*1 WILKO SWAN et HAYDEN, doing business al., CO., STONE & et al. Argued
No. 39. October 1953. Decided December H. Richard Weis argued petitioner. for cause With him on the brief Henry E. Mills. was H.
By special William Court, leave of Timbers argued cause Securities and Commission, him on brief curiae, With urging reversal. as amicus Stern, Foster and Roger General Acting Solicitor were Cohen. Alexander *2 respondents. argued the cause G. Hitchcock
Horace Francis Ray D. and Ralph on brief were him With Koch. E. of the Court. opinion delivered
Mr. Justice Reed re customer, against a by petitioner,* action This was brokerage firm, in a securities spondents, partners for the Court States District brought the United damages under York, of New to recover Southern District complaint 1933.1 of (2) § 12 of Securities Act through the January 17, 1951, that on about alleged or was petitioner of commerce, instrumentalities interstate by Company purchase and Hayden, induced Stone participated as *The Securities amicus and Commission throughout petitioner’s shared curiae this case and has burden presenting the to the Court. case seq. (2), C. et 48 Stat.
1 48 Stat. U. S. §77a (2), provides: “Any person U. C. who— .... §771 exempted “(2) security (whether sells a or not (a) title, paragraph (2) of of section 77c other than of subsection any 77c), by of said section means or instruments use transportation or or communication in interstate commerce communication, mails, prospectus means of or which a oral includes or state a untrue statement of a material fact omits to material necessary light statements, fact in order to make the in the they (the made, misleading circumstances under which not were purchaser omission), knowing not of such and who shall untruth proof know, he sustain the burden of did not in the known, could exercise reasonable care not have of such untruth person security omission, purchasing shall liable to the such from equity him, who sue either at law or in court of com- petent jurisdiction, security paid recover the for such consideration thereon, thereon, with interest less the received amount income upon security, damages longer the tender such or for if he no owns security.” Air In- Associates, shares of common stock 1,600 representations false to a corporated, by Air merger Borg Corporation, contract with the Warner per $6.00 Associates’ stock would be valued at share over price, the then current market and that financial interests buying up speculative profit. were the stock for the alleged Page was that he was not told that Haven B. (also named as defendant but not involved in this review2), of, a director Air for, counsel Associates was then own Air selling including his stock, Associates’ petitioner some or all that purchased. Two weeks after purchase, petitioner disposed of the stock at a loss. Claiming that the loss was due to misrepre- the firm’s sentations and omission of information Mr. concerning Page, he sought damages. *3 answering
Without the the complaint, respondent moved to stay the trial of the action to 3 of § the United States Arbitration Act3 until an accordance with the terms of identical margin agreements was had. An accompanied affidavit the motion stating parties’ relationship was controlled by the terms of the agreements and that firm while the willing was to petitioner arbitrate had failed to proceed seek or with any arbitration of the controversy.
Finding that the margin agreements provide that arbitration should be the method of settling all future 2 Swan, See Wilko v. 445. 39 (Supp. V, 1952) U. S. C. seq. provides: et § § “If proceeding suit or brought of the courts of the upon any United States issue referable to agree- arbitration under an writing ment in arbitration, such the court in which such suit pending, upon is being satisfied that the issue involved in such suit proceeding is referable to arbitration under agreement, such an application shall on of one of stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing applicant stay for the is not in default proceeding with such arbitration.” agreement held that the Court the District
controversies, advantageous deprived petitioner arbitrate to and de- by the Securities afforded remedy court Appeals concluded A Court of divided stay.4 nied to agreement refer prohibit the Act did arbitration, and to reversed.5 future controversies to arbitrate whether question is stipulation, pro- a “condition, controversy future to waive any security binding any person acquiring vision of the Securities any provision” with compliance certiorari, 345 We granted 146 declares “void.” which and novel federal important this S. to review U. Act and the United affecting both question D’Alene Frost & Coeur Act. Co. States Arbitration Cf. Mines Corp., U. complaint light in the margin agreement
As the commerce, no issue a transaction interstate evidenced applicability arises suit, upon Arbitration Act based States (Supp. V, 1952) § S. C. Cf. the Securities Act. U. Bros., McGough F. 2d 276, Tejas Development Co. States, Agostini Bldg. Corp. Bros. v. United Sturges Confusing 2d Some Murphy, F. 854. See Contemp. Law Relating Arbitration, Matters & Prob.580.
