I. INTRODUCTION
This is аn action by a customer against his securities broker for damages resulting from alleged violations of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission Rules. In this appeal by the broker, the issue is whether the claim should be submitted to arbitration under the arbitration provision of the parties’ customer agreement. Relying upon the Supreme Court’s decision in
Wilko v. Swan,
The genesis of this appeal is Justice White’s special concurring opinion in
Dean
*521
Witter Reynolds, Inc. v. Byrd,
We affirm the district court’s ruling that claims under section 10(b) of the 1934 Act should be litigated in federal court rather than submitted to arbitration. For the reasons discussed below, we conclude that the language and history of the securities statutes, considered against the background of controlling Supreme Court decisions and circuit court decisions stressing thе importance of a federal judicial forum for Rule 10b-5 claims, require us to hold that the judicial forum for such claims cannot be waived by an arbitration agreement between a customer and broker.
II. BACKGROUND
Plaintiff-appellee, Harry Conover, opened a margin account with Dean Witter Reynolds, Inc., in 1960 and signed a form “customer agreement,” which contained the following arbitration provision:
16. Any controversy between you and the undersigned arising out of or relating to this contract or the breach thereof, shall be settled by arbitration, in accordance with the rules ... of either the Arbitration Committee of the Chamber of Commerce of the State of New York, or the American Arbitration Association, or the Board of Arbitration of the New York Stock Exchange____
In July, 1983, Conover brought this suit against Dean Witter and the broker who handled Conover’s account, Brenton Ogden. Conover alleged that the defendants “churned” and manipulated his account to generate sales commissions, in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5.
On May 10, 1985, shortly after the Supreme Court’s decision in Byrd, Dean Witter filed a motion to compel arbitration of Conover’s section 10(b) claim and to stay further proceedings pending completion of that arbitration. The motion stressed Justice White’s concurrence in Byrd, and urged that arbitration provisions of a customer agreement should constitute a waiver by the customer of a judicial forum for section 10(b) claims.
In discussing the waiver issue, Justice White posed a question which the parties had not raised and which the Court did not need to decide in
Byrd.
Indeed, as Justice White observed, the very “premise of the controversy” in
Byrd
was that the plaintiff's claims in that case under the 1934 Act were not arbitrable, in spite of the arbitration agreement.
Byrd,
This assumption of non-arbitrability of section 10(b) claims is one that this court has shared. It is reflected in several Ninth Circuit Court decisions after the Supreme Court’s decision in
Wilko,
and before its opinion last year in
Byrd. See Kehr v. Smith Barney, Harris Upham & Co.,
Although this circuit did not directly decide the issue, at least five other circuits in the period before
Byrd
did decide it, and
*522
they held squarely that 1934 claims are not arbitrable.
Mansbach v. Prescott, Ball & Turben,
After the Supreme Court’s opinions in
Byrd,
at least one circuit, the Second, has reaffirmed its
pre-Byrd
holding of non-arbitrability, reaching the same conclusion that we reach today.
McMahon v. Shearson/American Express, Inc.,
Because our previous decisions have not addressed the issue squarely, we are free in this case to consider the issue appellants raise. We do so by examining, in light of the questions raised by Justice White, the statutes, their history, and their interpretation by the courts.
III. DISCUSSION
Dean Witter claims that the Arbitration Act, 9 U.S.C. § 1, et seq., requires arbitration of Conover’s claims against it. The Arbitration Act provides that an arbitration аgreement in a contract evidencing a transaction involving commerce or in a maritime transaction “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.
As Dean Witter points out, the Supreme Court repeatedly has enforced arbitration agreements in light of the strong federal policy evidencеd in the Arbitration Act.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,
— U.S. —,
The Arbitration Act, however, obviously does not automatically validate an arbitration agreement in the face of contrary congressional policy.
See, e.g. Wilko v. Swan,
Just as it is the congressional policy manifested in the federal Arbitration Act that requires courts liberally to construe the scope of arbitration agreements covered by the Act, it is the congressional intention expressed in some other statute on which the courts must rely to identify any category of claims as to which agreements to arbitrate will be held unenforceable.
Mitsubishi,
*523 Thus, the question in this case is whether congressional policy prohibits arbitration of claims arising under section 10(b) of the Securities Exchange Act of 1934, despite the strong federal policy favoring arbitration. To determine Congress’ intent, we study the text, and both the legislative and judicial history of the 1934 Act, with due regard for the purposes underlying the securities and arbitration statutes.
In determining congressional intent with respect to waiver of a judicial forum we look first to the language of the securities statutes. In Wilko, the Supreme Court found that section 14 of the Securities Act of 1933 was a manifestation of Congress’ intent to prohibit waiver of the right to a judicial forum, even under a written arbitration agreement. Section 14 provides:
Any condition, stipulation or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.
