618 F. Supp. 384 (S.D.N.Y. 1985); rev'd on appeal, 788 F.2d 94 (2d Cir. 1986) |
| Subsequent | Preliminary injunction against plaintiffs granted and counsel sanctioned, 709 F. Supp. 369 (S.D.N.Y. 1989); sanctions rev'd on appeal, 896 F.2d 17 (2d Cir. 1990). |
| Holding | |
| Language of Securities Exchange Act of 1934 is different enough from Securities Act of 1933 that previous Court holding in Wilko v. Swan that nonwaiver provisions of latter held there to defeat arbitration clause cannot be so held in claims under the former; claims under Racketeer Influenced and Corrupt Organizations Act also arbitrable under Federal Arbitration Act. Second Circuit reversed and remanded. | |
| Court membership | |
| |
| Case opinions | |
| Majority | O'Connor, joined by Rehnquist, White, Powell, Scalia |
| Concur/dissent | Blackmun, joined by Brennan, Marshall |
| Concur/dissent | Stevens |
| Laws applied | |
| Racketeer Influenced and Corrupt Organizations Act, Federal Arbitration Act, Securities Exchange Act of 1934 | |
Shearson/American Express Inc. v. McMahon, 482 U.S. 220 (1987), is a United States Supreme Court decision concerning arbitration of private securities fraud claims arising under the Securities Exchange Act of 1934. By a 5–4 margin the Court held that its holding in a 1953 case, Wilko v. Swan, that the nonwaiver provisions of the Securities Act of 1933 prevented the mandatory arbitration of such claims, did not apply to claims under the 1934 Act due to differences in the corresponding language of the two statutes, reversing a decision of the Second Circuit Court of Appeals that had affirmed what had been considered settled law, despite the lack of a precedent. It likewise held that claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) were arbitrable, affirming an order from the district court that the Second Circuit had also upheld.
The question of whether claims under the 1934 Act were likewise exempt from the Federal Arbitration Act had first been raised in a 1974 case, Scherk v. Alberto-Culver Inc.. At that time Potter Stewart had found them not relevant to the case and upheld the arbitration order on the grounds that the case involved an international dispute. They had resurfaced in the previous term, in Justice Byron White's concurrence in Dean Witter Reynolds Inc. v. Byrd. Lower courts began embracing White's analysis, eventually creating a conflict in the circuits on appeal.
Justice Sandra Day O'Connor wrote the majority opinion, reiterating and deepening White's analysis. Harry Blackmun dissented for himself and justices Brennan and Marshall, who had written for a unanimous Court in Byrd. John Paul Stevens wrote a separate dissent. Both of those dissents concurred in the holding that the RICO claims were arbitrable. On remand, the case remained unresolved for another three years. The district judge fined the McMahons' counsel for filing frivolous motions, sanctions which were reversed on appeal, setting another precedent.
McMahon greatly expanded the use of arbitration in securities disputes, since many of them take place under the 1934 Act, which regulates the secondary market in which most investors trade. It also signaled a greater acceptance of arbitration as a desirable and fair method of dispute resolution. This was cited by the Court three years later in Rodriguez de Quijas v. Shearson/American Express Inc., when it overturned Wilko completely and held that claims under the 1933 Act could also be arbitrated if the parties had clearly chosen to do so. The expansion in securities arbitration as a result led to reforms during the 1990s to make the process more investor-friendly.