In that there response message urging to a Presidential emptor be added to the caveat the further ancient rule of *4 7 passed beware,” Congress doctrine of “let the seller also 4 Swan, Supp. Wilko v. F. 107 75. 5 Swan, Wilko v. F. 2d 439. 201 6 84, provides: 14 48 Stat. 15 U. C. 77n. S. § § “Any condition, provision binding any stipulation, person ac- any security quiring compliance provision of to waive subchapter regulations or of the rules and of the Commission shall be void.” 7 Rep. 85, Cong., H. R. No. 2. 73d 1st Sess.
431 protect invest Designed 1933. Act of underwriters, and dealers issuers, requires ors,8 of se fair of the character make full and disclosure foreign commerce and sold interstate curities policy, To effectuate this fraud their sale.9 prevent misrep to recover for (2) special right 12 created a § substantially which differs from com resentation in that the seller is made to assume mon-law action The proving the burden of lack scienter.10 Act’s special right competent is enforceable court a jurisdiction state —and removal from state —federal If prohibited. brought court, court is suit be a federal purchaser venue, privilege has a wide choice of process jurisdictional nation-wide service of and the $3,000 requirement diversity inapplicable.11 cases is
The States Arbitration Act establishes stat- desirability ute the of arbitration as an alternative to the complications litigation. reports of both Houses on that avoiding delay Act stress the need for and ex- pense litigation,12 practice under its terms raises Rep. 47, Cong., See Oklahoma-Texas 8 S. No. 73d 1st 1. Sess. C., Trust v. S. E. 888, 100 F. 2d 891. 9 Frost 74, Preamble; 77, 48 Stat. 48 Stat. C. 77d. U. S. See § Corp., v. Coeur D’Alene Mines & Co. 38, 312 U. S. 1, supra. merely responsibility See note “Unless is to involve liability necessary paper disproving it is to throw the burden of re sponsibility reprehensible for acts of omission or commission on those purport public’s ... To who to -issue statements reliance. impose nullify responsibility purposes legis lesser would of this Rep. 85, Cong., H. lation.” R. No. 73d 1st Sess. 9-10. (a), 86, 1921, as amended 49 C. Stat. Stat. U. S. § Independence Corp., Deckert (a). 282, Shares 77 v 311 U. S. § Existing equity remedies at law and are retained. 48 Stat. 77p. 15 U. S. C. § Rep. Cong., 1-2; Rep. H. R. No. 68th No. 1st Sess. Corp. Dreyfus, Marine Cong., Transit 68th 1st Sess. 3. See U. S. 263.
432
based on
controversies
its usefulness both
hope
This hos-
otherwise
on
created.14
standards
statutes13
arbitra-
courts toward
legislatures
attitude of
pitable
the valid-
question
our
as to
however,
not solve
tion,
does
margin agreements,
stipulation
ity
petitioner’s
that
below, to
to arbitration controversies
set out
submit
transactions.15
might arise from the
that
argues
14,
6, supra,
that
note
shows
Petitioner
could
was to assure that sellers
purpose
Congress
weaken
position
might
into a
buyers
not maneuver
Act. He
ability to
under
Securities
their
recover
a suit
certainty
lacks the
that arbitration
contends
his
He reasons
rights.
at law under the Act to enforce
paragraph
margin
the arbitration
“compliance
pro-
with” the
stipulation
is a
that waives
13Agostini
Bldg. Corp.
States,
854;
Bros.
v. United
142 F. 2d
Susque
Co.,
311;
F. 2d
v. Hudson Coal
151
Donahue v.
Watkins
Co.,
3;
Susquehanna
Donahue
Collieries
hanna Collieries
138 F. 2d
v.
