Amicus Curiae Brief — Shearson/American Express Inc. v. McMahon

No. 86-44

IN THI NOY 20 1986

Supreme Court of the Wnited Pteteds. seano. se.

TA

OCTOBER TERM, 1986 —

atl

SHEARSON/AMERICAN EXPRESS INC. and

MARY ANN MCNULTY,

Petitioners,

EUGENE MCMAHON, JULIA MCMAHON, individually and as trustees 01

THE DAVID J. HODDER & SON, INC. EMPLOYEE PENSION PLAN; THI

DAVID J. HODDER & SON, INC. PROFIT SHARING PLAN; THI LAURIE

FUNERAL HOME, INC. EMPLOYEE PENSION PLAN; and THI LAURII

FUNERAL HOME PROFIT SHARING PLAN,

Respondents.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF THE AMERICAN ARBITRATION ASSOCIATION AS

AMICUS CURIAE IN SUPPORT OF PETITIONER®*

THOMAS THACHER, Chairman MICHAEL F. HOELLERING

GERALD AKSEN (Counsel of Record)

SHELDON L. BERENS General Counsel

RICHARD S. LOMBARD American Arbitration Association

ROBERT MACCRATi 140 West Slst Street

JOHN R. STEVENSON New York, New York 10020

ROBERT B. VON MEHREN (212) 484-4000

Arbitration Law Committee Attorney for Amicus Curiae

Of Counsel:

JOSEPH T. MCLAUGHLIN

DAVID J. MARK

DANIEL LEVIN

ROBERT MACI

STEVEN M. PINCUS

November 20, 1986 ROSEMARY S. PAGE

TABLE OF CONTENTS

PAGI

TABLE OF AUTHORITIES

INTEREST OF AMICUS CURIAI

SUMMARY OF ARGUMENT

ARGUMENT ....... 4

\. THE FEDERAL ARBITRATION ACT RI

QUIRES ENFORCEMENT OF ARBITRATION

CLAUSES FOR COMMERCIAL DISPUTES

BETWEEN CONTRACTING PARTIES

INCLUDING DISPUTES BASED UPON SITAT-

UTORY CLAIMS—UNLESS CONGRESS SPI

CIFICALLY INTENDED TO PRECLUDE

EE 6 66.685 0606000500 es eee ewe 4

B. WILKO V. SWAN SHOULD BE RE-EXAMINED

SINCE IT WAS BASED ON A NOW CLEARLY

OUTDATED AND IMPROPER SUSPICION OI

ARBITRATION RATHER THAN ON EVI-

DENCE OF CONGRESSIONAL INTENT TO

PRECLUDE ENFORCEMENT OF ARBITRA-

TION CLAUSES COVERING SECURITIES

ACT DISPUTES 7

1. There Is No Evidence That Congress Intended

To Preclude Arbitration Of Securities Act

Disputes

a. The Non-Waiver Provision Of The Se-

curities Act Does Not Evidence A Con-

gressional Intent To Preclude Arbitration

b. Nothing In The Legislative History Of

The Securities Act Evidences A Congres

sional Intent To Preclude Arbitration . 10

PAGI

Wilko Was Based On An Assumption That

Congress Intended To Preclude Arbitration

Because Of A Suspicion Of Arbitration That

Was Specifically Rejected By Congress In The

Co 1]

This Court’s Recent Decisions—And The Ex

tensive Experience With Arbitration Since

Wilko—Show That Arbitration Is A Fair And

Effective Method For Resolving Securities

Disputes. Consequently, Wilko Should Be

ad

ERE SE a ee ene 12

C. THE SECOND CIRCUIT’S BROAD “PUBLIC

POLICY” EXCEPTION TO THE ENFORCI

MENT OF ARBITRATION CLAUSES CON-

FLICTS WITH THE ARBITRATION ACT AND

THE RECENT DECISIONS OF THIS COURT .. 19

Nee ee wees velieeese-o 21

APPENDICES

Appendix A: Statutory Provisions Involved........... la

Appendix B: American Arbitration Association Com-

mercial Arbitration Rules ....... Peer oer eer 6a

[ABLE OF AUTHORITIES

Cases

i/exander v. Gardner-Denver Co., 415 U.S. 36 (1974) 14

imerican Safety Equipment Corp. v. J.P Maguire &

Co., 39] F.2d 82] (2d Cir. 1968) 19. 20

Barrentine v. Arkansas-Besi Freight System, In 15;

U.S. 728 (1981). ‘

Boyd v. Grand Trunk Western R. Co... 338 U.S. 262

(1949)... ihe g

Commissioner v. Estate of Church, 335 U.S. 632 (1949) R

Commonwealth Coatings ¢ orp. Vv. Continental Casualty)

Co., 393 U.S. 145 (1968)... }3

Dean Witter Reynolds Inc. v. Byrd. 470 U.S. 2123

(. t= ; 1 5. 6.

Girouard v. United States, 328 U.S. 61 (1946) 19

Globus v. Law Research Service, Inc., 287 F. Supp. 188

(S.D.N.Y. 1968), aff’d in part and rev'd in part, 418

F.2d 12/7¢ (2d Cr. 1969). cert. dé nied, 397 U.S 9] 3

(1970) ere hee 16

Haynes v. United States. 390 U.S. 85 (1968) 1]

Jacobson v. Merrill Lynch, Pierce. Fenner & Smith.

Inc., 797 F.2d 1197 (34 Cir. 1986) 19. 20

May v. Heiner, 281 U.S. 238 (1930). 19

Mayaja, Inc. v. Shearson Lehman Brothers. Inc... No

85-2762, slip op. (Sth Cir. Oct. 24, 1986) 20

McMahon vy. Shearson/American Express, In 788

F.2d 94 (2d Cir. 1986) - 6, 19

Vitsubishi Votors Corp | Soler ¢ Ary s/e) Pivmouth.

Inc., 105 S. Ct. 3346 (1985)

PAGI

Monell v. Department of Social Services, 436 U.S. 658

ee ae eee ae de ls

Monroe v. Pape, 365 U.S. 167 (1961)...... oe 18

Morton v. Mancari, 417 U.S. 535 (1974) ............. 10

Moses H. Cone Memorial Hospital v. Mercury Con

struction Corp., 460 U.S. | aS ER eb Ae tee << ae

Nye v. United States, 313 U.S. 33 (1941)............. 18

Phillips v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

1, - 2 Bt FF Le &. eee 8

Posadas v. National Citv Bank, 296 U.S. 497 (1936)... 9, 10

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

et I SS Dd ee ey 2. td

Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976) y

St. Martin Evangelical Lutheran Church v. South

eee Gen Ge Fie Geek «es 4cbccceeecwsscbecs 9, 10

Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) .... 2, 5,

12, 17

Southland Corp. v. Keating, 465 U.S. 1 (1984) ....4, 5, 6, 12

Toledo Newspaper Co. v. United States, 247 U.S. 402

| Rr ery rr ea ny Bed toh, PATI ee 18

United States v. Borden Co., 308 U.S. 188 (1939) ..... 9. 10

United States v. Price, 361 U.S. 304 (1960) ........... 1]

United States v. Schwimmer, 279 U.S. 644 (1929). .... 19

Watt v. Alaska. 451 U.S. 259 (1981)................. 9, 10

Weiss v. Tenney Corp., 47 F.R.D. 283 (S.D.N.Y. 1969) 16

Wilko v. Swan, 346 U.S. 427 (1953)...... fea .. .passim

PAGI

Statutes

Administrative Procedure Act, 5 U.S.( > 706(2) .

Federal Arbitration A >USS.( é assin

9 US. ) 1 6.9

Ql! S ¢ 7 13

9) S( ) 14

9U.S.( S 1O(d) 1s

Racketeer Influenced and Corrupt Orga tions Act, 18

U.S.C. § 1962 et seq 3, 19, 21

sé | . \¢ yi 1933 14 [ | 77 f eg Nassim

1S U.S.C. § 77n §

Securities Exchange Act of 1934, 15 U.S.C. § 78a et seg. 2, 3

Levislative Materials

H.R. Rep. No. 96, 68th Cong., Ist Sess. | (1924) 4,5, 6

H.R. Rep. No. 229, 94th Cong., Ist Sess. 111, reprinted

SEC Securities Exchange Act Release No. 16390 (No

30). 1979). 1X SE ¢ Docket 1197 (1979) | 3

Other Authorities

American Arbitration Association, /9 lnnual Report

(19X86)

4.

Vv!

PAGI

\. Bromberg & L. Lowenfels, Securities Fraud and

Commodities Fraud (1985) ....................... 14

Burger, “Isn’t There A Better Way?” 68 Am. Bar Assoc.

er Lt , a 16

DiBenedetto, “An Outline for Arbitration Under the

Civil Practice Law and Rules,” 48 Alb. L. Rev. 763

SUAS teuwetses Gr auntie ane eet 18

Doing Business in Europe, Common Market Rep.

re ee es Be) boc eee et Ree eo oo 17

Federal Judicial Center. Settlement Strategies for Federal

District Judges (1986)... . 2... 0. ccc cece ee 18

Furnish, “Commercial Arbitration Agreements and the

Uniform Commercial Code.” 67 Calif. L. Rev. 317

FUE ak 6 ie Wate ee eet eee Pe ae 16

E. Gadsby, Business Organizations--Securities Regula-

EN SS ooh waeed aud hoe er wcece eee ee ecae, 14

P. Gide, J. Loyrette and P. Nouel, Le Droit Francais de

L Arbitrage (1983)... 2... cc ccc cc wee cece ccc eee 17

QO. Glossner, Commercial Arbitration in the kederal

Republic of Germany (1984)...................... 17

Hirshman, “The Second Arbitration Irilogy: The Fe-

deralization of Arbitration Law.” 71 Va. L. Rev. 1305

SINS 66 Gsm Kndtn ee ekae a Koen ous oo an 16, 18

Internat‘onal Council for Commercial Arbitration,

International Handbook on Commercial Arbitration

8 re ee 17

ee Re 17

I Gs FR vk ok cde cescccvccwectcaccsce 17

ee a oie oe ie ou cac caedactsaves 17

PAGI

International Council for Commercia! Arbitration, Year

Book: Commercial Arbitration Vol. X1 (1986). . 7

Z. Kitagawa, Doing Business in Japan (1986)... aa 17

Lawyers Arbitration Letter, Vol. 5 No. 2 (June 1981 &

FS rr 7 roe 18

Meverowitz. “The Arbitration Alternative,” 71 Am. Bar

Assoc. J. 78 (Feb. 1985) ... eee a, 16

New York Stock Exchange, Shareownership 1985 (1986)

Securities Industry Conference on Arbitration, Report

Ne. 5 (April 1986)

Statistical Analysis and Reports Division, Administra

tive Office of the U.S. Courts, Federal Judicial

, A | Se

IN THI

Supreme Court of the United States

OCTOBER TERM, 1986

No. 86-44

=>

SHEARSON/ AMERICAN EXPRESS IN«

MARY ANN MCNULTY.

and

Petitioners,

EUGENE MCMAHON, JULIA Me MAHON, individually and as

trustees of THE DAVID J. HODDER & SON, INC. EMPLOYE!

