# Petition for Writ of Certiorari — Hubbard, Securities Commissioner of Delaware v. Olde Discount Corp > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1848%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1994 - **Citation:** 510 U.S. 1065 ## Text FILED OCT 29 1993 OFFICE OF THE GLERK momen! No. 93-____ In The Supreme Court of the United States October Term, 1993 * RICHARD W. HUBBARD, Securities Commissioner of the State of Delaware, Petitioner, OLDE DISCOUNT CORPORATION, Respondent. -¢ Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Third Circuit € PETITION FOR A WRIT OF CERTIORARI on + CHARLES M. Ober y, III Attorney General of the State of Delaware RiCHARD E. FAIRBANKS, JR. Chief of Appeals Division Counsel of Record Delaware Department of Justice 820 North French Street Wilmington, DE 19801 (302) 577-2500 Counsel for Petitioner October 28, 1993 COCKLE LAW BRIEF PRINTING CO., (800) 225-6964 OR CALL COLLECT (402) 342-2831 QUESTIONS PRESENTED 1. Whether a federal court may enjoin a state securi- ties commissioner from ordering restitution for investor victims on the grounds that private parties have contrac- ted away the state’s enforcement remedy which is autho- rized by statute. 2. Whether a federal court, rather than abstain under the Younger doctrine, may enjoin a state securities commissioner from ordering restitution for investor vic- tims in advance of the state’s administrative hearing on the grounds that an alleged securities law violator’s Fed- eral Arbitration Act preemption claim is subject to an “immediate irreparable injury.” TABLE OF CONTENTS Page Ouestions Presented. soo. es soe a ee ee i Table of Authoties 305.052505 642 eee iii Opinions Beiow «24 ings o cranes S0h eee ee 2 jurindiction. ......0 It would also seem to extend to court-ordered restitution in a criminal case (for example, securities fraud under Det. Cove ANN. tit. 6, § 7322, a different section of the same statute under which the Securities Division brought the instant administrative action). This important issue in federal law should not be determined by a confusing opinion that blatantly disregards this Court’s holdings in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. __, 111 S.Ct. 1647, 114 L.Ed.2d 26, 38, 41 (1991) (EEOC may prosecute action and seek equitable relief on basis of complaint that is also subject of arbitration); Porter v. Warner Holding Co., 328 U.S. 395, 402 (1946) (restitution in the public interest is not the equivalent of damages 13 This Act has been adopted in 41 states and territorial jurisdictions. See 1 Blue Sky L. Rep. (CCH) ¥ 5500 (1992). 14 See, e.g., Porter v. Warner Holding Co., 328 U.S. 395 (1946); Mitchell v. Robert De Mario Jewelry, Inc., 361 U.S. 288 (1960); State ex rel. Day v. Southwest Mineral Energy, Inc., 617 P.2d 1334 (Okla. 1980). See also 12A J. Lona, Biue Sky Law § 9.05[6] (1992). 15 Rescission is a form of restitution. D. Dosss, Remepies 222 (1973). The petitioner interprets the district court’s preliminary injunction as barring restitution orders generally. | 4 15 sought by a private party, even where the facts are the same); Kelly v. Robinson, 479 U.S. 36, 52 (1986) (restitution distinguishable from damages judgment for private indi- vidual); Ohio Civil Rights Commission v. Dayton Christian Schools, Inc., 477 U.S. 619, 627-28 (1986) (Younger absten- tion applies even where federal right would have to be asserted in state administrative proceeding); and New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350, 365 (1989) (preeniption claim is no different than other constitutional claims for purposes of Younger abstention). The Delaware Securities Act Historically, the states have exercised their police powers to regulate securities to protect the investing public. “State securities laws, commonly referred to as ‘blue sky’ laws, were enacted long before the Securities Act of 1933, and Congress specifically preserved those laws instead of attempting to preempt the field from federal legislation.” L. Loss & E. Cowertt, Bur Sky Law 3 (1958). Both the Securities Act of 1933 and the Securities Exchange Act of 1934 expressly preserve the traditional rights of the states to regulate securities transactions within their own jurisdictions. See 1933 Act, 15 U.S.C. § 77r (1981); 1934 Act, 15 U.S.C. § 78bb(a) (1981 & 1992 Cum. Supp.). Accordingly, there is a presumption that in enacting the FAA, Congress did not intend to preempt the regulatory power of the states to enforce their securities laws to protect the public interest. The Delaware Securities Act (Act) is a “blue sky” law which “with some specificity . . . requires registration of 16 securities offered or sold [in Delaware], states that certain representations are unlawful, creates a registration pro- cedure for broker-dealers and investment advisors, and provides for administration by the Attorney General or a designated Deputy.” Singer v. Magnavox Co., 380 A:2d 969, 981 (Del. 1977). The purpose of the Act is “to prevent the public from being victimized by unscrupulous or over- reaching broker-dealers, investment advisers or agents in the context of selling securities or giving investment advice, as well as to remedy any harm caused by securi- ties law violations.” Det. Cope Ann. tit. 6, § 7301(b). The statute contains one section that permits civil damages to a private litigant from a person who “offers, sells or purchases a security” by fraud. Det. Cope Ann. tit.6, § 7323(a). In addition to that limited private civil cause of action, the Act creates an administrative regulatory scheme and bestows broad enforcement powers on the securities commissioner. “In the public interest,” the com- missioner may 1) seek an injunction in Delaware’s Court of Chancery (§ 7320), 2) seek a criminal indictment (§ 7322), or 3) “by order deny, suspend, or revoke any registration” in an administrative proceeding (§ 7316). As a sanction for a proven state law violation, in an adminis- trative proceeding under § 7316, the commissioner is authorized to impose, inter alia, an award of rescission or restitution in the public interest. Det. Cope ANN. tit. 6, § 7325(b). Similarly, the Court of Chancery, in an injunc- tive proceeding brought by the commissioner, may order rescission or restitution when appropriate in the public interest. Det. Cope ANN. tit. 6, § 7320. And, in any crimi- nal prosecution under the Act, the Superior Court may 17 similarly order restitution to defrauded investors as part of the sentence. Det. Cope ANN. tit. 6, § 7322(e). In this case, the Securities Division initiated an administrative action under § 7316 and § 7325(b) before the commissioner. Although a private civil action under §7323 by investors (such as the Engelhardts) is precluded by an arbitration agreement under the FAA, the commis- sioner’s public enforcement action under § 7316 and § 7325(b) should not be preempted. I. The Court Should Grant The Writ To Clarify That A Federal Court May Not Enjoin A State Securities Commissioner From Ordering Restitution For Inves- tor Victims On The Grounds That Private Parties Have Contracted Away The State’s Enforcement Remedy Which Is Authorized By Statute. The court of appeals’ holding effectively creates a new, super-protected federal right to arbitrate. It over- rides the Younger abstention doctrine as well as a stat- utorily-authorized remedy under a state regulatory scheme. This case marks the first time that FAA rights have been successfully asserted, not to deflect state inter- ference with the arbitration forum,!° but to assert the primacy of arbitration rights over any possible arguable '© See, e.g., Securities Industry Ass’n v. Connolly, 883 F.2d 1114 (1st Cir. 1989), cert. denied, 495 U.S. 956 (1990) (FAA held to preempt Massachusetts regulation prohibiting brokers from requiring inves- tors to sign an arbitration agreement as condition of opening an account); Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 841 F.2d 508 (3d Cir. 1988) (FAA held to preempt Pennsylvania Securi- ties Act provision that precluded enforcement of agreement to arbi- trate state law securities claims). 18 conflict in outcome between arbitration and a neutral state regulatory procedure. In this case, the Delaware statute did not even mention or address arbitration. Under the court of appeals’ decision, the arbitration right is superior to all other contract rights and, indeed, to constitutional rights. A. Restitution Is Not Equivalent To A Judgment For Damages. ‘ Both the preemption and the “contractually bound” rationales of the two opinions which affirm the injunction rest on the unsound assumption that the rescission which the commissioner could order in the public interest is nothing more than the same remedy the Engelhardts could seek in an arbitration forum. As this Court has held, however, restitution in the public interest differs greatly from damages sought by private parties. Porter v. Warner Holding Co., 328 U.S. 395, 402 (1946). Indeed, in Porter this Court upheld an award of restitution to over- charged tenants in an action by a government price con- trol administrator even though the tenants themselves could not have brought their own actions to recover the same payments. The action undertaken in the public interest was not the same as a private cause of action. More recently, in Kelly v. Robinson, 479 U.S. 36, 52 (1986), this Court stated that even though “restitution does resemble a judgment ‘for the benefit of’ the victim, the context in which it is imposed undermines that conclu- sion. The victim has no control over the amount of the restitution awarded or over the decision to award restitu- tion.” + ee 19 B. The Court Of Appeals’ Departure From Gilmer. The court of appeals’ approach is also contrary to this Court’s statement in Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. ____, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991), that administrative agencies, enforcing the public inter- est, are free to pursue issues and fashion remedies even though the transaction in question may also fall within an arbitration agreement. This Court held in Gilmer that an arbitration agreement between a securities representative and his employer required the employee to arbitrate a statutory claim under the Age Discrimination in Employ- ment Act (ADEA); but the contractual clause did not preclude the employee from filing a complaint with the Equal Employment Opportunity Commission (EEOC) alleging the same statutory violation, nor did it “preclude the EEOC from bringing actions seeking class-wide and equitable relief.” 114 L.Ed.2d at 41. This is because “the ADEA is designed not only to address individual griev- ances, but also to further important social policies.” Id. at 38. Thus, “[a]n individual ADEA claimant subject to an arbitration agreement will still be free to file a charge with the EEOC, even though the claimant is not able to institute a private judicial action.” Id. Like the EEOC, the Delaware securities commissioner “does not function simply as a vehicle for conducting litigation on behalf of private parties.” Occidental Life Insurance Co. v. EEOC, 432 U.S. 355, 368 (1977). See also General Telephone Co. v. EEOC, 446 U.S. 318, 326 (1980) (“When the EEOC acts, albeit at the behest of and for the benefit of specific individuals, it acts also to vindicate the | 20 public interest in preventing employment discrimina- tion.”). The commissioner acts on behalf of the public when he awards restitution or rescission in favor of a defrauded investor. Such remedies, as they return the parties to the status quo, help to deter and eliminate the harmful consequences of securities fraud. These objec- tives are explicitly defined as part of the “public interest” by the Delaware General Assembly in the Delaware Secu- rities Act. Det. Cope ANN. tit. 6, § 7301(b). While these remedies may give an incidental compensatory benefit to the individual investors, such relief does not give them control of the regulatory action or make their interests equivalent to the State’s broader interest in protecting the investing public from securities fraud. Under the Dela- ware scheme, the private investors do not control whether their complaint will be investigated, whether a prosecution will eventually be initiated, what remedies the Division will seek, or what remedies the commis- sioner and reviewing courts may impose. Suits by gov- ernment regulators “frequently have specific private as well as public beneficiaries,” but the “touchstone remains the fact that public policies are served and the public interest is advanced by the litigation, and the fact that the fitrgation has private beneficiaries as well does not detract from the public nature of the suit.” Dole v. Local 427, 894 F.2d 607, 612 (3d Cir. 1990). C. Rescission Does Not Render The Arbitration Agreement Meaningless. The gist of the two affirming opinions in the court of appeals is that the contractual right to arbitrate will be = 21 meaningless if the Delaware commissioner in a regula- tory action may order rescission on the same facts that might be the basis of an arbitration. That view is incor- rect, however, legally and practically. From a legal per- spective, the agreement to arbitrate runs only against those who were parties to the contract. From a practical perspective, a brokerage firm may still derive a substan- tial benefit from an arbitration agreement even if it remains subject to state-ordered rescission in the public interest. The great benefit of an arbitration agreement is the savings in the cost of litigating in an arbitration forum rather than in a judicial lawsuit. This benefit is especially valuable to a large brokerage firm with many clients. Inevitably, such a firm will be faced with meritless claims based on the fact of a client’s loss and nothing more. These are the sort of claims that, if they end up in prolonged court battles, can financially damage a busi- ness significantly regardless of the level of care taken by its managers. The state regulators, however, exercise a screening function to weed out the frivolous compiaints, the sour grapes, and the fodder for nuisance suits. Unlike private attorneys who may see a large contingency tee in these meritless complaints, the state regulators have no personal financial interest in advancing them. Thus, the real benefit of an arbitration agreement as a practical matter is its effect on litigation initiated by private par- ties, not on actions which may be initiated by state gov- ernment officials. It is appropriate that the scope of this practical benefit be limited to those who have agreed to it, the private parties themselves. 