15 U.S.C. § 77n. The Wilko Court reasoned that an arbitration agreement required a securities purchaser to waive compliance with section 22, which provides for enforcement of section 12(2) in state or federal court. It concluded that under section 14, such an agreement was void.
The Securities Exchange Act of 1934 contains a waiver provision almost identical to section 14 of the 1933 Act. Section 29(a) provides:
Any condition, stipulation or provision binding any person to waive compliance with any provision of this chapter or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.
15 U.S.C. § 78cc(a). The 1934 Act restricts enforcement to the federal courts. 15 U.S.C. § 78aa. Thus, to the extent that Wilko rests upon the conclusion that an arbitration agreement is an impermissible waiver of enforcement rights arising pursuant to statute or regulations, the similarity of the Acts’ waiver provisions suggests that Wilko’s rеsult also would apply to claims arising under section 10(b) of the 1934 Act and Rule 10b-5.
Hence, several circuits have relied on the similarity between the anti-waiver provisions of the 1934 Act and the 1933 Act in refusing to compel arbitration of section 10(b) claims.
See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Moore,
Despite the analogous waiver provisions in the 1933 Act and the 1934 Act, appellants contend that Wilko’s reasoning should not be applied to the claim presented in this case, bеcause the 1934 Act lacks an express provision for a private right of action under section 10(b). As Justice White pointed out, the original text of the 1934 Act, standing alone, is not conclusive as to whether a federal judicial forum exists at all for section 10(b) claims, much less as to whether the judicial forum can be waived.
More important, the cause of action under § 10(b) and Rule 10b-5, involved here, is implied rather than еx-pressed____ Moreover, Wilko’s solicitude for the federal cause of action ... is not necessarily appropriate where the cause of action is judicially implied and not so different from the common law action.
Byrd,
We therefore look beyond the original text of the Act to its subsequent history in
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Congress and the courts. That history tells us, first, that the implied cause of action in federal court under section 10(b) and Rule 10b-5 has become well-established, and its nonwaivable character has become well accepted by the Securities and Exchange Commission, the courts of appeals, and Congress itself. For histories of the origin and growth of section 10(b) actions,
see
5A A. Jacobs,
Litigation and Practice under Rule 10(b)-5
§ 8 (2d ed. 1985); 3 L. Loss,
Securities Regulation,
1763-64 and nn. 260-63 (2d ed. 1961) and 6
id.
at 3871-73 (Supp.1969). In 1979, the Securities and Exchange Commission issued a Release warning broker-dealers that customers should be made aware that they have a right to a judicial forum to pursue claims under both the 1933 and 1934 Acts, notwithstanding their arbitration agreements. Sec.Exch. Act Release No. 15984 (July 2, 1979),
The legislative and judicial history tells us, second, that Congress could have eliminated the federal cause of action for section 10(b) in 1975, when it undertook comprehensive revision of the 1933 and 1934 Acts, had it chosen to do so. Congress’ revision, however, left section 10(b) intact.
The history tells us, third, and most important, that in 1975, Congress expressly recognized the non-arbitrable nature of disputes between brokers and customers. In the conference report to the Securities Act Amendment of 1975, Congress emphasized that its amendment to section 28 of the Securities Exchange Act of 1934, which permitted arbitration agreements between brokers and exchanges, did not extend to arbitration agreements bеtween brokers and customers:
It was the clear understanding of the conferees that this amendment did not change existing law, as articulated in Wilko v. Swan,346 U.S. 427 [74 S.Ct. 182 ,98 L.Ed. 168 ] (1953), concerning the effect of arbitration proceeding provisions in agreements entered into by persons dealing with members and participants of self-regulatory organizations.
H.R.Rep. No. 229, 94th Cong., 1st Sess. 111, reprinted in 1975 U.S.Code Cong. & Ad.News 179, 321, 342.
This legislative history is compelling, as two of our sister circuits have recognized in holding that section 10(b) claims are non-arbitrable. In
Ayres v. Merrill, Lynch, Pierce, Fenner & Smith, Inc.,
the Third Circuit noted this language in the conference report, and concluded, “Congress appears to have accepted the view that
Wilko v. Swan
applies in the 10b-5 context.”
The policies served by judicial enforcement of section 10(b) and Rule 10b-5 reflect the unsuitability of arbitration for such claims. This can be seen in the many opinions of the Supreme Court and courts of appeals involving section 10(b). The leading opinion in this circuit is
Fratt v. Robinson,
Other circuits have adopted Fratt’s reasoning and have similarly stressed the need for judicial control over securities transactions.
See Jordan Building Corp. v. Doyle, O’Connor & Co.,
The express lesson drawn by the Supreme Court is that the 1933 and 1934 Acts are interrelated components of the federal securities regulation scheme.