Co.,
661;
Co.,
160 F. 2d
Evans v. Hudson Coal
“The district courts of the United . . . shall have States courts, equity . . . concurrent with Territorial State and all suits any duty brought liability and actions at law to enforce or created by subchapter. Any may brought this such suit or in the action district wherein the defendant is found or is an inhabitant or transacts business, place, or in the district where the sale took if the defendant participated therein, process may any and in such be served in cases other district of which the defendant is an inhabitant or wherever may Judgments the defendant be found. and decrees so rendered shall be [1254] of Title 28. No case subject to review as provided arising under in sections this subchapter [1292-93] brought any competent jurisdiction State shall be removed court 11, supra. of the . . note court United States. See 17 Murray 381, 383; F. 2d Oil Products Co. Mitsui & Corp., American Locomotive Research Co. Chemical margin agreement provides “Paragraph that all trans subject provisions of the Securities actions 'shall be to the amendatory present thereto Act of 1934 and and future acts [15 express seq.].’ U. A. no mention of the S. C. 78a et contains or statutes by legal requirements, be affected tion fairness, by considerations law, rather than common This is Act control.19 the Securities re- has no agreement though proposed true even law. This follow the the arbitrators quirement to the effect of of the para- invalidity acceptance also Act includes respond- that relieves margin agreement graph of the or “representation all advice liability ent sellers agents regarding purchase or employees you your . . . any property me of sale “stipulation” supra, note void words of § *7 of the Securities “provision” compliance any waiving “stipulation,” arbitrate is a to arrangement This Act. 1934 Act were construed If reference to the Securities Act argued agreement did Act, might the excluding it be the 1933 liability controversy as to the provide of a for arbitration (2) But we Hayden, of the 1933 Act. & Co. under section Stone expressio est alterius principle of unius exclusio do not think the * * * 'present phrase applicable. be that the here It well * * * to supplemental’ the 1934 Act should be construed to acts would neces- In event the sale transaction include the 1933 Act. regard it sarily subject Therefore the amicus does not be to that Act. agreement purports stat- to make that as material whether or not the proceed of the applicable. agree, to a consideration We and shall ute namely, evidences a question below, whether the 1933 Act decided referring controversy to arbitration.” public policy which forbids 2d, 201 F. at 443. Appeals paragraph agreement referred to the Court of the reads as follows:
as “3” your agents be by you or for me are to “All transactions made practices ex- subject constitutions, rules, of the to the customs and clearing respective changes or where executed and of their markets subject provisions Ex- and shall be to the of the Securities houses amendatory change present thereof Act of 1934 and and future acts regulations supplemental thereto, of the and to the rules and Federal Federal Securities and Commission and they may applicable . . . .” Reserve Board insofar as Awards, Sturges, p. Arbitrations Commercial and forum is right we think the to select and 14 of be waived under “provision” kind of cannot for the That conclusion is reached the Securities Act. petitioner’s in the statement of reasons set out above buyer a contention on this review. While seller may deal at securities, circumstances, under some arm’s terms, on it is clear that length equal eye disadvantages drafted with an to the Act was buyers labor. Issuers of and dealers under which opportunities investigate have better securities earnings and prospective plans business appraise buyers. securities than is therefore reason- affecting Congress put buyers able for securities covered purchasers. on a from other that Act different basis security buyer, prior When the violation Act, right courts, gives Securities waives his to sue he more than would a other business trans- up participant security buyer actions. The has a wider choice of courts advantages and venue. He thus surrenders one of the gives him and it surrenders at time when he is judge weight handicap less able to the Securi- places upon adversary. ties Act his though Even of the Securities ad- vantageous to the buyer, apply, ap- their effectiveness *8 plication is lessened in compared judicial arbitration as to proceedings. quality Determination of the of a com- modity20 or the amount money due under a contract type is not the of issue here involved.21 This case re- quires subjective on findings purpose and knowledge 20 Campe Corp. reversed, v. 87 N. Y. S. 2d Mills, Pacific App. Div. 92 N. Y. S. 2d 347. 970; Evans v. Hudson Coal 165 F. 2d Co., Donahue v. Susque 661; Co., 160 F. 2d Watkins v. Hudson Coal hanna Co., Collieries 311; 3; F. 2d Susquehanna Donahue v. Co., 138 F. 2d Collieries Agostini 854; v. Bldg. Corp. States, 142 F. 2d Bros. American Almond Prod. Co. F. 2d 448. Consolidated Pecan S. only must be not They
of an violator of the Act. alleged judicial the arbitrators without applied by but determined may law. award on the As their be made instruction and without a of their reasons com- explanation without concep- of their the arbitrators’ plete proceedings, record meaning statutory legal requirements tion of the such proof,” care” or “material “burden “reasonable fact,” 1, supra, see note cannot be examined. Power to an award is limited.22 it bemay true, vacate While as the Appeals thought, Court of failure of the arbitrators to decide accordance of the Securi- grounds ties Act would “constitute for vacating the award to 10 of the Federal section Arbitration Act,” would clearly failure need to be made to appear. In unrestricted submissions, present such as the margin agreements envisage, interpretations of the law the arbitrators contrast disregard manifest are not subject, courts, the federal review for error (Supp. V, 1952) 9 U. S. C. §10: following “In either of the cases the United States court in and for the wherein district the award was made make an order vacating upon application party award to the arbitration— “ (a) procured by corruption, fraud, Where the award was or undue means.