22 D. The Right To Arbitrate Is Equal, Not Superior, To Other Contract Rights. The FAA was intended by Congress “to make arbitra- tion agreements as enforceable as other contracts, but not more so.” Prima Paint Corp. v. Flood & Conklin Manufactur- ing Co., 388 U.S. 395, 404 n.12 (1967). The FAA “simply requires courts to enforce privately negotiated agree- ments to arbitrate, like other contracts, in accordance with their terms.” Volt Information Sciences, Inc. v. Stanford University, 489 U.S. 468, 478 (1989). One of the most elementary of contract principles is that a third party not in privity to a contract between two others is not bound by the terms of their agreement. Here, the securities commissioner never agreed to be bound by the terms of any contract between Olde and the Engelhardts. Moreover, the commissioner and the Engelhardts were not in privity, nor did they have an identity of interest. The court of appeals mischaracterized the administrative proceeding, saying that it was “initi- ated on the complaint of the Engelhardts,” and that the State “is pursuing” civil claims “on behalf” of the Engelhardts. (App. 17). In fact, the Engelhardts’ com- plaint triggered only an investigation by the Securities Division. The Division made the decision whether to file a notice (with the commissioner’s approval), and the commissioner and reviewing state courts would make the decision whether an order of rescission would be neces- sary to protect the public interest. As Judge Nygaard stated in dissent, “[T]he Delaware statutory scheme makes clear that the Commissioner is not a surrogate for 23 a plaintiff’s attorney, but is a public official who adminis- ters the state’s blue sky laws ‘in the public interest’ and is endowed with broad enforcement and rulemaking powers.” (App. 38, citing Blinder, Robinson & Co. v. Bruton, 552 A.2d 466, 475 (Del. 1989).) E. There Is A Strong Public Interest In The Remedies Of Rescission And Restitution. Although the lower courts have focused on the rem- edy of rescission, the Olde arbitration agreement itself did not. Rather, the contract stated that “any and all controversies or claims arising out of the relationship” had to go to arbitration. (App. 4). On its face, this lan- guage would extend to any hearing involving the same factual dispute as would be involved at an arbitration. Both lower courts in this case have held, however, that this language does not preclude a hearing that would result in a finding that Olde and Donohoe violated the Delaware Securities Act and in the imposition of a license suspension or a fine, but does preclude making the vic- tims whole. The logic of this distinction, permitting paral- lel proceedings for some sanctions but not restitution, is elusive. This Court has held that a public interest inheres in the remedy of restitution just as it does in the remedies of a license suspension or a fine. See Kelly v. Robinson, 479 U.S. 36, 52 (1986); Porter v. Warner Holding Co., 328 U.S. 395, 402 (1946). Not only does case law support the view that restitu- tion is a necessary enforcement remedy that advances the public interest, but practical considerations do as well. The public interest may be better served by reducing or 24 avoiding the more severe sanction of a license suspension or revocation. If a state securities administrator’s hands are tied by the federal courts with respect to making victims whole through an order of restitution, brokerage firms may risk a greater chance of receiving a license suspension or, if restitution is available only in criminal prosecutions, of being prosecuted criminally. Through their flawed decision, the federal courts will have skewed decisionmaking among state securities regulators in a manner detrimental to the public interest. II. The Court Should Grant The Writ To Clarify That A Federal Court May Not Enjoin A State Securities Commissioner From Ordering Restitution For Investor Victims In Advance Of The State’s Admin- istrative Hearing On The Grounds That An Alleged Securities Law Violator’s Federal Arbitration Act Preemption Claim Is Subject To An “Immediate Irreparable Injury.” This case illustrates the utter disregard by the Court of Appeals for the Third Circuit of the Younger v. Harris, 401 U.S. 37 (1971), abstention doctrine, especially as it was articulated by this Court in Ohio Civil Rights Commis- sion v. Dayton Christian Schools, Inc., 477 U.S. 619, 627-28 (1986), and New Orleans Public Service, Inc. v. Council of City of New Orleans, 491 U.S. 350, 365 (1989) (NOPSI). In the instant case, the court of appeals has held that Youn- ger abstention is discretionary even when all elements that normally counsel abstention are present. (App. 25). Moreover, the court of appeals has effectively violated this Court’s instruction in NOPSI that preemption claims 25 are to be treated no differently than other constitutional claims for purposes of abstention under Younger. To avoid application of the Younger doctrine, here the court of appeals carved out a new exception for FAA preemption claims. The court tried to avoid the impact of NOPSI by asserting that that decision “did not confront a collision between the normal application of Younger prin- ciples and the highly favored right to arbitration which the [Supreme] Court itself has developed in FAA cases... . “(App. 30). Thus, even though this Court views preemption claims as similar to other constitutional claims for abstention purposes, the court of appeals thinks this principle does not apply to FAA claims that possibly have merit. Apparently, in its view, the right to arbitrate has acquired a status that is superior to such rights as due process and equal protection. Reaching for authority for this anomalous proposition, the court of appeals cites Wooley v. Maynard, 430 U.S. 705 (1977), to assert that this case is the “very unusual situation” where “an injunction is necessary to prevent great and immedi- ate irreparable injury.” (App. 25, quoting Dayton Christian Schools, 477 U.S. at 626). The great and immediate irrepar- able injury, it seems, is the fact that Olde would have to assert its FAA preemption defense at the state administra- tive proceeding and in the reviewing state courts. How- ever, this Court in Dayton Christian Schools held that this type of alleged injury is insufficient to avoid application of Younger abstention. 477 U.S. at 627-28. 26 CONCLUSION For the foregoing reasons, this Court should grant this petition for a writ of certiorari. Respectfully submitted, CHarLes M. Ober y, III Attorney General of the State of Delaware RiCHARD E. FAIRBANKS, JR. Chief of Appeals Division Counsel of Record Delaware Department of Justice 820 North French Street Wilmington, DE 19801 (302) 577-2500 Counsel for Petitioner Date: October 28, 1993 APPENDIX N 1 INDEX TO APPENDIX Page Opinion, Olde Discount Corp. v. Tupman, No. Sa-iaos (om Cit, fily OO, T9953). 006 ec csccsees App. Order Amending Concurring Opinion, Olde Dis- count Corp. v. Tupman, No. 92-7557, Rosenn, J. (3d Co. POE Fy BOP sk sob asescncdesheeeeans App. Order Denying Petition for Rehearing, Olde Dis- count Corp. v. Tupman, No. 92-7557 (3d Cir. PE Se, PN 6 0b ao bao Seder arabe abe App. Opinion, Olde Discount Corp. v. Tupman, 805 F. Se. BEBO CREME. BE e bce anne pes ee ees App. Order, Olde Discount Corp. v. Tupman, No. 92-498- SLR (D.Del. September 16, 1992) (enjoining Dela- ware Securities Commissioner from ordering CR: 3 5 a eV kos 6 0k as Po eee ec seadesun App. Notice of Intent to Suspend or Revoke Broke r- Dealer Registration, In the Matter of: Olde Discount Corp. and Michael R. Donohoe, No. 91-07-01 (Del. sec. Comms. Ameust 17, T99Z) occ ccscccacses App. Order (that hearing be held), In the Matter of: Olde Discount Corp. and Michael R. Donohoe, No. 91-07-01 (Del. Sec. Comm. August 17, Pos oe caw os heaped eauaevedeesousess App. Additional Provisions Of The Delaware Securities Poet, TA POTtOE FORE, . occ a ccc cvcccevcsceuce App. 46 48 SJ Ja 83 SY 7 App. 1 Filed July 30, 1993 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 92-7557 OLDE DISCOUNT CORPORATION v. W. MICHAEL TUPMAN, and as Deputy Attorney General of the State of Delaware; RICHARD W. HUBBARD, Securities Commissioner of the State of Delaware; EUGENE H. ENGELHARDT and CAROL D. ENGELHARDT, W. MICHAEL TUPMAN, individually and as Deputy Attorney General of the State of Delaware; RICHARD W. HUBBARD, Securities Commissioner of the State of Delaware; EUGENE H. ENGELHARDT, CAROL D. ENGELHARDT, Appellants On Appeal from the United States District Court for the District of Delaware (D.C. Civil No. 92-00498) Argued June 10, 1993 BEFORE: GREENBERG, NYGAARD, and ROSENN, Circuit Judges (Filed: July 30, 1993) App. 2 Richard E. Fairbanks, Jr. (argued) Chief of Appeals Division Loren C. Meyers Deputy Attorney General Delaware Department of Justice 820 North French Street Wilmington, DE 19801 Attorneys for Appellants James S. Green Duane, Morris & Heckscher 1201 Market Street Suite 1500 P.O. Box 195 Wilmington, DE 19899 Robert P. Bramnik (argued) Thomas P. Fitzgerald Michael I. Behn Altheimer & Gray 10 South Wacker Drive Suite 4000 Chicago, IL 60606 Attorneys for Appellee Joseph C. Long 300 Timberdell Road Norman, OK 73019 Attorney for amici curiae North American Securities Administrators Association, Inc. and National Consumers League == App. 3 OPINION GREENBERG, Circuit Judge. This case presents a novel question of the relation- ship between a contracting party’s right to enforcement of an arbitration agreement under the Federal Arbitration Act, 9 U.S.C. §§ 1-16 (FAA), and a state’s interest in pursuing a remedy of rescission in an administrative proceeding. The district court enjoined the Delaware > securities commissioner from seeking rescission on behalf of two investors who had entered into a predispute arbi- tration agreement. We will affirm the district court’s order. Judge Greenberg votes to affirm on the grounds that the FAA preempts Delaware’s rescission remedy in these circumstances and this opinion reflects the reasons why he has reached this conclusion. Judge Rosenn votes to affirm on the ground that the rescission remedy is barred by reason of contract law as set forth in his sepa- rate concurring opinion. Judge Nygaard dissents on this issue for the reasons set forth in his separate opinion. We unanimously hold that this claim, i.e., that a state statute is preempted to the extent it authorizes relief in conflict with rights secured by the FAA, necessarily falls within an exception to the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746 (1971). I. BACKGROUND Appellee Olde Discount Corporation, a securities broker-dealer, is a Michigan corporation with its principal App. 4 place of business in Detroit and numerous offices throughout the United States. Olde Discount is registered in Delaware as a broker-dealer and has an office in Wil- mington. Appellants Eugene and Carol Engelhardt are former customers of Olde Discount. The Engelhardts, then Michigan residents, opened a brokerage account with Olde Discount’s Detroit office in 1983. When they moved to Wilmington in 1986, the Engelhardts trans- ferred their account to its Wilmington office. Olde Discount is primarily, as its name implies, a discount broker. It also makes a market in a few selected stocks; at the times relevant to this action, Second National Federal Savings Bank (SNFS) was among those stocks. Allegedly at the instance of Olde Discount’s Wilmington office manager, Michael Donohoe, the Engelhardts purchased 5,000 shares of SNFS stock on May 15, 1990. On May 25, 1990, the Engelhardts signed an account agreement with Olde Discount that required them “to submit any and all controversies or claims aris- ing out of the relationship established by this agreement to arbitration to be conducted according to the rules and procedures of the New York Stock Exchange, Inc. (NYSE) or of the National Association of Securities Dealers, Inc. (NASD). ...” Investors Account Agreement, J 18, J.A. at 53. Also on May 25, 1990, the Engelhardts provided Olde Discount with a “customer preference profile” that expressed their interest in “aggressive” investments for the purposes of “growth” and “speculation.” J.A. at 48. On June 6, 1990, the Engelhardts purchased an additional 5,000 shares of SNFS. Thus, by early June 1990, the Engelhardts had purchased 10,000 shares of SNFS. These purchases cost the Engelhardts over $50,000. ee App. 5 The price of SNFS stock declined steadily during the summer and fall of 1990, as the bank suspended its divi- dend and came under the scrutiny of federal regulators because it failed to fulfill capital requirements. The Engelardts, apparently because of their bad experience with this investment, terminated their Olde Discount bro- kerage account and removed their SNFS shares from Olde Discount on September 6, 1990. By then the Engelhardts’ SNFS stock had declined in value to approximately $32,500. Nearly a year later, in July 1991, the Engelhardts first contacted the Division of Securities of the Delaware Department of Justice with a complaint about their pur- chase of SNFS stock from Olde Discount. The Division, primarily through appellant Michael Tupman, a Delaware Deputy Attorney General responsible for securities law enforcement, investigated the Engelhardts’ complaint. In early June 1992, after the Division substantially had com- pleted its investigation, it sent Olde Discount a draft “Notice of Intent to Suspend or Revoke Broker-Dealer Registration.” The draft Notice of Intent alleged that Olde Discount and its agent Donohoe had engaged in fraudu- lent and unethical practices in connection with the sales of SNFS stock to the Engelhardts, in violation of Del. Code Ann. tit. 6, §§ 7303(2) and 7316(a) (1974 & Supp. 1992). In particular, the Notice asserted that Donohoe repeatedly had urged the Engelhardts to invest in SNFS and had made false statements of material fact about the stock. Further, the Notice alleged that Olde Discount had not kept the Engelhardts advised of information that could have been pertinent to their decision whether to App. 6 hold or sell the stock. The Notice indicated that the Delaware securities commissioner sought the remedies of suspension or revocation of Olde Discount’s broker- dealer registration and imposition of fines; and, central to the preemption question in this case, that the commis- sioner would seek rescission of the SNFS stock transac- tions between Olde Discount and the Engelhardts, as authorized by Del. Code Ann. tit. 6, § 7325(b). The Notice, however, did not suggest that either Olde Discount or Donohoe had violated any duty to customers other than the Engelhardts; the Notice thus proposed individual relief for the Engelhardts only. During the summer of 1992, the Division of Securities and Olde Discount tried to negotiate