NCJ Number
116352
Journal
Iowa Law Review Volume: 73 Issue: 2 Dated: (January 1988) Pages: 449-472
Date Published
1988
Length
24 pages
Annotation
This analysis of United States Supreme Court decisions regarding the enforceability of mandatory arbitration clauses in contracts between brokers and investors focuses on the nature and impact of the decision in Shearson/American Express, Inc. v. McMahon
Abstract
This decision answered questions regarding how the Federal Arbitration Act affects private actions brought pursuant to the two Federal securities acts when a securities contract contains an arbitration clause. The main issue has been whether the Arbitration Act overrides the jurisdiction of the Federal district courts over violations of the Securities Act of 1933 and the Securities and Exchange Act of 1934. A secondary issue has been whether the Arbitration Act applies to private actions brought under the Racketeer influenced and Corrupt Organizations Act. In the McMahon decision the Court held that in order to bring original suit on a broker-investor contract in Federal district court, a client of a brokerage house must now show that submitting the case to arbitration would endanger a substantive right. This resolution both settles the debate about the general enforceability of such agreements and suggests several prudent procedures that securities traders and professionals may use to protect their interests. However, the decision raises questions regarding the scope of prior securities doctrine and of the Arbitration Act. Thus, Congress should consider creating a new, uniform standard for dealing with the remaining uncertainty regarding what constitutes a substantive right. 221 footnotes.