PENSION PLAN; THE DAVID J. HODDER & SON, IN¢

PROFIT SHARING PLAN; THE LAURIE FUNERAL HOME.

INC. EMPLOYEE PENSION PLAN: and THE LAURII

FUNERAL HOME PROFIT SHARING PLAN.

Respondents

ON WRIT OF CERTIORARI Ti HI NITED

COURT OF .PPEALS FOR THE SECODR

=>

BRIEF OF THE AMERICAN ARBITRATION

ASSOCIATION AS AMICUS CURIAE IN SUPPORT OF

PETITIONERS

Interest of Amicus Curiae

[he American Arbitration Association (“*‘AAA’ ) files this

brief as amicus curiae in support of petitioners by written

consent of all parties, pursuant to Rule 36.2 of the Rules of

this Court.

Ihe AAA Is an educational, membership organization incor-

porated in 1926 and operating under the Not-for-Profit Corpo-

ration Law of the State of New York. The AAA is dedicated to

the dissemination of knowledge throughout the United States

and other countries regarding arbitration and other methods of

alternative dispute resolution. The AAA does not act as an

arbitrator of disputes; rather, it provides impartial rules, pro-

cedures, panels of experienced arbitrators and administrative

assistance to parties desiring to use its neutral: facilities. The

AAA’s role as an impartial administrator of arbitration has

been recognized in numerous state and federal statutes and

regulations. See infra at 18 n.26. In 1985, approximately

45,000 arbitrations were conducted under the auspices of the

AAA.

The AAA also conducts extensive educational programs on

arbitration and other aspects of alternative dispute resolution,

and administers a variety cf arbitration systems in different

industries, including the construction, textile, insurance, real

estate, computer and grain industries.

[his is the first case in which this Court has been asked to

determine the arbitrability of a claim under the Securities

Exchange Act of 1934 (the ‘‘Exchange Act’’) in a domestic

commercial dispute. The AAA believes that it can present to

this Court a different perspective from the one presented by

the parties. By virtue of its sixty years of experience in private

dispute resolution, the AAA is uniquely qualified to address

issues before the Court as they relate to arbitration agree

ments. The AAA has only one concern here: to have this Court

reaffirm its fundamental support for arbitration and for the

rights of parties in commercial relationships to elect arbitration

as the certain means by which future disputes may be resolved.

The AAA has appeared previously in this Court as amicus

curiae in cases involving the arbitrability of various disputes,

including Mitsubishi Motors Corp. v. Soler Chrysler-Ply-

mouth, Inc., 105 S. Ct. 3346 (1985); Scherk v. Alberto-Culver

Co., 417 U.S. 506 (1974); and Prima Paint Corp. v. Flood &

Conklin Mfg. Co., 388 U.S. 395 (1967)

Summary of Argument

The Federal Arbitration Act, which established a strong

national policy in favor of arbitration, requires enforcement of

agreements to arbitrate commercial disputes. As this Court has

held, this includes enforcing arbitration clauses covering statu-

tory claims—such as those asserted under the Exchange Act

and RICO here—unless Congress has expressly precluded arbi-

tration of such claims. (Point A)

Because there is nothing in the Securities Act of 1933 (the

‘*Securities Act’’)—or in its legislative history—evidencing

Congress’s intent to preclude arbitration, arbitration agree-

ments should be enforced as to commercial disputes under that

statute. Wilko v. Swan, 346 U.S. 427 (1953), which held that

arbitration clauses were unenforceable as to disputes under the

Securities Act, should be overruled since it was not based on

evidence of Congressional intent to preclude arbitration.

Rather, Wi/ko was based on a suspicion of arbitration which is

in conflict with the underlying purpose of the Arbitration Act

and is contrary to the recent decisions of this Court. Moreover,

Wilko’s fundamental assumptions have been disproven by the

extensive experience with arbitration in the more than thirty

years since it was decided. That experience demonstrates that

arbitration is a fair and effective method for resolving com-

mercial disputes in general and securities disputes in particular.

That it is not biased against customers is shown by the fact that

customers have won over two-thirds of the recent cases against

securities firms arbitrated to decision under the auspices of the

AAA. The positive experience with commercial arbitration—

which has resulted in its virtually uniform acceptance by courts

in the United States and elsewhere—negates the suspicion of

arbitration underlying Wilko. Consequently, arbitration

clauses should be enforced as to Securities Act claims; a

fortiori they should be enforced as to implied causes of action

under the Exchange Act. (Point B)

Similarly, there is no evidence of Congressional intent to

preclude arbitration of RICO claims. Courts which have held

Ne eee eee

such claims to be non-arbitrable have relied on a broad

so-called ‘‘public policy’’ exception to arbitration that 1s

directly contrary to the Arbitration Act and the decisions of

this Court. (Point C)

ARGUMENT

A. THE FEDERAL ARBITRATION ACT REQUIRES EN-

FORCEMENT OF ARBITRATION CLAUSES FOR

COMMERCIAL DISPUTES BETWEEN CONTRACT-

ING PARTIES—INCLUDING DISPUTES BASED

UPON STATUTORY CLAIMS—UNLESS CONGRESS

SPECIFICALLY INTENDED TO PRECLUDE ARBI-

fFRATION

The Federal Arbitration Act, 9 U.S.C. § 1 ef seq., makes a

written agreement to arbitrate ‘‘in any . . . contract evidenc-

ing a transaction involving commerce . . . valid, irrevocable

and enforceable. . . .’’ 9 U.S.C. § 2. The ‘‘preeminent con-

cern’’ of Congress in passing the Arbitration Act was “‘to

enforce private agreements [to arbitrate] into which parties had

entered.’’ Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213,

221 (1985). As this Court has noted, the Arbitration Act ‘‘was

designed to overcome an anachronistic judicial hostility to

agreements to arbitrate,’’ Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 105 S. Ct. 3346, 3354 n.14 (1985),

and to replace it with a ‘‘national policy favoring arbitration.’’

Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).’ As a result

rhe House Report accompanying the Arbitration Act stated that

lhe purpose of this bill is to make valid and enforceable agreements

for arbitration contained in contracts involving interstate commerce

or within the jurisdiction of admiralty, or which may be the subjec

of litigation in the Federal Courts

H.R. Rep. No. 96, 68th Cong., Ist Sess. 1 (1924). The House Report

explained that the need tor the law

sdictior [his jealousy survived for so lon[g] a period that

(/ ootnote continued on next page)

Ay

of the ‘‘liberal federal policy favoring arbitration agreements,”’

foses H. Cone Memorial Hospital v. Mercury Construction

Corp., 460 U.S. 1, 24 (1983), ‘‘any doubts concerning the

scope of arbitrable issues should be resoived in favor of

arbitration,’’ id. at 25, and agreements to arbitrate commercial

disputes must be “‘rigorously enforce[d].’’ Dean Witter, supra,

470 U.S. at 221.

[he ‘‘national policy favoring arbitration’? which Congress

declared in the Arbitration Act applies with equal force where

‘‘a party bound by an arbitration agreement raises claims

founded on statutory rights.’’ Mitsubishi, supra, 105 S. Ct. at

3354. Thus, an arbitration clause covering statutory claims

must be enforced in the absence of ‘‘Congressional intention

expressed in some other statute ... [that] agreements to

arbitrate [should] be held unenforceable.’’ /d. at 3355.

We must assume that if Congress intended the substantive

protection afforded by a given statute to include protec

tion against waiver of the right to a judicial forum, that

intention will be deducible from text or legislative his

tory. . . . Having made the bargain to arbitrate, the

pariy should be held to it unless Congress itself has

evinced an intention to preclude a waiver of judicial

remedies for the statutory rights at issue.

(/ OOTNole continued fron Dreviou DQ@LE)

the principle became firmly embedded in the English common law

and was adopted with it by the American courts

Id. at 1-2. See also Scherk \ 1/berto-Culver Co 417 U.S. $06. $10

(1974) (Arbitration Act, ‘‘reversing centuries of judicial hostilit

arbitration agreements, was designed to place arbitration agree

ments ‘upon the same footing as other contracts’ ’’) (citation and

footnote omitted); Dean Witter, supra, 470 U.S. at 219 (‘‘The legisla

tive history of the [Arbitration] Act establishes that the purpose behind

its passage was to ensure judicial enforcement of privately mad

agreements to arbitrate.’’); Southland Corp., supra, 465 |

Mitsubishi, supra, 105 S. Ct. at 3353-54

6

Ihe Arbitration Act represents a clear statement of Congres-

sional support for party autonomy in contractual matters.

‘*(Plassage of the [Arbitration] Act was motivated, first and

foremost, by a congressional desire to enforce [arbitration}

agreements into which parties had entered.’’ Dean Witter,

supra, 470 U.S. at 220 (footnote omitted).* Simply stated,

Congress has ‘‘mandated the enforcement,’’ Southland Corp.,

supra, 465 U.S. at 10, of agreements® to arbitrate comme: cial*

disputes between contracting parties—including disputes rais-

ing statutory claims—unless Congress expressiy intended to

preclude arbitration of such disputes.

< As the House Report stated

Arbitration agreements are purely matters of contract and the effect

of the bill was simply to make the contracting party live up to his

agreement. He can no longer refuse to perform a contract when it

becomes disadvantageous to him. An arbitration agreement is

placed upon the same footing as other contracts, where it belongs

Id. at 1. See also S. Rep. No. 536, 68th Cong., Ist Sess. 1, 3 (1924)

(citing ‘‘practical justice in the enforced arbitration of disputes where

written agreements for that purpose have been voluntarily and so

lemnly entered into’’).

Where an agreement to arbitrate is not voluntary, the Arbitration

Act does not contemplate its enforcement. 9 U.S.C. § 2; see Mitsu-

bishi, supra, 105 S. Ct. at 3354. In this regard, a contract to arbitrate is

like any contract, /.e., it will not be enforced if entered into non-volun

tarily, for example, under duress or by mistake. Here, the district court

expressly rejected respondents’ claim that the arbitration clause was

not voluntarily agreed to, a finding which was not disturbed by the

Second Circuit. McMahon v. Shearson/American Express, Inc., 788

F.2d 94, 96, 99 n.6 (2d Cir. 1986). As was the case in Mitsubishi,

‘*there is no basis for assuming’’ that the arbitration clause was not

voluntarily agreed to. 105 S. Ct. at 3357. If it was not, respondents had

the opportunity to make such a showing and avoid the clause. /d.

