It arose from an interlocutory appeal of a lower court's denial of brokerage firm Dean Witter Reynolds' motion to compel arbitration of the claims under state law made against it by an aggrieved former client.
Justice Thurgood Marshall wrote for the court, resolving a conflict between the appellate circuits; Byron White added a concurrence in which he noted some issues with the underlying securities law that were not before the Court but, he felt, could in future cases make it harder for parties such as Byrd to claim that federal law always allowed them to litigate private actions for securities fraud.
[1] In 1981 A. Lamar Byrd, a dentist in Southern California, sold his practice and invested the $160,000 proceeds with Dean Witter Reynolds, a retail brokerage firm.
[4] Byrd sued Dean Witter in federal court, alleging violations of both the Securities Exchange Act of 1934 and applicable California law.
Writing for the panel, Goodwin reviewed the relevant law on securities cases that mixed arbitrable state claims with non-arbitrable federal one.
He admitted that the legislative history of the FAA did not offer any guidance as to how a court might handle a case with both arbitrable and non-arbitrable claims, much less suggest that they had even considered the problem.
But it was very clear that while Congress and its drafters had expressed some concern about the effect of delays in dispute resolution, "the purpose behind its passage was to ensure judicial enforcement of privately made agreements to arbitrate.
This preclusive effect is believed to pose a threat to the federal interest in resolution of securities claims, and to warrant a refusal to compel arbitration.
Furthermore, the 1934 Act limited jurisdiction to federal courts and allowed for only an implied cause of action rather than an express one, resulting in a higher burden of proof for a plaintiff making allegations under the same sections as Byrd.
In that case, the respondent, an Illinois company seeking to recover from petitioner, a German citizen it alleged to have misrepresented the status of trademarks it sold, appealed an order to arbitrate before a panel in Paris.
[18] In a dissent that both White and Marshall signed, William O. Douglas countered that the 1934 Act was remedial legislation[19] which the Court had, as such, previously held was to be construed broadly.
"Although Scherk and Byrd may cast some doubt on whether the Supreme Court, if presented with the issue, would hold [such] claims ... to be non-arbitrable," wrote William Homer Timbers, "it would be improvident for us to disregard clear judicial precedent in this Circuit based on mere speculation.
When Congress had overhauled the 1934 Act in 1975, the conference committee report had contained statements referring to Wilko and making it clear that the conferees did not intend to require arbitration.
She was unpersuaded that the adhesive nature of most brokerage contracts required greater protection for investors, and noted that most of the reservations the Wilko Court expressed had been rejected by later holdings on arbitration.
The later amendments, she wrote, had not addressed the issue and been meant to enhance the self-regulatory powers of the stock exchanges and organizations like the National Association of Securities Dealers.
"[31] John Paul Stevens added one of his own expressing surprise that the Court would so casually overturn what had been settled law in all the circuits for the past three decades.
Others even began applying it to the 1933 Act, forcing another Supreme Court case in 1989, Rodriguez de Quijas v. Shearson/American Express Inc., which finally overturned Wilko.
He also recommended that the arbitration forums run by NASD and the exchanges, traditionally formed of securities-industry professionals, to include members of the public both on panels and in their administration.
[35]Michael Durrer, a law student at William & Mary, echoed Katsoris, adding suggestions to amend the 1934 Act to allow for an express private right of action and for NASD and the exchanges to establish an amount in controversy threshold, an upper limit on arbitrable claims.
[37] It completed the federalization of arbitration law, begun in Moses Cone when Brennan's majority opinion suggested the FAA applied to proceedings in state court, a position formalized a year later in Southland Corp. v.
[38] In the securities context, Lynn Katzler of American University's Washington College of Law later described Byrd as continuing "[t]he slow destruction of the Wilko doctrine" that began with Scherk and culminated in Rodriguez de Quijas.