a settlement of the proposed charges. Ultimately Olde Discount, desiring to bring the settlement negotiations to fruition, offered to pay $15,000 to the Delaware Investors Protection Fund and to pay $20,375 to the Engelhardts.! The proposed payment to the Engelhardts represented the difference between the total price they had paid for the SNFS stock, and its value of approximately $32,500 on September 6, 1 In their opening brief, the appellants asserted that the district court’s consideration of events that occurred during settlement negotiations was contrary to Fed. R. Evid. 408, which prohibits the admission of “[e]vidence of conduct or statements made in compromise negotiations. . . .” However, as counsel for Olde Discount has noted, the appellants have not preserved this evidentiary point because they did not object to the introduction of these facts before the district court. In any event, these facts are background information, helpful to an understanding of the context of the dispute; they are not critical to our disposition, as we anchor our result on legal principles. ee App. 7 1990, when the Engelhardts had closed their brokerage account with Olde Discount. The appellants do not dispute that Tupman agreed in principle to accept $15,000 in partial settlement of the Division’s proposed charges. Nevertheless, Tupman insis- ted that Olde Discount also must rescind the Engelhardts’ SNFS purchases. This demand was not acceptable to Olde Discount, which apparently had consistently maintained that the securities commissioner could not properly pur- sue a rescission, because Olde had a contractual right to arbitrate the Engelhardts’ claims. Tupman, however, viewed Olde Discount’s claims of its contractual right to arbitration and of the federal preemption of Delaware’s rescission remedy as “baffling.” See Tupman’s August 7, 1992 letter to Olde Discount, J.A. at 111. He consequently would not abandon the demand that it rescind the SNES sales to the Engelhardts. Olde Discount determined to pursue its right to arbi- tration, and served the Engelhardts with a demand to arbitrate on August 5, 1992. Shortly thereafter, on August 17, 1992, Tupman issued the Notice of Intent in substan- tially the same form as the June 1992 draft, i.e., including the demand for rescission of the Engelhardts’ SNFS trans- actions. Notice of Intent, | 43, J.A. at 139. The Notice provided that Olde Discount would be entitled to a hear- ing before the Delaware securities commissioner if it made a written request within 30 days. However, if Olde Discount did not request a hearing, the allegations would be deemed admitted and the commissioner would issue a final order of suspension,” revocation, rescission, fine and/or costs. Co App. 8 On August 25, 1992, Olde Discount commenced this action against Tupman, Delaware Securities Commis- sioner Richard W. Hubbard, and the Engelhardts. The complaint’s four counts alleged that: (1) the rescission remedy of Del. Code Ann. tit. 6, § 7325(b), as applied by the defendants, circumvents Olde Discount’s rights under the FAA and thus violates the Supremacy Clause; (2) the application of Del. Code Ann. tit. 6, § 7325(b), to Olde Discount’s transactions with the Engelhardts in SNFS stock would constitute an ex post facto punishment in violation of the Due Process Clause;? (3) Tupman and Hubbard had violated 42 U.S.C. § 1983 by employing the Delaware securities laws in a manner that impaired Olde Discount’s federal constitutional and statutory rights; and (4) Tupman’s actions constituted a common law abuse of process. Olde Discount sought an injunction, a declara- tory judgment, compensatory damages, and punitive damages. Olde Discount most immediately was concerned with preserving its federal right to arbitration of the Engelhardt dispute. It therefore vigorously pressed for a preliminary injunction to halt further proceedings before the Delaware Division of Securities. After expedited briefing and argument, the district court, by order dated September 16, 1992, accompanied by a comprehensive memorandum opinion, partially granted Olde Discount’s motion for preliminary relief, enjoining “the Securities 2 Olde Discount contends that at the time of its transactions with the Engelhardts, Delaware law did not provide for a rescis- sion remedy in proceedings concerning suspension or revoca- tion of the registration of a broker. App. 9 Commissioner[] [from pursuing] a rescission action under [Del. Code Ann. tit. 6, § 7325(b)] on behalf of defendants Engelhardt, individual investors who are parties to a predispute arbitration agreement with plaintiff, which agreement is enforceable under the Federal Arbitration Act, 9 U.S.C. §2.” In its opinion, the district court deter- mined that the FAA preempted the Delaware rescission remedy. Furthermore, the district court declined to abs- tain under Younger from issuing injunctive relief. Tup- man, Hubbard, and the Engelhardts jointly appealed from the September 16, 1992 order, contending that the district court “erred as a matter of law” both in declining to abstain under Younger and in holding that the rescis- sion remedy was preempted. Il. JURISDICTION AND STANDARD OF REVIEW Before turning to the merits of the preemption and abstention issues, we must resolve a challenge to our jurisdiction raised by Olde Discount. It argues that the appeal is from an interlocutory order “directing arbitra- tion to proceed,” which is specifically nonappealable under 9 U.S.C. § 16(b)(2). However, contrary to Olde Discount’s characterization, the district court's order in this case is not an order “directing arbitration to pro- ceed.” Rather, the district court directed the Delaware securities commissioner not to pursue a remedy of rescis- sion in the administrative proceedings. Thus, the order falls within the usual rule of 28 U.S.C. § 1292(a)(1), which permits immediate appeals from “[i]nterlocutory orders... granting [or] refusing .. . injunctions.” App. 10 Our review of a determination regarding preliminary injunctive relief is limited to examining whether the dis- trict court abused its discretion, committed an obvious error in applying the law, made a clear mistake in consid- ering the proof, or improperly applied the law to the facts. Kreimer v. Bureau of Police of Morristown, 958 F.2d 1242, 1250 n.9 (3d Cir. 1992); Philadelphia Marine Trade Ass'n v. Local 1291, Int'l Longshoremen’s Ass’n, 909 F.2d 754, 756 (3d Cir. 1990), cert. denied, 111 S.Ct. 953 (1991). This standard requires a plenary review here, as the appellants contend that the district court erred as a mat- ter of law in entering the injunction. We also exercise plenary review over the abstention question because we are resolving that issue by making a legal determination. General Glass Indus. Corp. v. Monsour Medical Found., 973 F.2d 197, 200 (3d Cir. 1992); Gwynedd Properties, Inc. v. Lower Gwynedd Township, 970 F.2d 1195, 1199 (3d Cir. 1992). Il. PREEMPTION The Supremacy Clause allows Congress to preempt state legislation if it so intends.* See United States Dep’t of Treasury v. Fabe, 61 U.S.L.W. 4579 (U.S. June 11, 1993). The development of the law of federal preemption has defined three ways of discerning a congressional intent to preempt state law: express or explicit preemption, implied preemption, or “actual conflict” preemption. The 3 While as a matter of convenience this section of the opin- ion entitled “III. PREEMPTION” is written as if for the court, it in fact is the opinion only of Judge Greenberg. App. 11 Supreme Court thus has differentiated among the three types of preemption: Congress explicitly may define the extent to which its enactments pre-empt state law. . . . In the absence of explicit statutory language, how- ever, Congress implicitly may indicate an intent to occupy a given field to the exclusion of state law. Such a purpose properly may be inferred where the pervasiveness of the federal regula- tion precludes supplementation by the states, where the federal interest in the field is suffi- ciently dominant, or where ‘the object sought to be obtained by the federal law and the character of obligations imposed by it. . . reveal the same purpose’... . Finally, even where Congress has not entirely displaced state regulation in a par- ticular field, state law is pre-empted when it actually conflicts with federal law. Such a con- flict will be found ‘ “when it is impossible to comply with both state and federal law .. . or where the state law stands as an obstacle to the accomplishment of the full purposes and objec- tives of Congress....”’ Schneidewind v. ANR Pipeline Co., 485 U.S. 293, 299-300, 108 S.Ct. 1145, 1150-51 (1988) (citations omitted). The preemption claim before us is that the FAA demands enforcement of an agreement to arbitrate which cannot be abrogated by a state agency’s pursuit of an administrative remedy that would duplicate the remedy sought in an arbitration. Section 2 of the FAA, 9 U.S.C. § 2, directs the enforcement of arbitration agreements as broadly as Congress’ powers under the Commerce Clause permit: App. 12 A written provision in... 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 con- tract, transaction, or refusal, shall be valid, irre- vocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Olde Discount contends that the FAA’s directive compels enforcement of the arbitration clause of the Engelhardts’ account agreement. Thus, if the Delaware securities com- missioner pursues rescission in the administrative pro- ceeding, Olde Discount’s federal right to arbitration would be impaired, as the merits of the claim that the arbitration agreement reserves for an arbitral forum will be resolved administratively. Yet it is clear that the FAA does not explicitly pre- empt any particular remedy that might be sought in state administrative proceedings. Nor does the FAA entirely occupy the field of securities regulation so as to give rise to implied preemption; to the contrary, both the Securities Act of 1933 and the Securities Exchange Act of 1934 specifically preserve the traditional rights of the states to regulate securities transactions within their own jurisdic- tions. See, e.g., 1933 Act, 15 U.S.C. § 77r (“[n]Jothing in this subchapter shall affect the jurisdiction of the securities commission .. . of any State or Territory ... over any security or any person”); 1934 Act, 15 U.S.C. § 78bb(a) (“[nJothing in this chapter shall affect the jurisdiction of the securities commission . . . of any State over any - —————rrrrrrr— App. 13 security or any person insofar as it does not conflict with the provisions of this chapter”). In fact the FAA is not concerned in particular with securities regulation as 9 U.S.C. § 2 deals generally with contracts involving com- merce. Therefore, to preserve its right to a meaningful arbitral forum Olde Discount relies on the third type of preemption, “actual conflict” preemption. There can be “actual conflict” preemption in two circumstances, either where it is impossible to comply with the conflicting demands of federal and state statutes, or where the state law is an “obstacle” to the fulfillment of the congressional purposes embodied in the federal law. See, e.g., Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 83 S.Ct. 1210 (1963) (holding federal regula- tion concerning maturity of avocados did not preempt California regulation, were it was not impossible for growers to comply with both regulations); Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404 (1941) (hold- ing federal Alien Registration Act preempted Pennsy]l- sé vania Alien Registration Act because state law “stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress”); Pennsylvania Medical Soc’y v. Marconis, 942 F.2d 842, 848 (3d Cir. 1991) (holding Pennsylvania statute governing limited aspects of Medicare billing not preempted by federal Medicare Act because state statute did not create obstacle to fulfill- ment of Congress’ objectives). As our analysis of the interaction between the Delaware administrative rescis- sion remedy and Olde Discount’s arbitration agreement with the Engelhardts will make clear, both factors indicat- ing conflict preemption, conflicting statutory demands App. 14 and an obstacle to Congress’ purposes, are present in this Case. The context of this preemption claim, i.e., the preser- vation of a federal right to an arbitral forum, is critical. At one time other substantive and procedural rights of par- ties were thought to outweigh a right to arbitration. See Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182 (1953) (stating Securities Act of 1933 precluded waiver of judicial forum, rendering arbitration agreement invalid). But that time is no more. See Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477, 109 S.Ct. 1917 (1989) (overrul- ing Wilko v. Swan). The Supreme Court unstintingly has promoted a favorable climate for arbitration through vig- orous enforcement of the FAA over the last 20 years. The gradual erosion of the principles of Wilko v. Swan began with the 1974 decision of Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S.Ct. 2449, which held that a claim under the Securities Exchange Act of 1934 would be arbitrable in the distinctive context of an international business trans- action. The international character of the dispute was also an important consideration in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 105 S.Ct. 3346 (1985), which upheld an order compelling submission of Sherman Act claims to arbitration in Japan. More gener- ally, Mitsubishi noted that there is “no warrant in the Arbitration Act for implying in every contract within its ken a presumption against arbitration of statutory claims.” Id. at 625, 105 S.Ct. at 3353. The Court moved beyond the specialized interna- tional context and enforced arbitration of 1934 Act claims and RICO claims, pursuant to a clause in a standard brokerage agreement, in Shearson/American Express, Inc. v. ’ App. 15 McMahon, 482 U.S. 220, 107 S.Ct. 2332 (1987). Shortly thereafter, the Court resolved the inconsistency between McMahon and Wilko by expressly overruling Wilko in Rodriguez de Quijas. Two Terms later, the Court extended the ascendancy of arbitration beyond commercial dis- putes to age-discrimination claims in Gilmer v. Interstate/ Johnson Lane Corp., 111 S.Ct. 1647 (1991), which rejected the contention that the involvement of an agency, there the Equal Employment Opportunity Commission, in a scheme of enforcement created any impediment to the private arbitration of the claims arising in a particular case. Two aspects of the development of the federal right to arbitration that we have traced are particularly note- worthy here. First, the arbitration of securities disputes now is not only permitted, but favored, under federal law, according to the line of decisions culminating in McMahon and Rodriguez de Quijas. See also Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 841 F.2d 508 (3d Cir. 1988) (stating FAA preempts provision of Pennsyl- vania Securities Act purporting to preclude enforcement of agreements to arbitrate state law securities claims). Second, there is no longer any doubt that statutory claims are arbitrable, and the existence of an enforcing agency, as in Gilmer, does not interfere with the arbitrability of individual claims. Similarly, it is clear that state statutory claims, as well as federal statutory claims, are subject to the federal right to an arbitral forum. See Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852 (1984) (holding FAA preempts California statutory provision requiring judicial forum for claims under California Franchise Investment Law); Osterneck v. Merrill Lynch, 841 F.2d at 512-13. App. 16 Thus, the claims that the Delaware Division of Secu- rities is pursuing on behalf of the Engelhardts, 1.e., claims of fraudulent dealings in violation of Del. Code Ann. tit. 6, § 7303, certainly would be subject to arbitration if pursued by the Engelhardts themselves. See Del. Code Ann. tit. 6, § 7323 (creating private right of action for securities fraud). However, the appellants argue that for preemption purposes we must distinguish between the advancement of essentially identical claims on the basis of whether their proponent is a state agency or a private litigant. The appellants contend that the state’s enforce- ment action implicates the public interest, and not simply the rights of the Engelhardts. Further, the appellants cite Gilmer for the proposition that “arbitration agreements will not preclude [an administrative agency] from bring- ing actions seeking class-wide and equitable relief.” 