4 The Arbitration Act applies to ‘“‘transaction[s] involving com-

merce.’’ 9 U.S.C. § 2

—————— —E————————_ —

B. WILKO V. SWAN SHOULD BE RE-EXAMINED

SINCE IT WAS BASED ON A NOW CLEARLY OUT-

DATED AND IMPROPER SUSPICION OF ARBITRA-

PION RATHER THAN ON EVIDENCE OF CON-

GRESSIONAL INTENT TO PRECLUDE ENFORCE-

MENT OF ARBITRATION CLAUSES FOR SECURI-

TIES ACT DISPUTES”

1. There Is No Evidence That Congress Intended To Pre-

clude Arbitration Of Securities Act Disputes

a. The Non-Waiver Provision Of The Securities Act

Does Not Evidence A Congressional Intent To Pre-

clude Arbitration

In Wilko v. Swan, 346 U.S. 427 (1953), a divided Court.

acknowledging that it was faced with a difficult issue, held that

an arbitration clause in an agreement between a securities

broker and his customer was not enforceable as to a claim

We recognize that the question of the arbitrability of Securities A

| } ,

’

are a least three reasons wi \ the (¢ yurt shou / nevert} ‘less WwPerr

Wilko now. First, a holding that Exchange Act claims are arbitrable

vhich does not iddress the continuing Validity tt Wilko could well

result in continuing confusion among the lower courts as to the

arbitrability of Securities Act claims anc other statutory claims

second, since under Dean Witter arbitrable claims must be arbitrated

even if intertwined with non-arbitrable claims, a decision that Ex

change Act claims are arbitrable which does not address the continuing

validity of Wilko will likely lead to fragmented and duplicative

proceedings until this Court addresses Wi/ko. Third, given the signifi

cant burden of securities litigation on the federal courts (over 3,000

securities and commodities exchange civil actions were filed in federa

district courts in the twelve month period ending March 31, 1986: se

Statistical Analysis and Reports Division, Administrative Office of th

U.S. Courts, Federal Judicial Workload Statistics, Table C-2 at 13

(1986)), a burden which will only increase with the dramatic increase

public participation in the securities markets, see New York Stock

Exchange, Shareownership 1985 at 3 (number of shareholders has

increased from approximately 7 million in 1953 when Wilko wa

decided to over 47 million in 1985), failure to overrule Wi/ko now w

permit a continuing flood of securities cases that could better be dealt

witt through vol intary agreements to arbitrate

under Section 12 of the Securities Act. In reaching this conclu

sion, the Wilko majority relied upon the non-waiver clause of

the Securities Act, which provides:

Any condition, stipulation, or provision binding any pet

son acquiring any security to waive compliance with any

prevision of this subchapter or of the rules and regula

tions of the [Securities Exchange] Commission shall be

void.

15 U.S.C. § 77n. This clause prevents those regulated by the

statute (including issuers, underwriters, dealers and brokers)

from attempting to relieve themselves from compliance with

any of the substantive standards of conduct imposed by the

statute, such as the filing and disclosure requirements imposed

on an issuer of securities. However, neither any ‘‘provision’’

of the Securities Act, nor any rule or regulation of the

Securities Exchange Commission (the ‘‘SEC’’),” requires that

disputes arising under the Act be litigated only in a judicial

forum. Moreover, such substantive standards of conduct do

not, by implication, incorporate the judicial system as the sole

method of dispute resolution. Consequently, a clause provid

ing for arbitration of disputes cannot properly be construed as

a stipulation waiving compliance with any of the provisions of

the Securities Act. As this Court held in Mitsubisht:

6 Although the SE‘ ) ; ,

i { ] ira lg und

ws, 17 C.F.R 40.15¢2-2 ido] Ithat] Re

} I SE ] | C vna ved | {

I ciIp iW (/.¢ na | lispute il igreem i

) abl i hor} he Se Ac ' | in \ ,

\ I Op idicates, the SEC wa ike P} } Ver

Lynch, Pierce Fenner & Smiti I) 7958 F.2 ) OR | Q

( 1986)

R i $c2 . he SEC as

) ; ” y SF

| R 1Se2-2

By agreeing to arbitrate a statutory claim, a party does

not forego the substantive rights afforded by the statute;

only submits to their resolution in an arbitral. rather

han a judicial, forum.

. ‘ ; 2

355; see also Wilko, supra, 346 U.S. at 439-40

(Frankfurter, J., dissenting). Congress had passed the Arbitra

tion Act in 1925, only eight years before the Securities Act. It

could easily have added a provision to the Securities Act

expressly exempting it from the Arbitration Act. That it did

not do so is evidence that it did not intend the Securities Act to

create an exception to the statutory rule created by the Arbitra

tion Act.

Indeed, what the Wi/ko majority did was find a partial

repeal of the Arbitration Act by implication, based upon the

non-waiver provision of the Securities Act. However, ‘‘[t]he

cardinal rule is that repeals by implication are not favored.”’

Posadas v. National City Bank, 296 U.S. 497, 503 (1936).

Rather, it is presumed that when Congress wants to repeal o1

limit an earlier statute, it will do so explicitly. See, e.g., St.

Martin Evangelical Lutheran Church v. South Dakota, 451

U.S. 772, 787-88 (1981); Watt v. Alaska, 451 U.S. 259, 266-67

(1981); Radzanower v. Touche Ross & Co., 426 U.S. 148, 154

(1976); United States v. Borden Co., 308 U.S. 188, 198 (1939);

Posadas, supra.’ As this Court has explained, whenever poss!

ble, two statutes should be interpreted so as to give effect to

both:

In this regard the Wi/ko majority’s reliance on Boyd v. Grand Trunht

Western R. Co.. 338 U.S. 263 (1949). was n splaced Boyd held that a

choice of venue provision was void as violative of a non-waiv

provision in the Federal Employers’ Liability Act (‘‘FELA’’). /d. at

264-65. However, in Boyd there wa ) mpeting statute nvolved

rather, the Court was simply interpreting a provision of FELA. Her

in contrast, the non-waiver pr n of the Securities Act cannot be

construed in isolation beca her i competing stateme

Congressional intent embodied in the Arbitration Act, namely that

arbitration clauses ‘“‘in any ntract evidencing a transact

involving comm 1.9 U.S. 2

lO

The courts are not at liberty to pick and choose among

congressional enactments, and when two statutes are

capable of co-existence, it is the duty of the courts, absent

a clearly expressed congressional intention to the con-

trary, to regard each as effective. ‘“‘When there are two

acts upon the same subject, the rule is to give effect to

both if possible. . . . The intention of the legislature to

repeal ‘must be clear and manifest.’

Morton v. Mancari, 417 U.S. 535, 551 (1974) (quoting United

States v. Borden Co., supra, 308 U.S. at 198); see also Watt v.

Alaska, supra; Posadas, supra. ‘‘In the absence of some

affirmative showing of an intention by Congress to repeal, the

only permissible justification for a repeal by implication 1s

when the earlier and later statutes are irreconcilable.’’ Morton,

supra, 417 U.S. at 550. The Securities Act does not expressl)

preclude enforcement of arbitration clauses. It does not reflect

a ‘‘clear and manifest’’ intention to repeal the Arbitration Act,

and is not ‘‘irreconcilable’’ with it. Morton, supra, 417 U.S. at

§50-51. Consequently, this ‘‘long-established canon of [statu-

tory] construction,’’ St. Martin Evangelical Lutheran Church,

supra, 451 U.S. at 788, requires giving effect to the Arbitration

Act’s terms and holding arbitration clauses enforceable as to

Securities Act claims.”

b. Nothing In The Legislative History Of The Securities

Act Evidences A Congressional Intent To Preclude

Arbitration

There is nothing in the legislative history of the Securities

Act that evidences Congress’s intent to preclude arbitration. It

is significant that neither the Wi/ko majority, nor the SEC in

. The Wilko majority stated that it was faced with two conflicting

statements of Congressional policy in the Arbitration Act and the

Securities Act, 346 U.S. at 438, but, contrary to the teaching of cases

such as Morton and Posadas, it made no effort to reconcile them

’

Instead, the majority impermissibly ‘‘picked and chose’ the enactment

; ;

} tatiite re " aotls $6 hie

it preferred, even though the two statutes are perfectly “‘capable oO!

co-existence.’’ Morton, supra, 417 U.S. at 55]

its amicus brief in Wilko, pointed to anything in the legislative

history of the Securities Act indicating that Congress intended

to exempt it from the express provisions of the Arbitration Act

which it had recently passed.” Rather, as discussed below. the

Wilko majority assumed a Congressional intent to preclude

arbitration based on its suspicion of arbitration as a means of

resolving securities disputes. As demonstrated above, the Arbi

tration Act was intended to overcome just such judicial hosti]

ity to arbitration

2. Wilko Was Based On An Assumption That Congress

Intended To Preclude Arbitration Because Of A Suspi-

cion Of Arbitration That Was Specifically Rejected By

Congress In The Arbitration Act

in holding that the non-waiver provision of the Securities

Act precluded arbitration, the Wi/xo majority did not rely on

express language to that effect in the Securities Act or its

legislative history. Rather, it relied on its suspicion of arbitra

tion as a means for resolving Securities Act disputes. Thus, the

Wilko majority adopted the argument of the petitioner there

that *‘arbitration lacks the certainty of a suit at law.’’ 346 U.S

at 432, 435. The Wilko majority further asserted that the

effectiveness of ‘‘the provisions of the Securities Act. advanta-

geous to the buyer . . . is lessened in arbitration as compared

to judicial proceedings,’’ id. at 435, and that arbitrators are

not as capable as courts in making ‘‘subjective findings on

purpose and knowledge.’’ /d. at 435-36. Finally, and

most significantly, the Court assumed that because, in its view.

‘“‘the protective provisions of the Securities Act require the

exercise Of judicial direction to fairly assure their effectiveness.

7 [he statement contained in a 1975 House Conference Comn

report apparently recognizing the Wi/ko doctrine, see H.R. Rep. N

229. 94th ¢ ong., Ist sess. Lil, reprinted in 1975 U.S. ¢ ide Cong. &

Admin. News 321, 342 (1975), is not persuasive evidence of the

of Congress in 1933 when the Secur ties Act was passed. Se

Haynes v. United States, 390 U.S. 85, 87 n.4 (1968): United Srar

Price, 361 U.S. 304. 313 (1960)

Ce — --— - -—

12

it seems to us that Congress must have intended [the non-

waiver provision] to apply to waiver of judicial trial and

review.”’ Id. at 437.

Conspicuously absent from the Court’s discussion was any

evidence supporting its assumptions or demonstrating that they

were shared by Congress.'” To the contrary, the majority’s

assumptions reflect precisely the kind of judicial hostility to

arbitration that was expressly rejected by Congress in passing

the Arbitration Act.