Ernst & Ernst v. Hochfelder,
This can be demonstrated further by comparing the reasons for non-arbitrability under the 1933 Act, as discussed in
Wilko,
with the considerations relevant to the 1934 Act and section 10(b). In
Wilko,
the Supreme Court gave three main reasons for concluding that Congress intended, by the nonwaiver provisions of section 14, to void agreements to arbitrate 1933 Act claims: first, securities customers are subject to overbearing by securities dealers; second, arbitration is not the equivalent of judiсial proceedings in securities cases under the 1933 Act, because judicial direction is needed to insure the effectiveness of the protective provisions of the Act; and third, because of the special jurisdictional and procedural protections of the 1933 Act, a securities customer surrenders more by agreeing to arbitrate claims under the Act than would a person who agrees to arbitrate a normal business transaction claim.
Wilko,
All of these considerations favoring non-arbitrability apply with at least equal force to section 10(b) claims like the one before us. First, the bargaining position between dealers and customers is no different with respect to section 10(b) claims than with respect to any other securities claim. Dealers are as likely to “maneuver buyers into a position that might weaken their ability to recover,”
Wilko,
Weissbuch
followed on the heels of the Supreme Court’s decision in
Scherk v. Alberto-Culver Co., 417
U.S. 506,
[ajnother consideration at play in both the Wilko and Scherk cases was the bargaining posture of the parties. The holding in Wilko was directed at protecting ... ‘the relatively uninformed individual investor.’ Lacking bargaining power and extensive information about his investment, this type of individual is most vulnerable to securities swindles and in most need of the special protection and remedies afforded by the Securities laws. It would be admittedly incongruous to attach this kind of disparity in leverage to the situation in Scherk whеre both parties possessed formidable financial interest and where their arbitration agreement emerged from a period of prolonged and extensive negotiations.
Weissbuch,
Second, the need for “the exercise of judicial direction to fairly assure [the Act’s] effectiveness,”
Wilko,
Even though the provisions of the Securities Act, advantageous to the buyer, apply their effectiveness in application is lessened in arbitration as compared to judicial proceedings. Determination of the quality of a commodity or the amоunt of money due under a contract is not the type of issue here involved. This case requires subjective findings on the purpose and knowledge of an alleged violator of the Act. They must not only be determined but applied by the arbitrators without judicial instruction oh the law. As their award may be made without explanation of their reasons and without a complete record of their proceedings, the arbitrаtors’ conception of the legal meaning of such statutory requirements as “burden of proof,” “reasonable care” or “material fact,” ... cannot be examined. [Furthermore, pjower to vacate an award is limited.
Wilko,
The third Wilko factor, the 1933 Act’s protections to ensure a judicial forum, are also present in the 1934 Act for section 10(b) claims. The requirements for diversity jurisdiction need not be met to bring a claim under section 10(b), and even in cases in which diversity jurisdiction can be established, a section 10(b) plaintiff has greater service-of-process and venue resources than does a diversity plaintiff. There is no amount in controversy requirement. Section 27, the jurisdictional section of the 1934 Act, provides for nationwide service *527 of process, as does section 22 of the 1933 Act. See 15 U.S.C. § 78aa (section 27 of the 1934 Act); 15 U.S.C. § 77v (section 22 of the 1933 Act).
In fact, the 1934 Act provides еven greater venue choices than does the 1933 Act. Compare 15 U.S.C. § 78aa (section 27 of the 1934 Act) (any district where the defendant is found, inhabits or transacts business, or “where any act or transaction constituting the violation occurred”) with 15 U.S.C. § 77v (section 22 of the 1933 Act) (any district where the defendant is found, inhabits or transacts business, “or in the district where the offer of sale took place”). Both venue provisions are broader than thosе applicable to diversity suits. See 28 U.S.C. § 1391. Finally, while the 1933 Act grants concurrent jurisdiction to federal and state courts, the 1934 Act vests exclusive jurisdiction in the federal courts. This distinction is an even more forceful indication of Congress’ intent that federal courts oversee the interpretation and application of the 1934 Act. We therefore conclude that the factors that led the Wilko Court to conclude that Congrеss intended to preclude enforcement of arbitration agreements under the 1933 Act can be no less applicable to claims under the 1934 Act.
Our holding, that Congress intended to preclude enforcement of agreements to arbitrate claims arising under section 10(b) of the Securities Exchange Act of 1934, comports with the legislative history and purposes of the 1934 Act, as well as with the Supreme Court’s analysis of similar claims under the 1933 Act. We therefore affirm the district court’s order denying Dean Witter’s motion to compel arbitration of Harry Conover’s section 10(b) claims.
Affirmed.