111 S.Ct. at 1655. In the appellants’ view, the agency’s pursuit of “equitable relief” sanctioned in Gilmer should include the remedy of rescission of specific trades of securities sought in this case. The appellants view the rescission remedy as an integral component of the state’s regulation of securities transactions which, they argue, should not be weakened by the application of federal preemption. However, we think the rescission remedy as applied here necessarily wouid render Olde Discount’s right to arbitration meaningless. The particular remedy therefore must fall before the conflicting right to an arbitral forum granted by the FAA. The FAA’s fundamental purpose was to create “a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or procedural policies to the contrary.” Moses H. Cone Memo- rial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. App. 17 927, 941 (1983). “In enacting § 2 of the federal Act, Con- gress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Southland Corp. v. Keating, 465 U.S. at 10, 104 S.Ct. at 858. Yet the Dela- ware Division of Securities claims that it must be permit- ted to adjudicate administratively the very same questions regarding Olde Discount’s sale of SNFS stock to the Engelhardts, that the Engelhardts themselves could pursue only within an arbitration. In that regard, Dela- ware has interfered with Olde Discount’s right under the FAA to resolution of these issues through arbitration. Therefore, in the application here of the rescission rem- edy of Del. Code Ann. tit. 6, § 7325(b), Delaware has created an “obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Hines v. Davidowitz, 312 U.S. at 67, 61 S.Ct. at 404. The very community of interest between the state appellants and the Engelhardts implicitly demonstrates that the administrative proceedings are an obstacle to Congress’ purpose in adopting the FAA. Clearly the Engelhardts are relying on the state appellants to obtain a remedy that would frustrate the arbitration. As the appel- lants acknowledge, the administrative proceedings were initiated on the complaint of the Engelhardts. Indeed, the Notice of Intent issued to Olde Discount was concerned exclusively with dealings between Olde Discount and the Engelhardts. Furthermore, Tupman filed this appeal on behalf of the Engelhardts, who are not represented by separate counsel on appeal, and were not so represented in the earlier settlement negotiations with Olde Discount. App. 18 In the circumstances, the state administrative proceed- ings, to the extent they concern claims and liabilities between the Engelhardts and Olde Discount, are nothing other than a substitute for the arbitration. The circumstance that the state appellants are not parties to the arbitration clause does not alter our result. As the Supreme Court explained in Moses H. Cone Memo- rial Hospital, “{uJnder the Arbitration Act, an arbitration must be enforced notwithstanding the presence of other persons who are parties to the underlying dispute but not to the arbitration agreement.” 460 U.S. at 20, 103 S.Ct. at 939. In partial reliance on Moses H. Cone, we recently upheld a district court’s eviction of a subtenant to facili- tate an award arising from an arbitration between the property owner and the tenant, even though the subten- ant was not a party to the arbitration. See Isidor Paie- wonsky Assocs. v. Sharp Properties, Inc., No. 92-7337 (3d Cir. June 24, 1993).4 It is also apparent that, in any practical sense, Olde Discount cannot simultaneously arbitrate its claims against the Engelhardts and defend against the Delaware securities commissioner’s pursuit of the rescission rem- edy in an administrative proceeding. Notwithstanding the appellants’ statement that they will not, and cannot, prevent Olde Discount from commencing the arbitration, the appellants’ view of a possible harmonious interaction of the state and federal statutes is illusory. While in a physical sense Olde Discount could be represented in two 4 We are not suggesting that an award in an arbitration proceeding would be preclusive in administrative proceedings; that issue is not presented by this appeal. , App. 19 proceedings at once, the potential for actual conflict in that scenario is manifest. If an arbitration panel decides that the Engelhardts’ claims are without merit and Olde Discount has no liability to them, while the Delaware securities commissioner concludes that the SNFS pur- chases must be rescinded, the results of the proceedings will be irreconcilable. Even if the two proceedings were to reach similar results on the merits, Olde Discount still would be deprived of its right to the presumed simplicity and efficiency of the arbitral forum. Thus, to the extent rescis- sion is involved, it is impossible to fulfill the demands of both the federal and state statutes. Therefore, Delaware’s pursuit of the rescission remedy is preempted by the FAA both because Del. Code Ann. tit. 6, § 7325(b) presents an obstacle to the accomplishment of the congressional pur- pose of enforcing arbitration agreements, and because it is impossible to give effect to both the administrative rescission remedy and the federal right to arbitration. We also reject the appellants’ contention that an administrative rescission remedy is not preempted because Gilmer sanctions “equitable relief” by an agency despite a parallel arbitration of private claims. First, Gilmer on its facts did not address a question of equitable relief and its statements thereon are not dispositive of how the Supreme Court might resolve an actual contro- versy involving private arbitration and an agency’s “equitable” remedies. Second, we believe the precise statement in Gilmer, i.e., “that arbitration agreements will not preclude the EEOC from bringing actions seeking class-wide and equitable relief,” 111 S.Ct. at 1655, was meant to draw a distinction between private remedies App. 20 available in arbitration for one employee, versus remedies available through an action of the EEOC for a group of employees. In other words, the reference in Gilmer to class-wide equitable relief apparently was directed toward a situation where the EEOC could bring its enforcement powers to bear against an employer vio- lating the law in its dealing with numerous employees by, for example, seeking an injunction on behalf of a class of employees against future acts of age discrimination. The analog in our case would be that the Delaware Division of Securities, if convinced that Olde Discount has com- mitted widespread violations beyond those alleged in relation to the Engelhardts’ stock purchases, is free to protect Delaware investors by imposing fines or licensing restrictions on Olde Discount, regardless of the progress or outcome of any arbitration of the Engelhardts’ claims.°® Thus, there is no foundation for appellants’ assertion that Gilmer establishes that the state’s interest in the “equita- ble” remedy of rescission should be given special exemp- tion from standard preemption principles. While our analysis might be different if a finding of preemption were to work a substantial interference with > It is conceivable that in the case of widespread violations of uniform character, e.g., the distribution of fraudulently issued securities, individualized relief for members of a victimized class of customers might be possible notwithstanding the pres- ence of arbitration agreements, on a theory that the violation did not arise from the particular relationship between the cus- tomer and the broker. We, of course, state no opinion on that possibility as it is not before us. In this case, the Notice of Intent was predicated on Olde Discount’s and Donohoe’s alleged indi- vidual maltreatment of the Engelhardts, which the Notice described in great detail. App. 21 traditional state objectives of securities law enforcement, that is not the case here. The district court did not enjoin the Delaware securities commissioner from investigating Olde Discount or from pursuing administrative remedies other than rescission of the Engelhardts’ purchases. Accordingly, Delaware may take whatever action it sees fit consonant with federal law, concerning Olde Dis- count’s state registration as a broker-dealer. Delaware is also free to pursue individualized remedies, including rescission, as to securities transactions not subject to arbi- tration agreements.’ Delaware therefore retains many avenues for the exercise of its proper role in dealing with alleged violations of its securities laws. Accordingly, fed- eral preemption of the rescission remedy for investors 6 On December 7, 1992, the Division of Securities initiated a second proceeding against Olde Discount and Donohoe by rea- son of alleged improprieties in their dealings with other inves- tors in SNFS stock. We are not concerned with those proceedings in this opinion. ? Although the appellants seem not to have stressed this point before the district court, the Engelhardts’ initial purchase of 5,000 shares of SNFS stock on May 15, 1990, was before they signed the account agreement containing the arbitration clause on May 25, 1990. The district court did not take this sequence of events into account in reaching its result and neither will we as there is no issue as to the arbitrability of disputes arising from that purchase before us on this appeal. Nevertheless the district court’s order of September 16, 1990, by its terms enjoins the commissioner from pursuing a rescission remedy for the May 15, 1990 purchase of SNFS stock. Thus, we do not preclude the appellants on remand from seeking an order modifying the preliminary injunction so as to exclude that purchase. App. 22 who have agreed to arbitration will narrow but not elimi- nate the state regulators’ choices of means of enforcement of the Delaware securities laws.® IV. ABSTENTION The appellants argue, aside from the merits of the preemption question, that the district court should have abstained from granting an injunction that will interfere with Delaware’s ongoing administrative proceedings against Olde Discount. The district court concluded that the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, was not applicable to Olde Discount’s pre- emption claim under the FAA. We agree with the district court’s resolution. Indeed, the circumstances presented make clear that a nonfrivolous claim of FAA preemption of a state statutory remedy necessarily presents an excep- tion to the Younger doctrine. 8 The amici curiae in their brief contend that the district court’s opinion could have a major impact in “the criminal law area” because of an increasing tendency for courts to impose restitution as part of a sentence. They suggest that if we affirm the district court’s order, the state “could not seek nor could the court grant such relief where the defendant had entered into an arbitration agreement with his victims.” Brief at 8. We, of course, cannot rule on what the law would be in the situation the amici describe. However, it is apparent that a case involving a criminal conviction is distinguishable from that involved here. In this case the administrative proceeding was in part brought for the express purpose of obtaining a rescission remedy. On the other hand, a criminal case is brought to determine whether a defendant is criminally liable and, if so, to fix the penalty for the violation. —EEEEEEE—>—~—eEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeEeE——— ? é | App. 23 Younger established that, despite the assertion of claims based on the federal constitution or federal stat- utes, a federal court should not enjoin pending state proceedings where three elements are present: (1) the ongoing state proceedings are “judicial” in nature; (2) the proceedings implicate important state interests; and (3) the proceedings afford an adequate opportunity: to raise the federal claims. Middlesex County Ethics Comm. v. Gar- den State Bar Ass'n, 457 U.S. 423, 432, 102 S.Ct. 2515, 2521 (1982). Nevertheless, the Supreme Court has emphasized that a court should abstain only in rare cases. The doctrine of abstention . . . is an extraordin- ary and narrow exception to the duty of a Dis- trict Court to adjudicate a controversy properly before it. Abdication of the obligation to decide cases can be justified under this doctrine only in... exceptional circumstances... . Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. at 14, 103 S.Ct. at 936 (quotation marks omitted). The Court recently reiterated the exceptional quality of abstention in New Orleans Public Service, Inc. v. Council of New Orleans, 109 S.Ct. 2506 (1989). The Court noted that abstention is confined to rare circumstances because it runs counter to “the proposition that federal courts lack the authority to abstain from the exercise of jurisdiction that has been conferred. . . . ‘They cannot abdicate their authority or duty in any case in favor of another jurisdic- tion.” ” Id. at 2512-13 (quoting Chicot County v. Sherwood, 148 U.S. 529, 534, 13 S.Ct. 695, 697-98 (1893)). Those principles enunciated in New Orleans Public Service guided our approach in Gwynedd Properties, Inc. v. Lower Gwynedd Township, 970 F.2d 1195. In Gwynedd, mindful sa ieecetnteeaieacenieeeeeeee App. 24 that “a federal court has no authority to abstain from the exercise of jurisdiction that has been properly conferred,” id. at 1199, we partially reversed the district court’s dis- missal of a complaint alleging federal constitutional claims concerning municipal land use regulatory deci- sions that were concurrently the subject of state court and municipal zoning board proceedings. Notwithstanding the strict limits of abstention, the doctrine, where appropriate, forbids injunctive interfer- ence with state administrative proceedings as well as state court proceedings, though Younger itself forbade an injunction against a state criminal prosecution. In Mid- dlesex County Ethics Committee, which upheld a district court’s refusal to enjoin a state bar disciplinary proceed- ing on the grounds that the New Jersey Supreme Court would review the plaintiff’s federal constitutional claims, the Court made explicit that “[t]he policies underlying Younger are fully applicable to noncriminal judicial pro- ceedings when important state interests are involved.” 457 U.S. at 432, 102 S.Ct. at 2521. In Ohio Civil Rights Commission v. Dayton Christian Schools, Inc., 477 U.S. 619, 106 S.Ct. 2718 (1986), the Court again endorsed Younger abstention in relation to an ongoing state administrative proceeding. In that case, a religious school sought a fed- eral injunction on First Amendment free exercise grounds against the state’s investigation of a sex-discrimination complaint. The Court found that the third requisite of the Younger doctrine, availability of an opportunity to raise federal claims, was provided because the school’s “con- stitutional claims may be raised in state-court judicial review of the administrative proceeding.” Id. at 629, 106 S.Ct. at 2724. ee App. 25 It is therefore clear that conceptually Younger absten- tion can apply to the situation raised by Delaware’s administrative proceedings against Olde Discount. The investigation and pending hearing by the Delaware secu- rities commissioner is an ongoing state proceeding, “judi- cial” in nature, within the meaning of Younger, Middlesex County, and Dayton Christian Schools. Delaware’s proceed- ing also undoubtedly serves the important state interest of regulating securities transactions, insofar as such power of regulation is reserved to the states under both the Securities Act of 1933 and the Securities Exchange Act of 1934. See 15 U.S.C. §§ 77r, 78bb(a). Finally, even if the Delaware Division of Securities has reached a conclusion that its pursuit of a rescission remedy is not preempted by the FAA, under Dayton Christian Schools it would be sufficient that Olde Discount could raise its preemption arguments again in a review of the administrative pro- ceedings by the Delaware Court of Chancery. See Del. Code Ann. tit. 6, § 7324(a). However, our conclusion that this situation formally fits within a Younger framework does not end our absten- tion inquiry, for Younger abstention is not always appro- priate even if its elements are present. Thus, if “a genuine threat of prosecution exists, a litigant is entitled to resort to a federal forum to seek redress for an alleged depriva- tion of federal rights.” Wooley v. Maynard, 430 U.S. 705, 710, 97 S.Ct. 1428, 1433 (1977); see also Dayton Christian Schools, 477 U.S. at 626, 106 S.Ct. at 2722 (interpreting Younger to prevent injunctions against state proceedings “except in the very unusual situation that an injunction is necessary to prevent great and immediate irreparable injury”); Harmon v. Forssenius, 380 U.S. 528, 537, 85 S.Ct. cae App. 26 1177, 1183 (1965) (stating that district court properly refused to abstain “[g]liven the importance and imme- diacy of the problem, and the delay inherent” in awaiting guidance from state courts). We addressed a similar situa- tion of immediate need for intervention by a federal court in Ford Motor Co. v. Insurance Commissioner, 874 F.2d 926 (3d Cir. 1989). There, various insurers brought a preemp- tion challenge to a Pennsylvania statute that prohibited the insurers from owning interests in savings and loan institutions. We applied the counsel of Wooley v. Maynard to articulate an exception to the Younger doctrine for state civil as well as criminal proceedings, in instances where “deference to the state proceeding will present a signifi- cant and immediate potential for irreparable harm to the federal interests asserted.” Id. at 932. Delaware’s insistence upon the rescission remedy presents just such an immediate potential for irreparable harm to Olde Discount’s right under the FAA to an arbitral forum. The Delaware regulators have chosen to, stand firm in their pursuit of administrative rescission despite Olde Discount’s repeated invocation of the FAA, its efforts to commence an actual arbitration with the Engelhardts, and the district court’s suggestion that the issue of rescission could be bifurcated from the state’s determination concerning other proposed remedies.’ ? Tupman, appearing.forthe State at the district court’s August 27, 1992 hearing, rejected any separation of the rescis- sion question from the State’s broader proceedings: THE COURT: Mr. Tupman, just a comment or two. I do have a question for you: App. 27 Indeed the very nature of arbitration demonstrates the irreparable harm Olde Discount faces, for its right to arbitration is a contractual right sanctioned by statute, to have claims addressed in a particular forum. Thus, if the district court abstained in this case it would not simply be declining to exercise its statutorily created jurisdiction, which is the usual consequence of abstention. Rather, it would be refusing to protect Olde Discount’s access to the forum that it and the Engelhardts contractually selected to resolve their disputes. Furthermore, Olde Discount’s right to arbitration cannot be satisfied if an alternate administrative forum is determining at the same time whether a claim to the identical remedy is available. The concern underlying a federal right to enforcement of arbitration agreements is a party’s entitlement to a proceeding and a forum that are, at least ideally, speedy, efficient, and simpler than litiga- tion in the courts or before agencies. See Rodriguez de Quijas, 490 U.S. at 479-80, 109 S.Ct. at 1919; Mitsubishi, 473 U.S. at 628, 105 S.Ct. at 3354. Therefore, in the context of Aside from Paragraph 42 of your notice of intent to suspend or revoke, is there any reason why the public regulatory part of the Commission’s prosecu- tion can’t be bifurcated from the [rescission] rem- edy...? MR. TUPMAN.... . [S]Jince the statute and the Gen- eral Assembly do clearly contemplate that all of this will be resolved in a single administrative proceed- ing, I don’t think that it is - serves any interest, since, as we contend there’s no impairment of the arbitra- tion agreement. If they want to go to arbitration, they can go to arbitration. I can’t stop them. Supplemental App. at 92-93. = Sets F ae ed App. 28 arbitration, a litigant’s procedural right to the agreed forum is raised to a substantive right by the FAA. Accord- ingly, if Olde Discount were forced to address rescission of its sales to the Engelhardts in an administrative pro- ceeding, even if it simultaneously could pursue an arbi- tration, it would suffer an immediate, irreparable harm to the federal right established by the FAA. We find authority that Younger abstention would be inappropriate here in Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852. In Southland the Supreme Court deter- mined to take jurisdiction over the appeal precisely because of the immediacy of the harm suffered by a party denied a right to arbitration. The California Supreme Court had held that the FAA did not preempt a California statute requiring a judicial forum for certain franchise claims, and had remanded the case to the state trial court for a disposition on the merits. Despite the remand, which arguably rendered the state court’s decision not final, the Supreme Court took jurisdiction, reasoning that “[c]ontracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts. Such a course could lead to prolonged litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate,” 465 U.S. at 6-8, 104 S.Ct. at 856-57. In this case, abstention would have precisely the same consequence, /.e., it would permit the Engelhardts’ claims to be brought before the Delaware securities commis- sioner, thus circumventing the agreement to arbitrate. We think Southland teaches that the federal courts ought not countenance such frustration of the FAA’s mandate. We also point out that abstention in this case would be difficult to justify in light of the congressional intent App. 29 reflected in 9 U.S.C. § 16. That section provides that while orders compelling arbitration are not immediately appealable, orders denying motions to compel arbitration or to stay judicial proceedings pending arbitration are immediately appealable. This dichotomy reflects the paramount importance that Congress has placed on arbi- tration. In effect, Congress has given the courts of appeals broad authority to ensure that district courts are not circumscribing the rights granted by the FAA in a manner contrary to the expansive enforcement of arbitration clauses that has been dictated by Congress itself and by the Supreme Court in, e.g., McMahon, Rodriguez de Quijas, and Gilmer. We are mindful that generally a claim of federal preemption, in and of itself, is not entitled to more defer- ential treatment than other constitutional claims in the face of an abstention challenge. The Supreme Court said as much in New Orleans Public Service: There is no greater federal interest in enforcing the supremacy of federal statutes than in enforc- ing the supremacy of explicit constitutional guaranties, and constitutional challenges to state action, no less than preemption-based chal- lenges, call into question the legitimacy of the State’s interest in its proceedings reviewing or enforcing that action. Yet is clear that the mere assertion of a substantial constitutional chal- lenge to state action will not alone compel the exercise of federal jurisdiction. 109 S.Ct. at 2516. In New Orleans Public Service, the Court ultimately found that the district court should not have abstained. App. 30 However, the Court did not conclude that simply because the case implicated findings of the Federal Energy Regu- latory Commission which preempted a decision of local rate-making authorities, a blanket exception to Younger principles was warranted. See also Ford Motor Co., 874 F.2d at 934 (“there is no absolute rule prohibiting the applica- tion of Younger abstention doctrine whenever the Supremacy Clause is invoked”). But in New Orleans Public Service, the Court did not confront a collision between the normal application of Younger principles and the highly favored right to arbitra- tion which the Court itself has developed in FAA cases from Scherk v. Alberto-Culver through Rodriquez de Quijas and Gilmer. The collision is imminent in the present case, and we must resolve it by application of the Supreme Court’s FAA cases and the Court’s recognition in Wooley v. Maynard that, even when the Younger doctrine strictly might be applicable, a threat of immediate, irreparable harm to federal rights can warrant an injunction against state proceedings. We think that where, as here, a state ~ agency is engaged in a course of action openly inconsis- tent with a litigant’s rights under Section 2 of the FAA, that litigant cannot be turned away from federal court by an invocation of Younger abstention. This very narrow exception to Younger will not create difficulties in cases involving frivolous or weak claims of FAA preemption, because such claims would not meet the traditional requi- sites for injunctive relief and thus will not even require a district court to reach a Younger challenge.!° 10 In its opinion, the district court cited Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 800 (3d Cir. 1989), with App. 31 We make one final point. A district court’s decision to abstain does not necessarily mean that a federal court will never consider the proffered federal claim. Rather, abstention delays the review by a federal court until a state forum has had an opportunity to pass on the issue. For example, if a criminal prosecution is claimed to vio- late federal free speech, free exercise, or due process rights, a defendant not satisfied by the state court’s reso- lution of those claims ultimately can seek a federal forum by petition for certiorari or petition for writ of habeas corpus. In most — indeed, nearly all - circumstances in which the elements of Younger abstention are present, Younger counsels that such a delay is an appropriate price to pay for the preservation of comity between the federal government and the states. In the context of arbitration, however, delayed enforcement destroys the federal statutory right. It would be incongruous if abstention, merely a prudential doc- trine, could have such a consequence. In our case, the district court correctly did not abstain because the Dela- ware regulators’ repeated rejection of Olde Discount’s FAA preemption claim already ensured that the right to respect to the general showing that must be made for an appli- cant for a preliminary injunction to obtain relief. The appellants’ brief is not cast in terms of whether the criteria have been met but instead focuses on the preemption and abstention issues. The brief of the amici, however, does discuss the Instant Air Freight criteria. In these circumstances, we will not discuss these criteria in detail but simply will indicate that in view of our conclusions we agree that the district court properly issued the preliminary injunction. App. 32 arbitration would be lost, absent a federal court’s inter- vention. Accordingly, despite the rule of Dayton Christian Schools that a right to an ultimate state court appeal of agency action suffices to support Younger abstention, we hold that where Section 2 of the FAA provides the basis for a federal preemption claim, a district court may not abstain, but must address the merits of the FAA claim. V. CONCLUSION !n view of the aforesaid and Judge Rosenn’s concur- ring opinion, we will affirm the district court’s order of September 16, 1992, and will remand the case to the district court for further proceedings. ROSENN, Circuit Judge, concurring. Although I agree with the majority’s conclusion that the Delaware Securities Commissioner cannot seek rescis- sion as a remedy under 6 Del. C. § 7325(b), I write separately because I arrive at this result by way of con- tract law rather than the doctrine of preemption. When Congress enacted the Federal Arbitration Act (FAA), it rejected the traditional hostility of the courts towards arbitration as a remedy in civil disputes and emphasized a strong federal policy in favor of arbitral dispute resolution in cases where a contract exists evi- dencing a transaction involving commerce. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). In Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 i eeeeneaanameeenel App. 33 (1985), a case similar to the one sub judice in that it involved a dispute over a purchase of securities through a broker-dealer, the Court held that the FAA requires district courts to compel arbitration of pendent arbitrable claims, even where the result would be the possible inef- ficient maintenance of separate proceedings in different forums. The Court observed: The preeminent concern of Congress in passing the Act was to enforce private agreements into which parties had entered, and that concern requires that we rigorously enforce agreements to arbitrate .. . at least absent a countervailing policy manifested in another federal statute. By compelling arbitration of state-law claims, a dis- trict court successfully protects the contractual rights of the parties and their rights under the Arbitration Act. Id. at 221. Significantly, the Court dwelt upon the necessity of enforcing the contractual rights of the parties under the agreement to arbitrate, also observing that “arbitration is not a judicial proceeding.” Id. at 222 (citing McDonald v. West Branch, 466 U.S. 284 (1984)). Thus, the right of a party to enforce an arbitration agreement under the FAA depends not upon the federal doctrine of preemption, but upon the traditional duty of the courts to protect the contractual rights of the parties. In the present case, Olde’s investors’ account agree- ment with the Engelhardts contained a provision stating: You agree to submit any and all controversies or claims arising out of this agreement to arbitra- tion to be conducted according to the rules and App. 34 procedures of the New York Stock Exchange, Inc. (NYSE) or the National Association of Secu- rities Dealers, Inc. (NASD) as you may elect.... The agreement further provides, “The parties are waiving their right to seek remedies in court, including the right to a jury trial.” Recently, in Gilmer v. Interstate/Johnson Lane Corp., 111 S. Ct. 1647, 1652 (1991) (citations omitted), the United States Supreme Court stated: It is by now clear that statutory claims may be the subject of an arbitration agreement, enforce- able pursuant to the FAA... . [Bly agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the stat- ute; it only submits to their resolution in an arbitral, rather than a judicial, forum. Therefore, Olde and the Engelhardts lawfully bound themselves by the provisions of the agreement to arbi- trate claims arising out of their securities transactions. As noted by the majority, section 7325’s remedy of rescission would interfere with the contractually created arbitration agreement in this case. To the extent that the Englehardts attempted an “end run” around the terms of the arbitration agreement by seeking relief in a state administrative proceeding, the district court properly restrained them. Federal courts will not “permit a party to a contract to circumvent an arbitration clause by com- mencing litigation in a state court.” In re Mercury Constr. Corp., 656 F.2d 933, 941 (4th Cir. 1981). Finally, the mere involvement of an admin- istrative agency in the enforcement of a statute is not sufficient to preclude arbitration. For a App. 35 example, the Securities Exchange Commission is heavily involved in the enforcement of the Exchange Act of 1934 and the Securities Act of 1933, but we have held that claims under both of these statutes may be subject to compulsory arbitration. See McMahon; Rodriguez de Quijas. Gilmer, 111 S. Ct. at 1653. My disagreement with the majority stems from my belief that the district court’s injunction should not be based on preemption doctrine, but rather the law of contracts. The fundament of Olde’s right to settle the Engelhardts’ demand for rescission of the securities transaction by arbitration is the arbitration provision con- tained in the investors’ account contract, not the applica- tion of the doctrine of preemption. “[Flederal pre-emption of state law can occur in three types of situations: where Congress explicitly pre-empts state law, where pre-emption is implied because Congress has occupied the entire field and where pre-emption is implied because there is an actual conflict between fed- eral and state law.” Pokorny v. Ford Motor Co., 902 F.2d 1116, 1120 (3d Cir. 1990) (citing Schneidewind v. ANR Pipeline Co., 485 U.S. 293 (1988)), cert. denied, 498 U.S. 853 (1990). The FAA “contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.” Volt Info. Sciences, Inc. v. Stan- ford University, 489 U.S. 468, 477 (1989). Nor has Congress occupied the entire field of securities regulation. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 135 (1973). The FAA, therefore, preempts a state securities App. 36 law only “to the extent that it actually conflicts with federal law.” Volt, 489 U.S. at 477. In the case sub judice, however, the federal law and the state law do not conflict. The Delaware Statute does not even deal with arbitration, which is the subject of the FAA. Rather, the conflict in this case arises between the state statute, as it relates to rescission, and the parties’ contractually created right to arbitrate disputes relating to the securities transaction. The FAA becomes relevant only as it protects the enforcement of the contractual right to arbitrate. Thus, there is no conflict for preemp- tion purposes between a state law and a federal law in this case, but rather a partial remedial conflict between a state law and a contract. Cf. Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 841 F.2d 508, 510 (state statute precluding enforcement of an agreement to arbitrate con- flicts with FAA).! Therefore, for the foregoing reasons I would affirm the district court’s order enjoining the Delaware Securi- ties Commissioner from pursuing the remedy of rescis- sion of the claims which are subject to the arbitration agreement between Olde and the Engelhardts. I agree with the majority that the district court was not required ! The agreement to arbitrate cannot usurp a state’s public interest in enforcing its criminal laws for securities transactions violations or its laws enacted under its police power to protect the public interest generally. “The criminal justice system is not operated primarily for the benefit of victims, but for the benefit of society as a whole.” Kelly v. Robinson, 479 U.S. 36, 51 (1986). Therefore, the district court was correct not to enjoin the Com- missioner from seeking other penal remedies against Olde besides rescission. ——————————— App. 37 to abstain from enjoining the Commissioner’s pursuit of rescission. NYGAARD, Circuit Judge, dissenting. I disagree with the court’s conclusion that the Federal Arbitration Act, 9 U.S.C. § 2, preempts 6 Del. Code Ann. § 7325(b) for essentially the same reasons articulated in Judge Rosenn’s concurrence. There is no conflict between federal and state law because, as Judge Rosenn notes, the FAA protects the enforcement of the contractual right to arbitrate. Where there has been an allegation of securities fraud, section 7325(b) empowers the Delaware Securities Commissioner to seek rescission at his discretion and in the interest of the public; it says nothing about the val- idity of the arbitration agreement or the arbitrability of the dispute between Olde Discount and the Engelhardts. Since section 7325(b) does not “require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration,” Southland Corp. v. Keat- ing, 465 U.S. 1, 104 S.Ct. 852, 858 (1984), the FAA does not preempt the Delaware statute. I depart from the reasoning of the concurrence, how- ever, to the extent it concludes that the Engelhardts have the capacity to contract away under Delaware law the Commissioner’s authority to institute administrative pro- ceedings and to seek remedies against securities firms doing business in Delaware. The essence of Olde Dis- count’s argument is that there is no distinction between the Engelhardts’ civil suit in their own interest to seek a si aeaaaleatieateeemie App. 38 compensatory award and the Commissioner’s adminis- trative actions in the public interest to seek appropriate equitable or punitive measures. This argument is unper- suasive in light of the statutory scheme. The Delaware Securities Act was enacted “to prevent the public from being victimized by unscrupulous or over- reaching broker-dealers, investment advisers or agents in the context of selling securities or giving investment advice, as well as to remedy any harm caused by securi- ties law violations.” 6 Del. Code Ann. § 7301(b) (emphasis added). The Commissioner administers the statute and serves this policy. Among other things, he may “deny, suspend or revoke any registration if he finds that the order is in the public interest”; and he may in his discre- tion bring an action “to temporarily restrain or to enjoin the acts or practices . . . [as well as seek] such other ancillary relief as is in the public interest... . ” Id. §§ 7316(a), 7320 (emphasis added). In section 7325(b), the Delaware legislature gave the Commissioner the exclu- sive power to bring administrative proceedings in which he may order the violator “to pay restitution and costs (or to rescind the transaction or transactions and pay costs) if the Commissioner finds it in the public interest... . ” (Emphasis added.) And in section 7323(a), the legislature also gave “the person” who is a victim of securities fraud a nonexclusive, private cause of action in law or equity. Thus, the Delaware statutory scheme makes clear that the Commissioner is not a surrogate for a plaintiff’s attorney, but is a public official who administers the state’s blue sky laws “in the public interest” and is endowed with broad enforcement and rulemaking powers. See Blinder, Robinson & Co. v. Bruton, 552 A.2d —————————————————————— | App. 39 466, 475 (Del. 1989) (“The Commissioner has discretion to impose any penalty deemed necessary to protect the pub- lic interest and further the Act’s prophylactic purpose.”) Although the Engelhardts’ and the Commissioner’s suits arise from the same transaction, their respective right or power to sue arises from two separate and distinct statu- tory provisions. The arbitration agreement between the Engelhardts and Olde Discount provides that the Engelhardts must “submit any and all controversies or claims arising out of this agreement to arbitration.” It also provides, “The par- ties are waiving their right to seek remedies in court, including the right to a jury trial.” Under the FAA and this arbitration agreement, there is no doubt that the Engelhardts cannot enforce a claim for legal damages or equitable relief under section 7323(a) in a judicial forum. But that is not at issue in this appeal because nothing in the Delaware laws precludes the Engelhardts and Olde Discount from arbitrating. Here, Olde Discount contends, and the opinion of the court agrees, that the arbitration agreement between it and the Engelhardts precludes the Commissioner, acting under the authority of the Delaware legislature, from seeking appropriate remedies and sanctions in the public interest if the Engelhardts have also asked for the “same” relief in their civil complaint. Thus, while this case con- cerns rescission as a remedy, had the Engelhardts sought injunctive relief as well as money damages in arbitration, there is no reason under the court’s opinion why these private parties could not have also contracted away the Commissioner’s authority under section 7320 to seek an injunction against Olde Discount. App. 40 The Commissioner cannot be bound by an agreement to which he neither agreed nor was a party. One cannot bargain away that which one does not possess; since the power to sue under section 7325(b) and seek appropriate equitable remedies on behalf of the State of Delaware and in the public interest belongs exclusively to the Commis- sioner, that power cannot be compromised by an agree- ment between private individuals. Cf. Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 103 S.Ct. 927, 939 (1983) (in a multi-party and -claim case, arbitration agreemer.c will be enforced as to those parties and claims subject to the agreement despite piecemeal litigation in the arbitral and judicial forums). Further, the Commissioner’s authority to sue and seek remedies exists independently of a plaintiff’s right to sue and thus is not derivative of the Engelhardts’ rights. See 6 Del. Code Ann. § 7319 (“The Commissioner in his discretion may make such public or private investigations within or out- side of this State as he deems necessary... . ”). See also Gilmer v. Interstate/Johnson Lane Corp., 111 S.Ct. 1647, 1653 (1991) (“In any event, the EEOC’s role in combating age discrimination is not dependent on the filing of a charge; the agency may receive information concerning alleged violations of the ADEA ‘from any source,’ and it has independent authority to investigate age discrimination). Cf. Isidor Paiewonsky Assocs. v. Sharp Properties, Inc., No. 92-7337 (3d Cir., June 24, 1993) (a subtenant who was not a party to an arbitration agreement was bound by the conclusions of the arbitrator because the subtenant and tenant are in privity and thus the subtenant’s rights are derivative of the tenant’s under traditional landlord-ten- ant laws). App. 41 The argument that section 7325(b) is “preempted” by the FAA or that the Commission is “contractually bound” by the arbitration agreement rests on the unsound assumption that legal damages by the Engelhardts and rescission sought by the Commissioner in the public interest are in essence the same remedies. In Porter v. Warner Holding Co., 328 U.S. 395, 66 S.Ct. 1086 (1946), although regulations provided that a landlord could not be required to make a tender of illegally collected rent if the suit was brought by any person who had commenced an action against the defendant under Section 205(e) of the Emergency Price Control Act of 1942, a federal agency brought suit against the landlord and sought restitution of illegally collected rent under the authority of § 205(a) of the statute. The Supreme Court considered whether a federal district court had jurisdiction, in an enforcement proceeding brought by a federal agency under § 205(a), to order restitution of illegally collected rents. The Court held that it did, and reasoned: It is true that § 205(e) authorizes an aggrieved purchaser or tenant to sue for dam- ages on his own behalf. .. . To the extent that damages might properly be awarded by a court of equity in the exercise of its jurisdiction under § 205(a), § 205(e) supersedes that possibility and provides an exclusive remedy relative to dam- ages. It establishes the sole means whereby individ- uals may assert their private right to [legal] damages. . . . Moreover, a court giving relief under § 205(e) acts as a court of law rather than as a court of equity. But with the exception of damages, § 205(e) in no way conflicts with the jurisdiction of equity courts under § 205(a) to issue whatever “other orders” may be necessary App. 42 to vindicate the public interest, to compel com- pliance with the Act and to prevent and undo inflationary tendencies. Restitution, which lies within that equitable jurisdiction, is consistent with and differs greatly from the damages and penalties which may be awarded under § 205(e). When the Administrator seeks restitution under § 205(a) he does not request the court to award statutory damages to the purchaser or tenant or to pay to such person part of the penalties which go to the United States treasury in a suit by the Administrator under § 205(e). Rather he asks the court to act in the public interest by restoring the status quo and ordering the return of that which rightfully belongs to the purchaser or tenant. Such action is within the recognized power and within the highest tradition of a court of equity. Thus it is plainly unaffected by the provisions of § 205(e). 