3. This Court’s Recent Decisions—And The Extensive Expe-

rience With Arbitration Since Wilko—Show That Arbi-

tration Is A Fair And Effective Method For Resolving

Securities Disputes. Consequently, Wilko Should Be

Overruled

In the thirty years since Wilko was decided, this Court has

overcome the judicial hostility to arbitration reflected in Wilko

and, in a series of recent decisions, has reflected the intent of

Congress as expressed in the Arbitration Act.’ As this Court

stated in Mitsubishi,

we are well past the time when judicial suspicion of the

desirability of arbitration and of the competence of arbi-

tral tribunals inhibited the development of arbitration as

an alternative means of dispute resolution.

105 S. Ct. at 3354.

10 As Justice Frankfurter stated in dissent

There is nothing in the record before us, nor in the facts of which

we can take judicial notice, to indicate that the arbitral system as

practiced in the City of New York, and as enforceable under the

supervisory authority of the District Court would not afford

the plaintiff the right to which he is entitled

346 U.S. at 439

I] See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc

supra; Dean Witter Reynolds Inc. v. Byrd, supra; Southland Corp. \

Keating, supra; Moses H. Cone Memorial Hospital v. Mercury, supra;

Scherk v. Alberto-Culver Co., supra; Prima Paint Corp. v. Flood &

Conklin Mfe. Co.. supra

13

Coinciding with this trend in the decisions of this Court,

arbitration has become increasingly sophisticated—and _in-

creasingly common—over the last 30 years. This is due to the

widespread recognition of the advantages of arbitration in

terms of speed, economy, efficiency and confidentiality and

the increasing recognition of its fairness as a means of dispute

resolution. '*

The rules and procedures which govern arbitration are de-

signed to ensure fair results.”° Thus, the AAA’s Commercial

Arbitration Rules, which are reproduced at Appendix B, pro-

vide for neutral arbitrators (Article 12), and provide both for

disqualificaton of an arbitrator due to “any circumstances

likely to affect impartiality” (Article 19), and for peremptory

challenges for any reason (Article 13). Any party may be

represented by counsel (Article 22). Pre-hearing conferences

and preliminary hearings may be held to arrange for the

exchange of information and the production of relevant docu-

ments, and to attempt to narrow the issues and expedite the

proceedings (Article 10). The Arbitrator can subpoena wit-

nesses and documents for the hearing (Article 31; see also 9

U.S.C. § 7), and any party has a right to offer any relevant

.

~ As the Court noted in Mitsubishi, ‘‘it is often a judgment that

Streamlined proceedings and expeditious results will best serve thi

needs that causes parties to agree to arbitrate their disputes; it is

typically a desire to keep the effort and expense required to resolve a

dispute within manageable bounds that prompts them mutually to

forego access to judicial remedies.’’ 105 S. Ct. at 3358

;

Significantly, the SEC has approved the operation and implementa

tion of the arbitral systems for securities cases provided by the

National Association of Securities Dealers (the “NASD”), the New

York Stock Exchange (the “NYSE”) and the American Stock Ex

change, see SEC Securities Exchange Act Release No. 16390 (Nov. 30,

1979), 18 SEC Docket 1197, and retains general jurisdiction to monitor

the fairness of the rules of the NASD and the Exchanges, including the

rules governing their arbitratior proceedings See 15 U.S.¢ S 78s(c)

[he procedures adopted the NASD and the Exchanges are generally

similar to those of tl AAA. This Court has favorably referred to

aspects Of the AAA ubditration rules. See Commonwealth Coatings

Corp. v. Continental Casualty ( 393 U.S. 145, 149 (1968)

evidence (Article 31), and to require that witnesses testify

under oath (Article 27). Any party has a right to have a

stenographic record of the proceeding (Article 23),'* and briefs

may be filed (Article 35). A written award is required (Article

42), and, as a matter of practice, the award can contain an

explanation of reasons if the parties so request.’ Arbitration is

also designed to be convenient. Thus, the AAA has offices in

over 30 cities, see AAA, 1/985 Annual Report (1986), and the

arbitration may be held in any location to which the parties

agree (Article 11)."

Moreover, arbitrators are available today who are expe-

rienced and fully competent to apply the securities laws.'’ For

example, of the 89 arbitrators in 40 recent AAA cases brought

by customers against securities firms which were arbitrated to

decision, 71 (80%) were lawyers (including 41 attorneys who

specialized in securities work and three retired judges), and 16

(18%) were business or accounting executives or financial

consultants (the remaining two were college deans or profes-

sors). As the Mitsubishi Court noted, “adaptability and

access to expertise are hallmarks of arbitration. The antici

Thus, the Wilko Court’s concern that an award may be made

“without a complete record of the[ |] proceedings,” 346 U.S. at 436

unfounded as either party may request such a record

as .

- Thus, the Wilko Court's concern that an award may be mad

“without [an] explanation of the[ ] reasons,” 346 U.S. at 436

exaggerated, as the parties may request such an expilanatiol

! , - " <

16 Similariy, the NYSE has standing panels in 35 cities and NASD in 50

ties, and each will conduct hearings elsewhere €

parties. (COmmunications with the New York City offices of the NYSE

and NASD.)

Unlike the situation in 1953 when Wilko was decided, there is now a

fully developed body of case law interpreting the securities laws

which arbitrators can turn for guidance. See generaliy E. Gadsby.

Business Organizations—Securities Regulation (1986): A. Bromberg &

L. Lowenfels, Securities Fraud and Commodities Fraud (1985)

18 I hese were the 40 most recent such cases at the time statistics for this

Oriel were collected. (Materials in files of AAA’s Offic: yt Case

Administration.)

| s

pated subject matter of the dispute may be taken into account

when the arbitrators are appointed and arbitral rules typically

al

provide for the participation of experts.” 105 S. Ct. at 335

In choosing arbitration, the parties have selected these pro-

cedures as the means to resolve their disputes, and the courts

should not interfere with that selection. This is especially true

because, in addition to satisfying the parties’ desire for quick,

economical and fair resolution of disputes, arbitration will

fully satisfy the federal policies underlying the secu ...es laws.

Arbitrators deciding securities claims are obligated to apply the

federal securities laws,'’ Wilko, supra, 346 U.S. at 433-34, and

their awards can be vacated for a number of statutory grounds,

including “[w]here the arbitrators exceeded their powers, or so

imperfectly executed them that a mutual, final, and definite

award upon the subject matter submitted was not made.” 9

U.S.C. § 10(d). Since enforcement of an arbitration award

may require confirmation by a court, 9 U.S.C. § 9, the courts

will have an “opportunity at the award enforcement stage to

ensure that the legitimate interest in the enforcement of the

[securities] laws has been addressed.” Mitsubishi, 105 S. Ct. at

3360.” The prospect of judicial review where there is no

voluntary compliance with the award helps to assure that the

policies embodied in the securities laws will be applied. The

Wilko Court’s suspicion that arbitration would somehow un

. la ii 117 C TT r .

vi this Co nas ] i i are t ]

apply collective barga ng agreement rather than the applicaDd

Statutes, arbitration would not be nding tor the statutory Claims. Sée

Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 744

(1981) (Fair Labor Standards Act); Alexander v. Gardner-Denver C¢

415 U.S. 36, 56-57 (1974) (Title VII). Here, by contrast, the arbitrat

are bound to apply the securities laws, not some separate ec

Wilko, supra, and it will be a simple task for the

forcement stage “to ascertain that the [arbitral] tribunal took

ance of the [securities] claims.” Mitsubishi, supra, 105 S. Ct. at 336

Y()

~ Copie ft a i i] LAA SSeSsiO \

i ] il ] t

1 (Art 46)

16

dermine those policies iS simply unfounded. See Mitsubishi.

supra, 105 S. Ct. at 3360.

[he extensive actual experience with arbitration in the more

than thirty years since Wi/ko further compels the conclusion

that the time has come to overrule Wilko. In 1950, shortly

before the Wilko decision, the AAA had a total of approxi-

mately 1750 arbitrations, fewer than 500 of which were com-

mercial. In 1985, in contrast, the total number of arbitrations

had increased more than 25 iimes to 45,000, over 8,000 ot

which were commercial. This extensive, nationwide experi

ence with arbitration has shown that it is a fair, efficient anc

effective means to resolve commercial disputes in general.

[hus, in recent years, the virtues and efficacy of arbitration

have been widely recognized by courts and commentators. See,

e.g., Burger, “Isn’t There A Better Way?” 68 Am. Bar Assoc.

}. 274 (March 1982); Furnish, “Commercial Arbitration

Agreements,” supra; Meyerowitz, “The Arbitration Alterna-

tive,” 71 Am. Bar Assoc. J. 78 (Feb. 1985).

~ It should be noted that insofar the public is concerned, arbitratio

lauses are likely t be present primarily in individual actions b'

ustomers against their brokers, such as the case here. Such clauses are

inlike b i yf I cases under the securities

laws, such as actions by customers (individually or as a class) against

nderwriters for a diy talse and misleading disclosures,

tnere ve raliy ! ractual relat onship between customers

ind issuer r underwriter CC, C.f Globus v. Law Research Service,

Inc., 287 F. Supp. 188 (S.D.N.Y. 1968), aff'd in part and rev'd in part,

418 F.2d 1276 (2d Cir. 1969), cert. denied, 397 U.S. 913 (1970) (action

ser against underwriter under § 12(2) of the Securities Act

ind § IS(c) of the Ex inge Act for material omissions from offering

We! Tenne Corr 47 FR.D. 283 (S.D.N.Y. 1969)

ler S11 and I7(a) of t

> \ I Act | false and n i

d prospectus)

Mi \AA’s ( 4 , Se

H ‘ \ I

Art } |

a . \ {

( 7) ¢ bk 4 79

Experience has also shown that arbitration is a fair method

of resolving securities disputes in particular. Contrary to the

Wilko majority’s assumptions, arbitration of securities dispu-

tes has not proven to be disadvantageous to customers. For

example, of 40 cases brought by customers against securities

firms recently arbitrated to decision under the auspices of the

AAA, 27 (68%) resulted in awards for the customer, in an

average amount of over $26,000, including four awards of

punitive damages (ranging from $50,000 to $150,000)

[hat arbitration is a fair and effective method of resolving

securities disputes is also confirmed by the experience in other

countries. Arbitration clauses are generally enforceable as to

securities claims in at least the following countries: Austria,

Belgium, Canada, Denmark, France, Germany, Great Britain,

Greece, Italy, Japan, Netherlands, Singapore, Spain and Swit

zerland.~ See also Scherk, supra; Mitsubishi, supra.

