490 U.S. 477, 484 (1989)
Petitioners are individuals who invested about $400,000 in securities.1 They signed a standard customer agreement with the broker, which included a clause stating that the parties agreed to settle any controversies relating to the accounts through binding arbitration that complies with specified procedures.2 The agreement to arbitrate these controversies is unqualified, unless it is found to be unenforceable under federal or state law.3
After the investments turned sour, petitioners eventually sued respondent and its broker-agent in charge of the accounts, alleging that their money was lost in unauthorized and fraudulent transactions.4 In their complaint they pleaded several violations of federal and state law, including claims under section 12(2) of the Securities Act of 1933 and claims under three sections of the Securities Exchange Act of 1934.5
The District Court ordered all the claims to be submitted to arbitration except for those raised under section 12(2) of the Securities Act.6 It reaffirmed its ruling upon reconsideration and also entered a default judgment against the broker, who is no longer in the case.7 The Court of Appeals reversed the District Court's order, concluding that the arbitration agreement is enforceable because this Court's subsequent decisions have reduced Wilko to obsolescence.8 The Supreme Court granted certiorari to review the enforceability of the arbitration agreement for claims under the Securities Act of 1933.9
Whether a predispute agreement to arbitrate claims under the Securities Act of 1933 is unenforceable, requiring resolution of the claims only in a judicial forum?10
Section 2 of the Arbitration Act declares that arbitration agreements shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.11 The party opposing arbitration carries the burden of showing that Congress intended in a separate statute to preclude a waiver of judicial remedies, or that such a waiver inherently conflicts with the underlying purposes of that other statute.12 Section 14 of the Securities Act does not prohibit enforcement of predispute agreements to arbitrate claims under the Securities Act of 1933.13
No. The petitioners are individuals who invested about $400,000 in securities.14 They signed a standard customer agreement with the broker, which included a clause stating that the parties agreed to settle any controversies relating to the accounts through binding arbitration that complies with specified procedures. After the investments turned sour, petitioners eventually sued respondent and its broker-agent in charge of the accounts, alleging that their money was lost in unauthorized and fraudulent transactions.
The District Court ordered all the claims to be submitted to arbitration except for those raised under section 12(2) of the Securities Act. Once the outmoded presumption of disfavoring arbitration proceedings is set to one side, it becomes clear that the right to select the judicial forum and the wider choice of courts are not such essential features of the Securities Act that section 14 is properly construed to bar any waiver of these provisions.15 The record contains no factual showing sufficient to support the suggestion that the agreement to arbitrate was adhesive in nature.16 Petitioners have not carried their burden of showing that arbitration agreements are not enforceable under the Securities Act.17
A predispute agreement to arbitrate claims under the Securities Act of 1933 is enforceable and does not require resolution of the claims only in a judicial forum.18
Related opinions on this issue
Joined by Justice Brennan, Justice Marshall, And Justice Blackmun
Justice Stevens argued in dissent that the Court of Appeals refused to follow Wilko v. Swan, a controlling precedent of this Court, and therefore engaged in an indefensible brand of judicial activism.19 He noted that when an earlier opinion gives a statutory provision concrete meaning, which Congress elects not to amend during the ensuing three and a half decades, the duty to respect Congress' work product is strikingly similar to the duty of other federal courts to respect the Court's work product.20 Stevens concluded that there are valid policy and textual arguments on both sides regarding the interrelation of federal securities and arbitration Acts.
None of these arguments, however, carries sufficient weight to tip the balance between judicial and legislative authority and overturn an interpretation of an Act of Congress that has been settled for many years.21
Whether the precedent established in Wilko v. Swan should be overruled?22
When a precedent of this Court has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.23 The Court overrules Wilko because it is inconsistent with the prevailing uniform construction of other federal statutes governing arbitration agreements in the setting of business transactions. The Court also overrules Wilko to achieve a uniform interpretation of similar statutory language and to correct a seriously erroneous interpretation of statutory language that would undermine congressional policy as expressed in other legislation.24
Yes. The Wilko case required the Court to determine whether an agreement to arbitrate future controversies constitutes a binding stipulation to waive compliance with any provision of the Securities Act.25 This is nullified by section 14 of the Act.26 The decision was a difficult one in view of the competing legislative policy embodied in the Arbitration Act, which strongly favors the enforcement of agreements to arbitrate.27
Wilko rested on suspicion of arbitration as a method of weakening the protections afforded in the substantive law to would-be complainants. That view has fallen far out of step with the current strong endorsement of the federal statutes favoring this method of resolving disputes.28 The shift in the Court's views on arbitration is shown by the statement that by agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than a judicial, forum.29 Overruling Wilko serves both to achieve a uniform interpretation of similar statutory language and to correct a seriously erroneous interpretation that would undermine congressional policy.30
The precedent established in Wilko v. Swan should be overruled.31
Whether a decision enforcing arbitration agreements under the Securities Act applies retroactively to the facts of this case?32
The general rule of long standing is that the law announced in the Court's decision controls the case at bar.33 In some civil cases, the Court has restricted its rulings to have prospective application only where specific circumstances are present under the Chevron approach. The customary rule of retroactive application is appropriate here because the ruling furthers the purposes and effect of the Arbitration Act without undermining those of the Securities Act and does not produce substantial inequitable results.34
Yes. Petitioners argued finally that if the Court overrules Wilko, it should not apply its ruling retroactively to the facts of this case.35 The Supreme Court disagrees and holds that the general rule of retroactive application is appropriate.36 Although the decision to overrule Wilko establishes a new principle of law for arbitration agreements under the Securities Act, this ruling furthers the purposes and effect of the Arbitration Act without undermining those of the Securities Act.37
Today's ruling does not produce substantial inequitable results, for petitioners do not make any serious allegation that they agreed to arbitrate future disputes relating to their investment contracts in reliance on Wilko's holding that such agreements would be held unenforceable by the courts.38 Resort to the arbitration process does not inherently undermine any of the substantive rights afforded to petitioners under the Securities Act.39
The decision enforcing arbitration agreements under the Securities Act applies retroactively to the facts of this case.40