“(b) partiality corruption Where there was evident in the ar- bitrators, or either of them.
“(c) guilty refusing Where the arbitrators were of misconduct in postpone hearing, upon shown, refusing sufficient cause or in pertinent to hear evidence controversy; and material to the or of rights any party other misbehavior which the have been prejudiced.
“(d) powers, Where the arbitrators imperfectly exceeded their or so mutual, final, executed them that a upon and definite award subject matter submitted was not made.
“(e) Where an award is vacated and the time within which the agreement required the award to expired be made has not the court may, discretion, rehearing by in its direct a the arbitrators.” Swan, Wilko
437 Arbitration Act The United States interpretation.24 provision judicial legal no determination of contains English pro- is found law.25 As the issues such as require the exer- tective Securities judicial fairly cise of direction to assure their effective- ness, Congress it seems to us that must have intended 14, 6, supra, apply note to waiver of trial § and review.26 Co., Boyd
This accords v. Grand Trunk Western R. 338 S. 263.27 stipulation U. We there held invalid a restricting employee’s choice of venue an action under Employers’ the Federal Liability Act. Section 6 of that Act suit in permitted any one of several localities and 5§ forbade a common exempting carrier’s itself from any liability under the Act.28 5 adopted Section had been to avoid contracts waiving employers’ liability.29
24 Marsh, Burchett v. Farragut, 344, 349; United States v. 17 How. 406, 413, (note 22 Wall. Kleine v. right review); 419-421 Catara, 732, 7,869; 14 Fed. Cas. Texas & P. R. Co. v. St. Louis No. Co., Hartbridge, Southwestern R. 251, 256; 158 F. 2d F. 2d 62 72, Co., In Mutual Health & Acc. Assn. v. United Cas. 73. Benefit 390, 393, problem 142 F. 2d was dealt with on the basis of the supra; Sturges, law. 19, Note, Massachusetts See note Judicial Re Merits, view of Arbitration 681, 685, Awards on the 63 L. Harv. Rev. Rule; Cox, Award Based on Erroneous The Place of in Labor Law Arbitration, Chicago XXXIV Bar Rec. 205. 25 Act, 1950, VI, Arbitration Halsbury’s 14 Geo. c. 29 § (2d England ed.) p. Statutes of 1326; Cf. notes 66 Harv. L. 735; George Rev. 53 Col. L. Rev. 565; town L. J. 62 Yale L. J. 985. also, Krenger Pennsylvania Co., 556; Akerly R. v. New York Cent. R. F. 2d 812. Employers’ Liability 5 of the Federal 35 Stat. § 55, provides: “Any contract, rule, regulation, U. S. C. or device what soever, purpose or intent of which shall be to enable common exempt any liability carrier to chapter, itself from created shall to that extent be void . . . .” Rep. Cong., See H. R. No. Compare 60th 1st Sess. 6. Voigt, B. & O. S. R. Co. S.U. *10 only from exemption it forbade in words noted that
to be the “forum” even to select right We said “liability.” right” is a “substantial liability of a after the creation would choice, that restricting agreement, that need not statute. We purpose of the express thwart the terms present By far in this case. go not so and do is restricted agreement arbitrate, petitioner existence of a contro- prior of forum to the his choice require peti- not the Securities Act versy. While does controversy a stands a waiver in advance of sue,30 tioner to footing.31 a different upon involved policies, easily reconcilable,
Two not are in trans- participants afforded Congress this case. has opportunity an subject legislative power actions to its generally adequate to secure economical and prompt, if parties solution of arbitration through controversies willing legally are less correct ad- accept certainty justment.32 On the other it the Se- hand, has enacted protect rights curities Act to and has investors forbidden a any rights. Recognizing waiver those advantages for prior agreements arbitration provide for the solution of we controversies, commercial Congress decide that the intention of concerning the sale of securities is better carried out by holding invalid such for arising arbitration of issues under the Act.