Materials | AAAs Off t Case Administration. Similal

NASD statist vy that in 1985S. $4 yf ti nub is¢

iwa 1 dama O et

> i { \ K N ) 7

(Ar )

+ 5 I { ( if Arb illo Internationa

{ n ¢ irbitre n, Su | (May 1984) at 5-6

\ } B S (( ida): 8-9 (Great Brita } Sup

xs x (| *» 8.9 (Su and) Supp 4 (Noy 1985)

7-8 (Gr /. Supp. §S (May 1986) at 6-7 (Denmark); Doing

B n Europe, ‘ mon Market Rep. (CCH) € 27033 (1986)

r } € 2855 (Spa ): | a ii Counc or Commercial

Ar} 4 Year Book: Commercia irbitration Vol. XI (1986) at

3 (S j I P ( ] a yrett ind P. Noue Le Droit Francai

irhpitr S/-/ dR 3 (Fra ) () C;iossner. Cormmercia

f / Germa? (1984) 2-4, §5§

k D Busi? n Japan. \ ' «4

Mitsu }

W

Rs.

As these developments demonstrate, arbitration has proven

to be a fair, efficient and effective means of resolving commer-

cial disputes, including securities disputes.“° The Wilko Court’s

assumptions to the contrary have not been borne out by

experience and are contrary to the express intent of Congress

as embodied in the Arbitration Act. Wi/ko remains one of the

final remnants of the judicial suspicion of arbitration that

Congress intended to eliminate through the Arbitration Act,

and that this Court has soundly rejected in its recent decisions

on arbitration. This Court should overrule Wi/ko and ‘‘cor-

rect{ ] a plain misreading of language and history so as to give

full respect to the meaning which Congress unmistakably

intended the statute to have.’’ Nye v. United States, 313 U.S.

33, 51 (1941) (overruling the statutory construction of Toledo

Newspaper Co. v. United States, 247 U.S. 402 (1918)); cf.

Monell v. Department of Social Services, 436 U.S. 658 (1978)

(overruling the statutory interpretation of Monroe v. Pape, 365

U.S. 167 (1961)); Commissioner v. Estate of Church, 335 U.S.

- There are various other indicia of the increasing acceptance ol

arbitration. Whereas in 1950 only 20 states had statutes requiring the

enforcement of arbitration clauses, today all but five states (Alabama

Mississippi, Nebraska, North Dakota and West Virginia) do. (Mate

rials in files of AAA’s Office of General Counsei.) Moreover, case

law. including the decisions of this Court discussed above, Is increas

ingly receptive to arbitration. See generally DiBenedetto, **An Outline

for Arbitration Under the Civil Practice Law and Rules,’* 48 Alb. |

Rev. 763, 763 (1984) (‘Over the years there has been a dramatic

increase in both the number of controversies submitted to arbitratior

and the judiciary’s acceptance and encouragement of this alternative

means of dispute resolution.’’); Hirshman, ‘‘The Second Arbitratior

Triloey,’’ supra. State and federal courts have also increasingly

adopted arbitration programs to help resolve disputes. Thus some 16

states already have court-annexed arbitration programs in place, and

eight more states and the District of Columbia are contemplating

implementation; two federal district courts have such programs in

place, and such programs are being adopted in eight more districts

Federal Judicial Center, Sett/ement Strategies for Federal Distric!

Judges, 43-46 (1986). Moreover, the AAA’s role as an impartial

administrator of arbitration has been specifically recognized in twe

federal statutes, three federal regulations, and over 40 state statutes 1

21 states and the Virgin Islands. See Lawyers’ Arbitration Letter, V:

S$ No. 2 (June 1981 & 1983 Supp.)

632 (1949) (overruling the statutory interpretation of May vy.

Heiner, 281 U.S. 238 (1930)); Girouard v. United States, 328

U.S. 61 (1946) (overruling the statutory interpretation of

United States v. Schwimmer, 279 U.S. 644 (1929)).°

C. THE SECOND CIRCUIT’S BROAD “PUBLIC POL-

ICY’? EXCEPTION TO THE ENFORCEMENT OF

ARBITRATION CLAUSES CONFLICTS WITH THE

ARBITRATION ACT AND THE RECENT DECI-

SIONS OF THIS COURT

In holding that RICO claims are not arbitrable, the Second

Circuit relied upon its doctrine, announced in cases such as

American Safety Equipment Corp. v. J.P. Maguire & Co., 391

F.2d 821 (2d Cir. 1968) (holding arbitration agreements unen-

forceable as to antitrust disputes), that the Arbitration Act is

‘‘inappropriate[ ] . . . when strong public policy considera-

tions are involved.’’ McMahon, supra, 788 F.2d at 98.

[he Second Circuit’s ‘‘public policy’’ exception is improper

judicial legislation pure and simple. Nothing in the Arbitration

Act permits such an exception. Rather, as this Court explained

in Mitsubishi, arbitration agreements must be enforced as to

Statutory claims unless there is an explicit statement of Con-

gressional intent to prevent arbitration. In holding RICO

claims non-arbitrable for public policy reasons, ‘‘the McMa-

hon court paid too little deference to the Supreme Court’s

decision in Mitsubishi.’’ Jacobson v. Merrill Lynch, Pierce,

27 Since arbitration clauses should be held to be enforceable as to

Securities Act claims, which are based on express statutory rights, @

fortiori they should be enforced as to claims under the Exchange Act,

which are based on implied rights. Since Congress did not expressly

create private rights of action under the Exchange Act, it can hardly

have intended to preclude arbitration of them. Amicus adopts peti

tioners’ arguments on this point

28 [here is nothing in RICO or its legislative history that suggests

Congress intended to preclude arbitration of such claims. Aynicus

adopts petitioners’ arguments on this point

20

Fenner & Smith, Inc., 797 F.2d 1197, 1202 (3d Cir. 1986); see

also Mayaja, Inc. v. Shearson Lehman Brothers, Inc., No.

85-2762, slip op. at 13-14 n.6 (Sth Cir. Oct. 24, 1986). After

Mitsubishi,

(djetermining statutory claims to be nonarbitrable on the

basis of some judicially recognized public policy rather

than as a matter of statutory interpretation is no longer

permissible.

Jacobson, supra, 797 F.2d at 1202; see also Mayaja, supra, slip

op. at 13-14 n.6. Accordingly, although it did not need to

reach the issue, the Mitsubishi Court noted its ‘‘skepticism of

certain aspects of the American Safety doctrine.’’ 105 S. Ct. at

3357. As the Fifth Circuit has stated, ‘‘Mitsubishi rejected so

much of American Safety’s reasoning it is difficult to say what

is left of the opinion to rely on.’’ Mayaja, supra, slip op. at 14

n.6.

The so-called ‘‘public policy’’ exception to the Arbitration

Act is unwarranted and unwise. It flies in the face of the

express language of the Arbitration Act and of this Court's

decision in Mitsubishi. It should be rejected.~”

29 T} . a } . in ry ry ; T . itio

| proj

\ P id i i Bt essio

expression of public policy; otherwise, Congress would not have

enacted the legislation. The Second Circuit has not articulated any way

» distinguish those statutes f« vhich arbitration would be precluded

ler its public policy exception from those for which it would

illowed

Ratt 5s Co i lla ] op € VUitsubishi. Since

COI € it hed ti nat art won 1uS¢ should |

forced requires Congres ( te al xcepliol Unless Co es

has expressly created such an exception, arbitratio lauses m be

enforced, and co should not be pe d bstitute the lew

ol b] 10) | CO

CONCLUSION

[he Federal Arbitration Act, the recent decisions of this

Court, and decades of extensive experience with arbitration, all

require the same conclusion: contractual agreements whereby

parties select arbitration for the resolution of commercial

disputes—including disputes based on statutory claims

should be enforced absent an express statement of Congres

sional intent to the contrary. Since nothing in the Securities

Act, the Exchange Act, or KI1CO—or in the legislative history

of those statutes—evidences a Congressional intent to preclude

arbitration, arbitration clauses should be enforced as to claims

under all three statutes.

Wilko v. Swan, which held arbitration clauses unenforceable

as to Securities Act disputes, should be overruled because it

was based on a suspicion of arbitration subsequently acknowl-

edged by this Court—and proven by experience—to be un

founded, rather than on evidence of the intent of Congress.

Disputes under the Exchange Act and RICO are even more

clearly arbitrable. This Court should reject the broad ‘‘public

policy’’ exception to arbitration articulated by the court below,

since it is contrary to the express language of the Arbitration

Act and the decisions of this Court.

Thus, the Second Circuit’s decision should be reversed as to

the arbitrability of Exchange Act and RICO claims, and, in

order to provide clarity in this important area of the law,

Wilko v. Swan should be overruled.

Dated: New York, New York

November 20, 1986

Respectfully submitted,

s/ MICHAEL F. HOELLERING

Thomas Thacher, Chairman Michael F. Hoellering

Gerald Aksen (Counsel of Record)

Sheldon L. Berens General Counsel

Richard S. Lombard American Arbitration Association

Robert MacCrate 140 West Slst Street

John R. Stevenson New York, New York 10020

Robert B. von Mehren (212) 484-4000

Arbitration Law Committee ittorney for Amicus Curiae

Of Counsel:

Joseph T. McLaughlin

David J. Mark

Daniel Levin

Robert Mace

Steven M. Pincus

Rosemary S. Page

APPENDICES

la

APPENDIX A

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

Administrative Procedure Act

5 U.S.C. § 706(2)(A), (C):

Io the extent necessary to decision and when presented,

the reviewing court shall decide all relevant questions of

law, interpret constitutional and statutory provisions, and

determine the meaning or applicability of the terms of an

agency action. The reviewing court shall—

x * 7.

(2) hold unlawful and set aside agency action,

findings, and conclusions found to be—

(A) arbitrary, capricious, and abuse of discre-

tion, or otherwise not in accordance with law;

* * *

(C) in excess of statutory jurisdiction, author-

ity, or limitations, or short of statutory right;

~ a x

United States Arbitration Act

9 USC. § 2:

A written provision in any maritime transaction or a

contract evidencing a transaction involving commerce to

settle by arbitration a controversy thereafter arising out of

such contract or transaction, or the refusal to perform the

whole or any part thereof, or an agreement in writing to

submit to arbitration an existing controversy arising Out

of such a contract, transaction, or refusal, 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. § 7:

[he arbitrators selected either as prescribed in this title

or otherwise, or a majority of them, may summon in

writing any person to attend before them or any of them

as a witness and in a proper case to bring with him or

them any book, record, document, or paper which may

be deemed material as evidence in the case. The fees for

such attendance shall be the same as the fees of witnesses

before masters of the United States courts. Said summons

shall issue in the name of the arbitrator or arbitrators, or

a majority of them, and shall be signed by the arbitrators,

Or a majority of them, and shall be directed to the said

person and shall be served in the same manner as sub-

poenas to appear and testify before the court; if any

person or persons sO summoned to testify shall refuse or

neglect to obey said summons, upon petition the United

States district court for the district in which such arbitra-

tors, Or a majority of them, are sitting may compel the

attendance of such person or persons before said arbitra-

tor or arbitrators, or punish said person or persons for

contempt in the same manner provided by law for se-

curing the attendance of witnesses or their punishment for

neglect or refusal to attend in the courts of the United

States.