66 S.Ct. at 1090-91 (emphasis added and citations omit- ted). Thus, legal damages and equitable relief, such as restitution and rescission, are different forms of relief, serving different interests and arising from different powers of the court; and even if an arbitrator decides that the Engelhardts are not entitled to legal damages, that decision neither conflicts with nor precludes a court of equity from granting the remedy of rescission to the Engelhardts in the interest of the public. The Supreme Court recognized this difference in the arbitration context. In Gilmer, the Supreme Court consid- ered whether a claim under the Age Discrimination in Employment Act of 1967 (ADEA) can be subject to arbi- tration under the FAA. The Court held that ADEA claims App. 43 were arbitrable. The Court found unpersuasive the argu- ment that arbitration would undermine the role of the EEOC in enforcing the ADEA. It reasoned, “An individ- ual ADEA claimant subject to an arbitration agreement will still be free to file a charge with the EEOC, even though the claimant is not able to institute a private judicial action.” 111 S.Ct. at 1653. Furthermore, “it should be remembered that arbitration agreements will not pre- clude the EEOC from bringing actions seeking class-wide and equitable relief.” Id. at 1655 (emphasis in original). Equitable relief includes such remedies as injunction and rescission. Porter, 66 S.Ct. at 1090-91. I believe that the opinion of the court unlawfully transfers the authority vested in the Commissioner to private parties. Thus, the boundaries of what the Com- missioner, or any other agency with enforcement powers, can or cannot do is not defined by statute, but is limited by the agreements of private individuals. I would hold that since section 7325(b) of the Delaware Securities Act expressly provides that the Commissioner may seek appropriate equitable relief against a violator of the state’s securities laws, he is not bound by a private arbi- tration agreement, nor need he refrain from seeking rescission in the public interest simply because a private party agreed to seek legal damages in an arbitral forum rather than a court of law. I therefore respectfully dissent. A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit ~ App. 44 Filed August 5, 1993 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT NO. 92-7557 OLDE DISCOUNT CORPORATION v. W. MICHAEL TUPMAN, and as Deputy Attorney General of the State of Delaware; RICHARD W. HUBBARD, Securities Commissioner of the State of Delaware; EUGENE H. ENGELHARDT and CAROL D. ENGELHARDT, Appellants Appeal from the United States District Court for the District of Delaware (D.C. Civil No. 92-00498) Argued June 10, 1993 Before: GREENBERG, NYGAARD, and ROSENN, Circuit Judges Opinion Filed July 30, 1993 ORDER AMENDING CONCURRING OPINION It is hereby ordered that the concurring opinion of the slip opinion in the above-entitled case be and is hereby amended as follows: App. 45 74 Page 26, line 1 —- change “the majority’s” to “Judge Green- berg’s”; Page 27, line 24 — change “the majority” to “Judge Green- berg,” Page 28, line 5 — change “the majority” to “Judge Green- berg”; Page 29, lines 8-9 - change “the majority” to “Judge Greenberg.” BY THE COURT: /s/ Max Rosenn Circuit Judge Dated: August 5, 1993 A True Copy: Teste: Clerk of the United States Court of Appeals for the Third Circuit App. 46 UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT NO. 92-7557 OLDE DISCOUNT CORPORATION, V. W. MICHAEL TUPMAN, and as Deputy Attorney General of the State of Delaware; RICHARD W. HUBBARD, Securities commissioner of the State of Delaware; EUGENE H. ENGELHARDT AND CAROL D. ENGELHARDT, | W. MICHAEL TUPMAN, individually and as Deputy Attorney General of the State of Delaware; RICHARD W. HUBBARD, Securities Commissioner of the State of Delaware; EUGENE H. ENGELHARDT, CAROL D. ENGELHARDT, Appellants On Appeal from the United States District Court for the District of Delaware (D. Dei. Civil No. 92-0498) SUR PETITION FOR REHEARING BEFORE: SLOVITER, Chief Judge, and BECKER, STAPLETON, MANSMANN, GREENBERG, App. 47 HUTCHINSON, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, AND ROSENN, Circuit Judges The petition for rehearing filed by the appellants W. Michael Tupman, Richard W. Hubbard, Eugene H. Engelhardt, and Carol D. Engelhardt in the above cap- tioned matter having been submitted to the judges who participated in the decision of this court and to all other available circuit judges of the court in regular active service, and no judge who concurred in the decision having asked for rehearing, and a majority of the circuit judges of the circuit in regular active service not having voted for rehearing by the court in banc, the petition for rehearing is denied. Judge Nygaard would grant rehear- ing by the court in banc for the reasons set forth in his dissenting opinion limited to the preemption issue. BY THE COURT: /s/ Morton I. Greenberg Circuit Judge DATED: AUG 26, 1993 App. 48 OLDE DISCOUNT CORPORATION, Plaintiff, Vv. W. Michael TUPMAN, individually and as Deputy Attorney General of the State of Delaware; Richard W. Hubbard, Securities Commissioner of the State of Dela- ware, Eugene H. Engelhardt, and Carol D. Engelhardt, Defendants. Civ. A. No. 92-498-SLR. United States District Court, D. Delaware. Sept. 16, 1992. James S. Green of Duane, Morris & Heckscher, Wilm- ington, Del., for plaintiff. Of Counsel: Robert P. Bramnik, Thomas P. Fitzgerald, and Michael I. Behn, of Altheimer & Gray, Chicago, Ill. W. Michael Tupman, Delaware Dept. of Justice, Wilmington, Del., for defendants W. Michael Tupman and Richard W. Hubbard. MEMORANDUM OPINION SUE L. ROBINSON, District Judge. I. INTRODUCTION Before the Court is a motion for temporary restrain- ing order, preliminary injunction and other relief filed by plaintiff OLDE Discount Corporation (“OLDE”) in order to enjoin defendants from: “(1) pursuing a penal and registration revocation action against the plaintiff which will have the effect of violating plaintiff’s federal right to arbitrate... . ; (2) pursuing an investigation of OLDE; and App. 49 (3) instigating other actions against the plaintiff in Dela- ware or any other state, pending a hearing and deter- mination on the issuance of a preliminary injunction.” (Docket item, “D.I.”, 4) Defendants Richard W. Hubbard and W. Michael Tupman (hereinafter “the State defen- dants”)!, the Securities Commissioner of the State of Del- aware and the Deputy Attorney General representing such, respectively, have responded and oral argument was heard on August 27, 1992. Supplemental responses have been received. (D.I. 19, 28) II. JURISDICTION Jurisdiction is grounded on plaintiff’s claim regard- ing the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-10, and 28 U.S.C. § 1331. Venue is proper in this District under 28 U.S.C. § 1391(b) because all defendants reside in this District and because the claims asserted by plaintiff arose in this District. ; III. FINDINGS OF FACT For purposes of this proceeding, the material facts are undisputed: 1. Plaintiff OLDE is a securities firm with its princi- pal place of business located at 751 Griswold Street, Detroit, Michigan 48226. OLDE also has a branch office ' Because the relief sought is directed at the State defen- dants, defendants Eugene H. and Carol D. Engelhardt have not participated in these proceedings. App. 50 located at 208 West Tenth Street, Wilmington, Delaware 19801. (D.I. 12, Ex. 1, ¥ 12) 2. OLDE is and has been registered as a broker- dealer in Delaware since October 6, 1981. Although OLDE is primarily engaged in the discount brokerage business, it does make a market in certain securities, which its agents recommend to customers. In the spring of 1990, one of the stocks was Second National Federal Savings Bank (“SNFS”), a savings and loan association with branches in Pennsylvania, Maryland, Delaware, Virginia, and the District of Columbia. (D.I. 14, Ex. 1, § 15) 3. The Division of Securities of the State of Dela- ware is a unit within the Department of Justice directed by the Securities Commissioner under the auspices of the Attorney General pursuant to the Delaware Securities Act, 6 Del.C. § 7301 et seq. 4. In 1983, defendants Eugene H. and Carol D. Engelhardt opened a joint account with OLDE in Michi- gan, where they were then residing. When they moved to Delaware in 1986, they transferred their account to OLDE’s Wilmington office. In the spring of 1990, their account was assigned to Michael R. Donohoe, the only securities agent employed in OLDE’s Wilmington branch. (D.I. 12, Ex. 1, ¥ 22) 5. The Engelhardt’s account with OLDE was gov- erned by the terms of an Investors Account Agreement between OLDE and the defendants Engelhardt. The Investors Account Agreement in effect during the period relevant to this proceeding was signed by the defendants Engelhardt on May 25, 1990. According to their Customer App. 51 Preference Profile, the defendants Engeliiardt had sub- stantial investment experience, having invested in stocks for approximately fifteen years, making an average of three to five trades per year, and trading an average of five to ten thousand shares per transaction. In describing their investment objects, the defendants Engelhardt chose the following adjectives: “aggressive”, “growth”, “spec- ulation”. (D.I. 6, Ex. A) 6. The Investors Account Agreement entered between OLDE and the defendants Engelhardt included a “Predispute Arbitration Clause”. The inclusion of the Predispute Arbitration Clause was disclosed in bold face and in large type directly above the defendants’ signa- tures. (D.I. 6, Ex. A) 7. The Predispute Arbitration Clause itself was more specifically spelled out in the terms and conditions portion of the agreement, clauses 17 and 18, in bold type. In relevant part, the Predispute Arbitration Clause pro- vides that the Engelhardts “agree to submit any and all controversies or claims arising out of this agreement to arbitration” according to the procedures of the New York Stock Exchange, Inc. or the National Association of Secu- rity Dealers, Inc. (D.I. 6, Ex. A) 8. In May and June 1990, the defendants Engelhardt purchased a total of ten thousand shares of the common stock of SNFS. The total purchase price of the ten thou- sand shares of SNFS stock was $52,875.00. During the course of the next several months, the market price of SNFS stock declined, causing a parallel decline in the market value of the defendants Engelhardts’ SNFS account. (D.I. 1, J 13} App. 52 9. In July or August 1990, the defendants Engelhardt telephoned OLDE in Michigan to express their dissatisfaction with their SNFS stock purchase, given the drop in price. The defendants Engelhardt were informed that there was no basis for their complaint, that their SNFS stock purchases were not inappropriate. (D.I. 1, { 15) 10. According to the record, the defendants Engelhardt were advised at that time that they should submit a written complaint to OLDE regarding the cir- cumstances of their claim if they wished to initiate a complaint and/or a fuller review. (D.I. 1, { 15) No written complaint was ever submitted, although the Investors Account Agreement, clause 12, expressly requires inves- tors to object, in writing, within ten days regarding any transactions in their account which are in dispute. (D.I. 1, 7 18; D.I. 6, Ex. A) 11. On September 6, 1990, the defendants Engelhardt transferred their SNFS stock out of OLDE. The market value of their SNFS stock at the time of the transfer was approximately $32,500.00, a decline of approximately $20,375.00 from their initial investment. (D.I. 1, J 17) 12. In July 1991, the Division of Securities of the State of Delaware received a complaint from the defen- dants Engelhardt against OLDE and its agent (by now a former agent), Michael Donohoe, with regard to the pur- chase of the SNFS stock in May and June of 1990. (D.I. 6, Ex. C; D.L 12, ¥ 2). 