Reversed. Jackson, Justice concurring. Mr.
I agree opinion with the Court’s insofar as it con- prohibit strues the Securities Act to waiver of a remedy in favor of arbitration agreement made before I think controversy arose. thereafter agree upon could arbitration. I However, find it unnec- Pennsylvania Cf. Callen R. 332 U. S. 31Brooklyn Savings O’Neil, 697, 707, Bank v. 324 U. Swan, 2d, Cf. v.Wilko 201 F. at 444. case, where has not been could essary there any arbitration, the Arbitration decide precludes judicial remedy the arbitrators’ interpretation error of of a relevant statute. whom Frankfurter, Justice Justice Min-
Mr. Mr. ton joins, dissenting.
If precluded full inherently protection of rights (2) pur- Securities Act affords to *11 chaser of if securities, or there no means were effective of ensuring judicial legal review of the basis of the arbitra- of tion, then, course, to the settle contro- versy by by arbitration would be barred 14,§ the anti- provision, waiver of that Act.
There in nothing us, is the record before nor the of facts which we can take judicial notice, to indicate system the arbitral as practiced in the City of York, New and as supervisory enforceable under the authority of the District Court for the Southern District of York, New would not plaintiff afford the rights the to which he is entitled.* impelling
The considerations that led to the enact- ment of the Federal Arbitration Act are advantages the of providing speedier, more economical and more effec- *Under the rules of Association, the American Arbitration avail- plaintiff able to contract, the procedure under his the for selection of arbitrators is as follows: potential qualified Association submits a list of arbitrators by experience adjudicate particular City the controversy. the In York, of New the 4,400 list would be panel persons, drawn from a of 1,275 of lawyers. whom are party may Each off strike the names any unacceptable persons of remaining and number the order of
preference. The designates Association then the arbitrators on the preferences expressed basis the by parties. “Questions both Answers,” Pamphlet of American Arbitration Association. In short, charged those who are rights to enforce the are selected among qualified themselves from those to decide. than by way of rights enforcement tive especially litigation, course by the tortuous be had can not advantages These should New York. City in the like that before in controversies to be denied be assumed in the absence of arising under us jeopardize would by arbitration showing that settlement plaintiff. rights of law. disregard Specifically Arbitrators out, “bound pointed Judge Chief Swan they are, as section decide in accordance suggested, agreed. are all this we (2).” On obedi- way assuring there is no effective however, that law. But since governing arbitrators to ence law . . . “would constitute to observe their failure the award section vacating for grounds Act,” 445, ap- 2d 439, Arbitration of the Federal F. scrutiny implied, must means propriate informal, however opinion, the form of some record want of it will whereby compliance appear, will such award. upset a case which the record shows not before us
We have *12 had account no choice plaintiff opening mak- thereby accept stipulation, but to an unconscionable and unenforceable ing stipulation provision in a business transaction. Securities curiae, as does not con- Exchange Commission, amicus stipulation tend which Court of Appeals safeguards under the respected, appropriate defined it, practice by was a against coercive financial houses incapable self-protection. thing It is customers one to make out a case overreaching between bargaining length. quite not at arm’s It is a different thing to provision find the anti-waiver of general Act a on the limitation Federal Act. Arbitration On the Ius, state the record before would affirm the decision Appeals. Court