9 U.S.C. § 9:

If the parties in their agreement have agreed that a

judgment of the court shall be entered upon the award

made pursuant to the arbitration, and shall specify the

court, then at any time within one yez.~ after the award is

made any party to the arbitration may apply to the court

so specified for an order confirming the award, and

thereupon the court must grant such an order unless the

award is vacated, modified, or corrected as prescribed in

sections 10 and 11 of this title. If no court is specified in

the agreement of the parties, then such application may

be made to the United States court in and for the district

within which such award was made. Notice of the applica-

tion shall be served upon the adverse party, and thereupon

the court shall have jurisdiction of such party as though

he had appeared generally in the proceeding. If the

adverse party is a resident of the district within which the

award was made, such service shall be made upon the

adverse party or his attorney 4s prescribed by law for

service of notice of motion in an action in the same court.

If the adverse party shall be a nonresident, then the notice

of the application shall be served by the marshal of any

district within which the adverse party may be found in

like manner as other process of the court.

9 U.S.C. § 10(d):

In either of the following cases the United States court

in and for the district wherein the award was made may

make an order vacating the award upon the application of

any party to the arbitration

< = *

(d) Where the arbitrators exceeded thei powers,

or so imperfectly executed them that a mutu “, final,

and definite award upon the subject matter submit

ted was not made.

Securities Act of 1933

1S U.S.C. § 77n:

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.

Securities Exchange Act of 1934

15 U.S.C. § 78s(c):

(c) The Commission, by rule, may abrogate, add to,

and delete from (hereinafter in this subsection collectively

+-

referred to as “amend’) the rules of a selt-regulator

organization (other than a registered clearing agency) as

the Commission deems necessary Or appropriate to insur

‘

ine

fair administration of the self-regulatory organiza

" . - sslac ¢ ran roamant > th ,sArmfear

tion, to conform its rules to requirements Of this chapte

j } 7 | id _ >} y y ior |

r) . rp ' 2 nr >

and tne rules and reguiations thereunder a icavdie

>

ry ro ’ 7 ry ry ’ rr , y ’ rt? ¥ , ?

Ssucn OrganiZation, O OLTICTWISC i CIT alive }

f ti } f

ry rn ‘ ri : ry ’

DUTLDOSESS O ibkiS Ul aj C C ‘ -

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+

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Ihe Co ss shall give : ed pers

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make w en submissions. A anscript sha €

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4 \ r ly Fate ! r 1} r) ' ih .

{ } Ui aU Pictu 7 4 SUdll \ is 3S SEL i

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Sildil LILOT) Oral tilt CXt Ol ne amendmel U) .

nif , rnp ‘ ? r=) ) 7 ° " ’ ; t,

rules of the self-regulatory organization and a State

ment

Ahiw ESL

of the Commission’s basis for and purpose in

sO amending such rules. This statement shall include

an identification of any facts on which the Commis

sion considers its determination so to amend the

rules of the self-regulatory agency to be based, in-

cluding the reasons for the Commission’s conclu

sions as to any of such facts which were disputed tn

the rulemaking.

(4)(A) Except as provided in paragraphs (1)

through (3) of this subsection, rulemaking under this

subsection shall be in accordance with the proce

dures specified in section 553 of Title 5 for rulemak

ing not on the record.

ng in this subsection shall be construed

air or limit the Commission’s power to make,

nodify or alter the procedures the Commission

follow in making, rules and regulations pur-

) any other authority under this chapter.

Any amendment to the cules of a self-regula-

rganization made by the Commission pursuant

subsection shall be considered for all purposes

s chapter to be part of the rules of such

atory organization and shall not be consid

yf the Commission

‘A

6.

6a

APPENDIX B

AMERICAN ARBITRATION ASSOCIATION

COMMERCIAL ARBITRATION RULES

TABLE OF CONTENTS

PABTOCMMOME OF PATUIES. 2... ccc ccc ce cccccccccse

ee

EE a

Delegation of Duties ....

National Panel of Arbitrators ...........

I rr cc ca wo ee e's

Initiation under an Arbitration Provision

Contract ..... ee PP eee re

Change of Claim

Initiation under a Submission ...............

In

ad

Pre-hearing Conference and Preliminary Hearing

Fixing of Locale....

Qualifications of Arbitrator...........

Appointment from Panel ....................

Direct Appointment by Parties

Appointment of Neutral Arbitrator by Party-Ap

POUMIEG ASONTAIOFS 2... cc ccc ccc cccccccccs

Nationality of Arbitrator in International Arbitra

is 7 Ee ee ae ee ere ere eee

Page references correspond to this appendix

a

PAGI

18. Notice to Arbitrator of Appointment....... ce

19. Disclosure and Challenge Procedure............ l4a

a Se oo 8. eee ems ale Ww ebeee ease ue l4da

21. Time and Place........ PRP eee TOES ree er l4a

22. Representation by Counsel.............seee0. l4a

te PES GID. . Cn cuceSeecedsedscbeseus l4a

24. UMOTPreter .... sce: OR Pe ee a

25. Attendance at Hearings.......... ary 6 pe eae lSa

26. Adjournments.............. eee re io ee

ER ae oo a he ae lSa

28. Majority Decision ..... Tee TTT eee Creer r as:

29. Order of Proceedings .............. a ent lSa

30. Arbitration in the Absence of a Party =e l6a

ie ere ANS Fehr a a Pay rere l6a

32. Evidence by Affidavit and Filing of Documents l6a

33. Inspection or Investigation.................. l7a

34. Conservation of Property. . ; +" - 17a

35. Closing of Hearings... is ae ae l7a

36. Reopening of Hearings. : . 17a

37. Waiver of Oral Hearings........ aa lSa

38. Waiver of Rules ........ ate lSa

39. Extensions of Time......... lSa

40. Communication with Arbitrator and Serving ol

Notice ...... oe oa ae lSa

41. Time of Award 1Ya

PAGI

fs Ses 0 SUI gs Oe cus ac oe Cheba ede eek 19a

ls. Me Or Me re oe casubcwheedokeeeenacee 19a

44. Award upon Settlement..... Peieaseuee nee 19a

45. Delivery of Award to Parties .................. 19a

46. Release of Documents for Judicial Proceedings .. 19a

47. Applications to Court and Exclusion of Liability 20a

48. Administrative Fees........ cece eae kes _. ae

49. Fee when Oral Hearings Are Waived ......... . 20a

i Ph occu kievccobeda cee dud cuaeaenus 20a

51. Arbitrator’s Fee........... iSetedededuaenees 2la

ie. Se eich an yond’ fel Dae oat ioeuuie end 2la

53. Interpretation and Application of Rules......... 21a

EAPEUIICD PROCEDURES... .....ccccccccccccvces 22a

54. Notice by Telephone ...............eccee: vem: |

55. Appointment and Qualifications of Arbitrators .. 22a

56. Time and Place of Hearing ................... 2Za

57. The Hearing ....... ovine Cowes 5h aeleees 22a

58. Time of Award...... i iineta wes 22a

ADMINISTRATIVE FEE SCHEDULE.............. 23a

OTHER SERVICE CHARGES..... nae er ant 23a

REFUND SCHEDULI yer re - ae” ee

Ya

COMMERCIAL ARBITRATION RULES

|. Agreement of Parties. The parties shall be deemed to

have made these Rules a part of their arbitration agreement

whenever they have provided for arbitration by the American

Arbitration Association or under its Rules. These Rules and

any amendment thereof shall apply in the form obtaining at

the time the arbitration is initiated.

2. Name of Tribunal. Any Tribuna! constituted by the par-

ties for the settlement of their dispute under these Rules shall

be called the Commercial Arbitration [ribunal

3. Administrator. When parties agree to arbitrate under

these Rules, or when they provide for arbitration by the

American Arbitration Association and an arbitration is initi-

ated thereunder, they thereby constitute the AAA the adminis-

trator of the arbitration. The authority and obligations of the

administrator are prescribed in the agreement of the parties

and in these Rules.

4. Delegation of Duties. The duties of the AAA under these

Rules may be carried out through Tribunal Administrators, or

such other officers or committees as the AAA may direct.

5S. National Panel of Arbitrators. The AAA shall establish

and maintain a National Panel of Arbitrators and shall ap-

point Arbitrators therefrom as hereinafter provided.

6. Office of Tribunal. The general office of a Tribunal is the

headquarters of the AAA, which may, however, assign the

administration of an arbitration to any of its Regional Offices.

Initiation under an Arbitration Provision in a Contract.

Arbitration under an arbitration provision in a contract may

be initiated in the following manner:

(a) The initiating party shall give notice to the other

party of its intention to arbitrate (Demand), which notice

shall contain a statement setting forth the nature of the

dispute, the amount involved, if any, the remedy sought,

and

10a

(b) By filing at any Regional Office of the AAA three

copies of said notice, together with three copies of the

arbitration provisions of the contract, together with the

appropriate administrative fee as provided in the Ad-

ministrative Fee Schedule. The AAA shall give notice of

such filing to the other party. If so desired, the party upon

whom the Demand for Arbitration is made may file an

answering statement in duplicate with the AAA within

seven days after notice from the AAA, in which event said

party shall simultaneously send a copy of the answer to

the other party. If a counterclaim is asserted it shall

contain a statement setting forth the nature of the coun-

terclaim, the amount involved, if any, and the remedy

sought. If a monetary claim is inade in the answer the

appropriate fee provided in the Fee Schedule shall be

forwarded to the AAA with the answer. If no answer is

filed within the stated time, it will be assumed that the

claim is denied. Failure to file an answer shall not operate

to delay the arbitration.

Unless the AAA in its discretion determines otherwise, the

Expedited Procedures of Commercial Arbitration shall be

applied in any case where the total claim of any party does not

exceed $15,000, exclusive of interest and arbitration costs. The

Expedited Procedures shall be applied as described in Sections

54 through 58 of these Rules.

8. Change of Claim. After filing of the claim, if either party

desires to make any new or different claim, such claim shall be

made in writing and filed with the AAA, and a copy thereof

shall be mailed to the other party, who shall have a period of

seven days from the date of such mailing within which to file

an answer with the AAA. After the Arbitrator is appointed,

however, no new or different claim may be submitted except

with the Arbitrator’s consent.

9. Initiation under a Submission. Parties to any existing

dispute may commence an arbitration under these Rules by

filing at any Regional Office two copies of a written agreement

lla

to arbitrate under these Rules (Submission), signed by the

paiti shall contain a statement of the matter in dispute,

the amcunt of money involved, if any, and the remedy sought,

together with the appropriate administrative fee as provided in

the Fee Schedule.