13. By letter dated July 31, 1991, a securities investi- gator for the Delaware Department of Justice advised App. 53 OLDE of the Engelhardts’ complaint. The securities investigator related that “[t]he Engelhardts allege that the solicitation to purchase [the SNFS stock] involved omis- sion of material facts (including the risk factor) and high pressure selling techniques. They further allege that Mr. Donohoe marked at least one purchase ‘unsolicited’. Finally, they allege that this security was unsuitable for persons in their circumstances.” The securities investiga- tor requested that OLDE respond to these allegations by August 26, 1991. (D.I. 6, Ex. C; D.I. 12, | 2) OLDE responded to this and subsequent requests for documents and information. (D.I. 6, Ex. E; D.I. 12, q 2-4) 14. By late May 1992, the Division of Securities had completed its investigation of the Engelhardts’ complaint and on June 5, 1992, defendant Tupman sent to OLDE a draft “Notice of Intent to Suspend or Revoke Broker- Dealer Registration”, alleging various violations of the Delaware Securities Act, 6 Del.C. §§ 7301 et seq. (D.I. 12, {1 5) In said Notice, defendant Tupman stated that it was in the public interest that: 1) the broker-dealer registra- tion of OLDE be suspended or revoked; 2) Donohoe be permanently barred from engaging in the securities busi- ness in Delaware; 3) OLDE rescind the three sales of SNFS stock to the defendants Engelhardt, and pay the Engelhardts back their purchase price of $52,875.00; and 4) OLDE be fined $10,000.00 for each and every violation of the Act, and that OLDE pay all of the costs incurred by the Division of Securities in connection with the investi- gation and prosecution of the case. (D.I. 6, Ex. F) 15. By letter dated June 25, 1992, OLDE asserted that the proposed administrative proceeding against OLDE for Donohoe’s alleged sales practice abuses was App. 54 not warranted. OLDE also offered to settle the Engelhardts’ claim concerning their SNFS stock pur- chases by offering $20,000.00 as compensation for all of the losses which were allegedly caused by Donohoe’s conduct. In the alternative, OLDE offered to “pay all filing and form fees for the Engelhardts’ claim to be heard and decided by an arbitration panel before the National Association of Securities Dealers, Inc., the New York Stock Exchange, Inc. or the American Arbitration Asso- ciation.” (D.I. 6, Ex. G) 16. By letter dated July 6, 1992, defendant Tupman responded: In considering your offer of settlement, | assume that the $20,000.00 figure represents the differ- ence between the price paid by the Engelhardts for their SNFS stock, and the current market value. Given the allegations of unsuitability, I think it much more appropriate for there to be a rescission of the trades, with your firm receiving the stock back and the Engelhardts their pur- chase price ($52,875.00). In addition, because of the seriousness of the allegations, and the State’s preparedness to prosecute, the public interest would require a substantial contribution to the Investor Protec- tion Fund, as well as written undertakings regarding compliance procedures in your Wilm- ington branch office. I do not intend to continue any further written dialogue on the allegations in the draft Notice. I think you have fully set forth your position in your last letter, and I am not amendable to any continued “back and forth” responses. Instead, I suggest you call me later this week (and in no App. 55 event later than noon on Friday, July 10), to discuss the terms of settlement. Otherwise, the Securities Division is prepared to submit the charges to the Commissioner for his approval on July 13. (D.I. 6, Ex. H) 17. At an August 5, 1992 settlement meeting attended by defendant Tupman and representatives of plaintiff OLDE, defendant Tupman once again rejected OLDE’s offer of restitution to the Engelhardts in the amount of $20,375.00 and instead demanded rescission in the amount of $52,875.00, on the grounds that rescission would be more beneficial and fair to the Engelhardts. Defendant Tupman also stated that the Engelhardts refused to arbitrate their civil claims; rather, the Engelhardts had selected the Delaware Securities Com- missioner’s Office to pursue their claim. (D.I. 6, Ex. I) 18. After the August 5, 1992 meeting with defen- dant Tupman, OLDE gave written notice of its demand that the Engelhardts arbitrate their civil claim against OLDE concerning their SNFS stock purchases pursuant to their arbitration agreement and the Federal Arbitration Act, 9 U.S.C. §§ 1 et seq. The August 5, 1992 notice stated as follows: We have been informed by Delaware Deputy Attorney General, W. Michael Tupman, that you have complained to him about the purchase of SNFS stock through OLDE Discount. He further advises that you believe that you have & temedy under the restitution provision set forth in sec- tion 7325(b) of the Delaware Code. We disagree. App. 56 You have agreed with OLDE Discount to resolve any and all disputes by arbitration before either the New York Stock Exchange (“NYSE”) or the National Association of Security Dealers, Inc. (“NASD”). You further have agreed to make an election within five days of written demand of such election. Please consider this letter our written demand that you make such election. (D.I. 6, Ex. K) 19. According to his affidavit, defendant Tupman met with the defendants Engelhardt on August 10, 1992 to inform them that plaintiff OLDE had made a settle- ment offer, to wit, to pay $15,000.00 to the Delaware Investors Protection Fund, in lieu of a fine, and to pay $20,375.00 in full restitution to the Engelhardts for the depreciation in value of their SNFS stock during the entire period of time that the stock was held in their OLDE account. Both defendants Engelhardt “emphat- ically agreed that they wanted the State to go forward with its case.” (D.I. 12, ¥ 11) 20. Also on August 10, 1992, defendant Tupman represented in a letter to OLDE the following: [I]t has come to our attention that by letter dated August 5, 1992 ..., you tried to pressure the Engelhardts into an NASD arbitration, even though we had discussed that legal issue at our meeting the same day, and the State had dis- agreed with your legal position. I find this fur- ther evidence of your bad faith, and therefore terminate settlement negotiations. Your last offer is rejected. Enclosed are written interrogatories served pur- suant to Section 7319 of the Delaware Securities App. 57 Act. An officer, director, or duly authorized agent of OLDE must answer those interrogato- ries, under oath, and return them to me no later than seven business days after the date of this letter. In addition, with regard to each individ- ual identified in your response to Interrogatory No. 1, we ask that you produce his or her new account form and customer preference profile, and with regard to each transaction identified in your response to Interrogatory No. 2, we ask that you produce the confirmation of purchase. Further, we ask that you produce copies of any letters of complaint, and any response your made, from any Delaware residents with regard to those transactions. You have until the close of business on August 24, 1992 to produce that documents. (D.I. 6, Ex. M) 21. A Notice of Intent to Suspend or Revoke Broker- Dealer Registration was filed by the Division of Securities on August 17, 1992. Defendant Hubbard, the Securities Commissioner, also signed an order of that same date giving OLDE thirty days to request a hearing on the matter. (D.I. 12, Ex. 1) 22. On August 17, 1992, the Department of Justice issued a press release concerning the Notice of Intent against OLDE. An article reporting the Notice appeared the next day in the News Journal. (D.I. 6, Ex. N) 23. On August 19, 1992, OLDE provided timely responses to defendant Tupman’s interrogatories. (D.I. 1, { 39) 24. Plaintiff filed its motion for temporary restrain- ing order, preliminary injunction and other relief on ies ee App. 58 August 25, 1992, alleging, inter alia, that: 1) application and enforcement of § 7325(b) of the Delaware Securities Act, 6 Del.C. § 7325(b), is unconstitutional under Article VI, clause 2 of the United States Constitution (the “Supremacy Clause”); 2) the application of 6 Del.C. § 7325(b), as amended, to the actions of OLDE in 1990 constitutes the imposition of an ex post facto penalty in violation of the Due Process Clause of the Fourteenth Amendment of the Constitution of the United States; 3) defendants Tupman and Hubbard have acted under color of state law to deprive the plaintiff of its rights under the Federal Arbitration Act and under the Due Process Clause in violation of 42 U.S.C. § 1983; and 4) defendant Tupman has committed willful acts in the use of process not proper in the regular conduct of these administrative proceedings. (D.I. 1) IV. CONCLUSIONS OF LAW The standard for obtaining a temporary restraining order is the same as the standard for a preliminary injunction. Fed. R.Civ.P. 65(b); Tootsie Roll Industries, Inc. v. Sathers, Inc., 666 F.Supp. 655, 658 (D.Del.1987). It is beyond dispute that “the grant of injunctive relief is an ‘extraordinary remedy, which should be granted only in limited circumstances.’ ” Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d 797, 800 (3d Cir.1989), citing Frank’s GMC Truck Center, Inc. v. General Motors Corp., 847 F.2d 100, 102 (3d Cir.1988). Thus, in ruling on a motion for a preliminary injwRetion; this Court must consider: (1) the likelihood that the [movant] will prevail on the merits at final hearing; (2) the extent to which the [movant] is irreparably harmed by the ——— «a App. 59 conduct complained of; (3) the extent to which the [nonmoving party] will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. Opticians Ass'n of America v. Independent Opticians of Amer- ica, 920 F.2d 187, 191-92 (3d Cir.1990). As recently reaf- firmed by the Third Circuit, an injunction should issue only if the [movant] pro- duces evidence sufficient to convince the .. . [C]ourt that all four factors favor prelim- inary relief. Merchants & Evans, Inc. v. Roosevelt Bldg. Products, Co., 963 F.2d 628, 632-633 (3d Cir.1992). See also Instant Air Freight Co. v. C.F. Air Freight, Inc., 882 F.2d at 800, quoting In re Arthur Treachers Franchisee Litigation, 689 F.2d 1137, 1143 (3d Cir.1982). A. Reasonable Probability of Success on the Merits 1. Pre-emption Plaintiff’s primary argument in support of its request for injunctive relief is that § 7325(b) of the Delaware Securities Act, as amended, 6 Del.C. § 7325(b), is uncon- stitutional because it directly conflicts with the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-10. The primary substantive provision of the FAA states that [a] written provision in any maritime transac- tion or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such con- tract or transaction . . . shall be valid, irrevoca- ble, and enforceable, save upon such grounds as App. 60 exists at |aw or in equity for the revocation of any contract. 9 U.S.C. § 2. As explained by the Supreme Court in Perry v. Thomas, 482 U.S. 483, 107 S.Ct. 2520, 96 L.Ed 2d 426 (1987), “Section 2 is a congressional declaration of a liberal federal policy favoring arbitration agree- ments, notwithstanding any state substantive or procedural policies to the contrary. The effect of the section is to create a body of federal substan- tive law of arbitrability, applicable to any arbi- tration agreement within the coverage of the Act.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Enacted pursuant to the Commerce Clause, U.S. Const., Art. I, § 8, cl. 3, this body of substantive law is enforceable in both state and federal courts. Southland Corp. v. Keating, 465 U.S. 1, 11-12, 104 S.Ct. 852, 858-859, 79 L.Ed.2d 1 (1984). .. . As we stated in Keating, “liJn enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contacting parties agreed to resolve by arbitration.” Id., at 10, 104 S.Ct. at 858. “Con- gress intended to foreclose state legislative attempts to undercut the enforceability of arbi- tration agreements.” Id., at 16, 104 S.Ct. at 861 (footnote omitted). Section 2, therefore, embodies a clear federal policy of requiring arbitration unless the agreement to arbitrate is not part of a contract evidencing interstate com- merce or is revocable “upon such grounds as exist at law or in equity of the revocation of any contact.” 9 U.S.C. § 2. “We see nothing in the App. 61 Act indicating that the broad principle of enfor- ceability is subject to any additional limitations under state law.” Keating, supra, at 1i, 104 S.Ct., 858. Id. 482, U.S. at 489, 107 S.Ct. at 2525. In the case of Perry v. Thomas, Thomas sued his former employer, Kidder Peabody & Co., for breach of contract, conversion, civil conspiracy to commit conver- sion, and breach of fiduciary duty, for which he sought compensatory and punitive damages. Thomas refused to submit the dispute to arbitration based on § 229 of the California Labor Code, which authorized Thomas to maintain an action for wages. The Supreme Court, in holding that the Supremacy Clause and § 2 of the FAA pre-empted the state statute, concluded: [T]he present appeal addresses the pre-emptive effect of the Federal Arbitration Act, a statute that embodies Congress’ intent to provide for the enforcement of arbitration agreements within the full reach of the Commerce Clause. Its general applicability reflects that “[t]he pre- eminent concern of Congress in passing the Act was to enforce private agreements into which parties had entered... . ” [Dean Witter Reynolds Inc. v. Bird, 470 U.S. 213, 221, 105 S.Ct. 1238, 1242, 84 L.Ed.2d 158 (1985)]. We have accord- ingly held that these agreements must be “rig- orously enforce[d].” Ibid.; see Shearson/American Express Inc. v. McMahon, 482 U.S. 220, 226 [107 S.Ct. 2332, 2337, 96 L.Ed.2d 185] . . . (1987); Mitsubishi Motor Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 625-626 [105 S.Ct. 3346, 3353-3354, 87 L.Ed.2d 444]... (1985). This clear App. 62 federal policy places § 2 of the Act in unmistak- able conflict with California’s § 229 requirement that litigants be provided a judicial forum for resolving wage disputes. Therefore, under the Supremacy Clause, the state statuie must give way. 482 U.S. at 490, 107 S.Ct. at 2526. Accord, Securities Indus- try Asso. v. Connolly, 883 F.2d 1114 (1st Cir.1989), cert. denied, 495 U.S. 956, 110 S.Ct. 2559, 109 L.Ed.2d 742 (1990) (a Massachusetts state regulation which: (1) barred firms from requiring individuals to enter pre-dispute arbitra- tion agreements as a nonnegotiable condition precedent to account relationships; (2) ordered the prohibition brought “conspicuously” to the attention of prospective customers; and (3) demanded full written disclosure of “the legal effect of the pre-dispute arbitration contract or clause”, pre-empted by the FAA); Osterneck v. Merrill Lynch, Pierce, Fenner & Smith, 841 F.2d 508 (3d Cir.1988) (provision of the Pennsylvania Securities Act, identical to § 410(g) of the Uniform Securities Act and precluding enforcement of an agreement to arbitrate, pre-empted by the FAA). Not only does the FAA pre-empt state statutes which provide a judicial forum for resolving disputes, “[i]t is by now clear that statutory claims may be the subject of an arbitration agreement, enforceable pursuant to the FAA.” Gilmer v. Interstate/Johnson Lane Corp., __ U.S. __, __, 111 S.Ct. 1647, 1652, 114 L.Ed.2d 26 (1991). The issue before the Court in Gilmer was whether a claim under the Age Discrimination and Employment Act of 1967 (“ADEA”), could be subjected to compulsory arbitratio [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386004_1848%3A1. Public record. Not legal advice.