10. Pre-hearinge Conference and Preliminary ‘fearing. At

the request of the parties or at the discretion of the AAA, a

pre-hearing conference with the administrator and the parties

will be scheduled in appropriate cases to arrange for an

exchange of information and tne stipulation to uncontested

facts to expedite the arbitration proceedings.

In large or complex cases, at the discretion of the

Arbitrator(s) or the AAA, a preliminary hearing will be sched

uled with the Arbitrator(s) and the parties to arrange for the

production of relevant documents and other evidence, to

identify witnesses to be called, to schedule further hearings,

and to consider any other matters which will expedite the

arbitration proceedings.

11. Fixing of Locale. The parties may mutually agree on the

locale where the arbitration is to be held. If the locale is not

designated within seven days from the date of filing the

Demand or Submission, the AAA shall have power to deter-

mine the locale. Its decision shall be final and binding. If any

party requests that the hearing be held in a specific locale and

the other party files no objection thereto within seven days

after notice of the request, the locale shall be the one re-

quested.

12. Qualifications of Arbitrator. Any Arbitrator appointed

pursuant to Section 13 or Section 15 shall be neutral, subject to

disqualification for the reasons specified in Section 19. If the

agreement of the parties names an Arbitrator or specifies any

other method of appointing an Arbitrator, or if the parties

specifically agree in writing, such Arbitrator shall not be

subject to disqualification for said reasons.

13. Appointment from Panel. \f the parties have not ap

pointed an Arbitrator and have not provided any other method

l2a

of appointment, the Arbitrator shall be appointed in the

following manner: Immediately after the filing of the Demand

or Submission, the AAA shall submit simultaneously to each

party to the dispute an identical list of names of persons

chosen from the Panel. Each party to the dispute shall have

seven days from the mailing date in which to cross off any

names objected to, number the remaining names to indicate

the order of preference, and return the list to the AAA. If a

party does not return the list within the time specified, all

persons named therein shall be deemed acceptable. From

among the persons who have been approved on both lists, and

in accordance with the designated order of mutual preference,

the AAA shall invite the acceptance of an Arbitrator to serve.

If the parties fail to agree upon any of the persons named, or if

acceptable Arbitrators are unable to act, or if for any other

reason the appointment cannot be made from the submitted

lists, the AAA shall have the power to make the appointment

from among other members of the Panel without the submis

sion of any additional list.

14. Direct Appointment by Parties. \f the agreement of the

parties names an Arbitrator or specifies a method of appoint-

ing an Arbitrator, that designation or method shall be fol-

lowed. The notice of appointment, with name and address of

the appointing party, shall be filed with the AAA by the

appointing party. Upon the request of any such appointing

party, the AAA shall submit a list of members of the Panel

from which the party may, if it so desires, make the appoint-

ment.

If the agreement specifies a period of time within which an

Arbitrator shall be appointed, and any party fails to make such

appointment within that period, the AAA shall make the

appointment.

If no period of time is specified in the agreement, the AAA

shall notify the parties to make the appointment and if within

seven days thereafter such Arbitrator has not been so ap-

pointed, the AAA shall make the appointment.

1

1S. Appointment of Neutral Arbitrator by Party-Appointed

Arbitrators. \f the parties have appointed their Arbitrators or

if either or both of them have been appointed as provided in

Section 14, and have authorized such Arbitrators to appoint a

neutral Arbitrator within a specified time and no appointment

is made within such time or any agreed extension thereof, the

AAA Shall appoint a neutral Arbitrator who shall act as

Chairman.

If no period of time is specified for appointment of the

neutral Arbitrator and the parties do not make the appoint

ment within seven days from the date of the appointment ot

the last party-appointed Arbitrator, the AAA shall appoint

such neutral Arbitrator, who shall act as Chairman

If the parties have agreed that their Arbitrators shall appoint

the neutral Arbitrator from the Panel, the AAA shall fur

to the party-appointed Arbitrators, in the manner prescribed

Section 13, a list selected from the Panel,

of the neutral Arbitrator shall be made as prescribed in suct

Section.

and the appointment

16. Nationality of Arbitrator in International Arbitration

f one of the parties 1s a national or resident of a country othe

than the United States, the sole Arbitrator or the neutral

Arbitrator shall, upon the request of either party, be appointed

from among the nationals of a country other than that of any

of the parties.

17. Number of Arbitrators. \f the arbitration agreement

does not specify the number of Arbitrators, the dispute shall be

heard and determined by one Arbitrator, unless the AAA, in its

discretion, directs that a greater number of Arbitrators be

appointed.

18. Notice to Arbitrator of Appointment. Notice of the

appointment of the neutral Arbitrator, whether appointed by

the parties or by the AAA, shall be mailed to the Arbitrator by

the AAA, together with a copy of these Rules, and the signed

acceptance of the Arbitrator shall be filed prior to the opening

of the first hearing.

l4a

19. Disclosure and Challenge Procedure. A person ap-

pointed as neutral Arbitrator shall disclose to the AAA any

circumstances likely to affect impartiality, including any bias or

any financial or personal interest in the result of the arbitration

Or any past or present relationship with the parties or their

counsel. Upon receipt of such information from such Arbitra-

tor or other source, the AAA shall communicate such informa-

tion to the parties, and, if it deems it appropriate to do so, to

the Arbitrator and others. Thereafter, the AAA shall determine

whether the Arbitrator should be disqualified and shall inform

the parties of its decision, which shall be conclusive.

20. Vacancies. If any Arbitrator should resign, die, with

draw, refuse, be disqualified or be unable to perform the duties

of the office, the AAA may, on proof satisfactory to it, declare

the office vacant. Vacancies shall be filled in accordance with

the applicable provisions of these Rules.

In the event of a vacancy in a panel of neutral Arbitrators,

the remaining Arbitrator or Arbitrators may continue with the

hearing and determination of the controversy, unless the par-

ties agree otherwise.

21. Time and Place. The Arbitrator shall fix the time and

place for each hearing. The AAA shall mail to each party

notice thereof at least five days in advance, unless the parties

by mutual agreement waive such notice or modify the terms

thereof.

22. Representation by Counsel. Any party may be repre-

sented by counsel. A party intending to be so represented shall

notify the other party and the AAA of the name and address

of counsel at least three days prior to the date set for the

hearing at which counsel is first to appear. When an arbitration

is initiated by counsel, or where an attorney replies for the

other party, such notice is deemed to have been given.

23. Stenographic Record. Any party wishing a stenographic

record shall make such arrangements directly with the stenog

rapher and shall notify the other parties of such arrangements

in advance of the hearing. The requesting party or parties shall

pay the cost of such record

Sa

24. Interpreter. Any party wishing an interpreter shall make

all arrangements directly with an interpreter and shall assume

the costs of such service.

25. Attendance at Hearings. The Arbitrator shall maintain

the privacy of the hearings unless the law provides to the

contrary. Any person having a direct interest in the arbitration

is entitled to attend hearings. The Arbitrator shall otherwise

have the power to require the exclusion of any witness, other

than a party or other essential person, during the testimony of

any other witness. It shall be discretionary with the Arbitrator

to determine the propriety of the attendance of any other

person.

26. Adjournments. The Arbitrator may take adjournments

upon the request of a party or upon the Arbitrator’s own

initiative and shall take such adjournment when all of the

parties agree thereto.

27. Oaths. Before proceeding with the first hearing or with

the examination of the file, each Arbitrator may take an oath

of office, and if required by law, shall do so. The Arbitrator

has discretion to require witnesses to testify under oath ad

ministered by any duly qualified person or, if required by law

or demanded by either party, shall do so.

28. Majority Decision. Whenever there is more than one

Arbitrator, all decisions of the Arbitrators must be by at least a

majority. The award must also be made by at least a majority

unless the concurrence of all is expressly required by the

arbitration agreement or by law.

29. Order of Proceedings. A hearing shall be opened by the

filing of the oath of the Arbitrator, where required, and by the

recording of the place, time and date of the hearing, the

presence of the Arbitrator and parties, and counsel, if any, and

by the receipt by the Arbitrator of the statement of the claim

and answer, if any.

l6a

[he Arbitrator may, at the beginning of the hearing, ask for

Statements clarifying the issues involved.

The complaining party shall then present its claim and

proofs and its witnesses, who shall submit to questions or other

examination. The defending party shall then present its defense

and proofs and its witnesses, who shall submitto questions or

other examination. The Arbitrator has discretion to vary this

procedure but shall afford fuil and equal opportunity to all

parties for the presentation of any material or relevant proofs.

Exhibits, when offered by either party, may be received in

evidence by the Arbitrator.

[he names and addresses of all witnesses and exhibits in

order received shall be made a part of the record.

30. Arbitration in the Absence of a Party. Unless the law

provides to the contrary, the arbitration may proceed in the

absence of any party which, after due notice, fails to be present

or fails to obtain an adjournment. An award shall not be made

solely on the default of a party. The Arbitrator shall require the

party who Is present to submit such evidence as the Arbitrator

may require for the making of an award.

31. Evidence. The parties may offer such evidence as is

relevant and material to the dispute and shall produce such

additional evidence as the Arbitrator may deem necessary to an

understanding and determination of the dispute. An Arbitrator

authorized by law to subpoena witnesses or documents may do

so upon the request of any party, or independently.

[he Arbitrator shall be the judge of the relevance and

materiality of the evidence offered and conformity to legal

rules of evidence shall not be necessary. All evidence shall be

taken in the presence of all the Arbitrators and all of the

parties, except where any of the parties is absent in default or

has waived the right to be present.

32. Evidence by Affidavit and Filing of Documents. The

Arbitrator shall receive and consider the evidence of witnesses

by affidavit, but shall give it only such weight as the Arbitrator

deems it entitled to after consideration of any objections made

to its admission

l7a

All documents not filed with the Arbitrator at the hearing,

but arranged for at the hearing or subsequently by agreement

of the parties, shall be filed with the AAA for transmission to

the Arbitrator. All parties shall be afforded opportunity to

examine such documents.

33. Inspection or Investigation. Whenever the Arbitrator

deems it necessary to make an inspection or investigation in

connection with the arbitration, the Arbitrator shall direct the

AAA to advise the parties of such intention. The Arbitrator

shall set the time and the AAA shall notify the parties thereof.

Any party who se desires may be present at such inspection oO!

investigation. In the event that one or both parties are not

present at the inspection or investigation, the Arbitrator shall

make a verbal or written report to the parties and afford them

an opportunity to comment.

34. Conservation of Property. The Arbitrator may issue

such orders as may be deemed necessary to safeguard the

property which is the subject matter of the arbitration withou

prejudice to the rights of the parties or to the final determina

tion of the dispute.

35. Closine of Hearings. The Arbitrator shall specifically

inquire of all parties whether they have any further proofs to

offer or witnesses to be heard. Upon receiving negative replies,

or if satisfied that the record is complete, the Arbitrator shall

declare the hearings closed and a minute thereof shall be

recorded. If briefs are to be filed, the hearing shall be declared

closed as of the final date set by the Arbitrator for the receipt

of briefs. If documents are to be filed as provided for in

Section 32 and the date set for their receipt is later than that set

for the receipt of briefs, the later date shall be the date of

closing the hearings. The time limit within which the Arbitra

tor is required to make the award shall commence to run, In

the absence of other agreements by the parties, upon the

closing of the hearings.

36. Reopening of Hearings. The hearings may be reopened

on the Arbitrator’s own motion, or upon application of a

l8a

party, at any time before the award is made. If reopening the

hearings would prevent the making of the award within the

specific time agreed upon by the parties in the contract out of

which the controversy has arisen, the matter may not be

reopened, unless the parties agree upon the extension of such

time limit. When no specific date is fixed in the contract, the

Arbitrator may reopen the hearings, and the Arbitrator shall

have thirty days from the closing of the reopened hearings

within which to make an award.

37. Waiver of Oral Hearings. The parties may provide, by

written agreement, for the waiver of oral hearings. If the

parties are unable to agree as to the procedure, the AAA shall

specify a fair and equitable procedure.

38. Waiver of Rules. Any party who proceeds with the

arbitration after knowledge that any provision or requirement

of these Rules has not been complied with and who fails to

State objection thereto in writing, shall be deemed to have

waived the right to object.

39. Extensions of Time. The parties may modify any period

of time by mutual agreement. The AAA for good cause may

extend any period of time established by these Rules, except

the time for making the award. The AAA shall notify the

parties of any such extension of time and iis reason therefor.

40. Communication with Arbitrator and Serving of Notice.

(a) There shall be no communication between the parties

i neutral Arbitrator other than at oral hearings. Any other

% ral Or written communications from the parties to the Arbi-

ra shall be directed to the AAA for transmittal to the

Arbitrator.

(6) Each party to an agreement which provides for arbitra-

tion under these Rules shall be deemed to have consented that

any papers, notices or process necessary or proper for the

initiation Or continuation of an arbitration under these Rules

and for any court action in connection therewith or for the

entry of judgment on any award made thereunder may be

19a

served upon such party by mail addressed to such party or its

attorney at its last known address or by personal service,

within or without the state wherein the arbitration is to be held

(whether such party be within or without the United States of

America), provided that reasonable opportunity to be heard

with regard thereto has been granted such party

41. Time of Award. The award shall be made prompt!y by

the Arbitrator and, unless otherwise agreed by the parties, or

specified by law, no later than thirty days from the date of

closing the hearings, or if oral hearings have been waived,

from the date of transmitting the final statements and proofs

to the Arbitrator.

42. Form of Award. The award shall be in writing and shall

be signed either by the sole Arbitrator or by at least a majority

if there be more than one. It shall be executed in the manner

required by law.

43. Scope of Award. The Arbitrator may grant any remedy

or relief which the Arbitrator deems just and equitable and

within the scope of the agreement of the parties, including, but

not limited to, specific performance of a contract. The Arbi-

trator, in the award, shall assess arbitration fees and expenses

in favor of any party and, in the event any administrative fees

or expenses are due the AAA, in favor of the AAA.

44. Award upon Settlement. \f the parties settle their dispute

during the course of the arbitration, the Arbitrator, upon their

request, may set forth the terms of the agreed settlement in an

award.

45. Delivery of Award to Parties. Parties shall accept as

legal delivery of the award the placing of the award or a true

copy thereof in the mail by the AAA, addressed to such party

at its last known address or to its attorney, or personal service

of the award, or the filing of the award in any manner which

may be prescribed by law.

46. Release of Documents for Judicial Proceedings. The

AAA shall, upon the written request of a party, furnish to such

20a

party, at its expense, certified facsimiles of any papers in the

AAA's possession that may be required in judicial proceedings

relating to the arbitration.

47. Applications to Court and Exclusion of Liability.

(a) No judicial proceedings by a party relating to the subject

matter of the arbitration shall be deemed a waiver of the

party’s right to arbitrate.

(b) Neither the AAA nor any Arbitrator in a proceeding

under these Rules is a necessary party in judicial proceedings

relating to the arbitration.

(c) Parties to these Rules shall be deemed to have consented

that judgment upon the arbitration award may be entered in

any Federal or State Court having jurisdiction thereof.

(d) Neither the AAA nor any Arbitrator shall be liable to

any party for any act or omission in connection with any

arbitration conducted under these Rules.

48. Administ: ative Fees. As a not-for-profit organization,

the AAA shall prescribe an Administrative Fee Schedule and a

Refund Schedule to compensate it for the cost of providing

administrative services. The schedule in effect at the time of

filing or the time of refund shall be applicable.

[he administrative fees shall be advanced by the initiating

party or parties, subject to final apportionment by the Arbitra-

tor in the award.

When a matter is withdrawn or settled, the refund shall be

made in accordance with the Refund Schedule.

[he AAA, in the event of extreme hardship on the part of

any party, may defer or reduce the administrative fee.

49. Fee when Oral Hearings Are Waived. When all oral

hearings are waived under Section 37, the Administrative Fee

Schedule shail apply.

50. Expenses. The expenses of witnesses for either side shall

be paid by the party producing such witnesses.

dla

The cost of the stenographic record, if any is made, and all

transcripts thereof, shall be prorated equally among all parties

ordering copies unless they shall otherwise agree and shall be

paid for by the responsible parties directly to the reporting

agency.

All other expenses of the arbitration, including required

traveling and other expenses of the Arbitrator and of AAA

representatives, and the expenses of any witness or the cost of

any proofs produced at the direct request of the Arbitrator,

shall be borne equally by the parties, unless they agree

otherwise, or unless the Arbitrator, in the award, assesses such

expenses or any part thereof against any specified party or

parties.

$1. Arbitrator’s Fee. Members of the National Panel of

Arbitrators who serve as neutral Arbitrators do so in most

cases without fee. In prolonged or in special cases the parties

may agree to pay a fee, or the AAA may determine that

payment of a fee by the parties is appropriate and may

establish a reasonable amount, taking into account the extent

of service by the Arbitrator and other relevant circumstances

of the case. When neutral Arbitrators are to be paid, the

arrangements for compensation shail be made through the

AAA and not directly between the parties and the Arbitrators.

52. Deposits. The AAA may require the parties to deposit in

advance such sums of money as it deems necessary to defray

the expense of the arbitration, including the Arbitrator’s fee, 1!

any, and shall render an accounting to the parties and return

any unexpended balance.

53. Interpretation and Application of Rules. The Arbitrator

Shall interpret and apply these Rules insofar as they relate to

the Arbitrator’s powers and duties. When there is more than

one Arbitrator and a difference arises among them concerning

the meaning or application of any such Rules, it shall be

decided by a majority vote. If that is unobtainable, either an

Arbitrator or a party may refer the question to the AAA for

final decision. All other Rules shall be interpreted and applied

by the AAA.

oe

Lia

EXPEDITED PROCEDURES

54. Notice by Telephone. The parties shall accept all notices

from the AAA by telephone. Such notices by the AAA shall

subsequently be confirmed in writing to the parties. Notwith-

standing the failure to confirm in writing any notice or objec-

tion hereunder, the proceeding shall nonetheless be valid if

notice has, in fact, been given by telephone.

55. Appointment and Qualifications of Arbitrators. The

AAA shail submit simultaneously to each party to the dispute

an identical list of five members of the Commercial Arbitra-

tion Panel of Arbitrators from which one Arbitrator shall be

appointed. Each party shall have the right to strike two names

from the list on a peremptory basis. The list is returnable to the

AAA within 10 days from the date of mailing. If for any

reasons the appointment cannot be made from the list, the

AAA shall have the authority to make the appointment from

among other members of the Panel without the submission of

additional lists. Such appointment shal! be subject to disquali-

fication for the reasons specified in Section 19. The parties

shall be given notice by telephone by the AAA of the appoint-

ment of the Arbitrator. The parties shail notify the AAA, by

telephone, within seven (7) days of any objections to the

Arbitrators appointed. Any objection by a party to such

Arbitrator shall be confirmed in writing to the AAA with a

copy to the other party(ies).

56. Time and Place of Hearing. The Arbitrator shall fix the

date, time and place of the hearing. The AAA will notify the

parties by telephone, seven (7) days in advance of the hearing

date. Formal Notice of Hearing will be sent by the AAA to the

parties.

57. The Hearing. Generally, the hearing shall be completed

within one day. The Arbitrator, for good cause shown, may

schedule an additional hearing to be held within five days.

58. Time of Award. Unless otherwise agreed to by the

parties, the award shall be rendered not later than five (5)

business days from the date of the closing of the hearing.

23a

ADMINISTRATIVE FEE SCHEDULE

[he administrative fee of the AAA is based upon the

amount of each claim and counterclaim as disclosed when the

claim and counterclaim are filed, and is due and payable at the

time of filing.

Amount of Claim Fee

$1 to $20,000 3% (minimum $200)

$20,000 to $40,000 $600, plus 2% of excess

over $20,000

$40,000 to $80,000 $1000. plus 1% of excess

over $40,000

$80,000 to $160,000 $1400, plus 1/2% of excess

over $80,000

$160,000 to $5,000,000 $1800. plus 1/4% of excess

over $160,000

Where the claim or counterclaim exceeds $5 million, an

appropriate fee will be determined by the AAA.

When no amount can be stated at the time of filing, the

administrative fee is $500, subject to adjustment in accordance

with the above schedule as soon as an amount can be disclosed.

In those claims and counterclaims which are not for a

monetary amount, an appropriate administrative fee will be

determined by the AAA.

If there are more than two parties represented in the arbitra-

tion, an additional 10% of the initiating fee will be due for

each additional represented party.

OTHER SERVICE CHARGES

$50 payable by a party causing an adjournment of any

scheduled hearing;

$100 payable by a party causing a second or additional

adjournment of any scheduled hearing;

$506 payable by each party for each hearing after the first

hearing which is either clerked by the AAA or held in a hearing

room provided by the AAA

24a

REFUND SCHEDULE

If the AAA is notified that a case has been settled or

withdrawn before a list of Arbitrators has been sent out, all the

fee in excess of $200 will! be refunded.

If the AAA is notified that a case has been settled o1

withdrawn before the original due date for the return of the

first list, two-thirds of the fee in excess of $200 will be

refunded.

If the AAA is notified that a case is settled or withdrawn

during or following a pre-hearing conference or at least 48

hours before the date and the time set for the first hearing,

one-third of the fee in excess of $200 will be refunded.