## Facts

- Individual investors maintained brokerage accounts with Shearson/American Express, Inc. and alleged losses from unauthorized and fraudulent transactions.
- Each investor signed a standard customer agreement containing a predispute clause requiring arbitration of “any controversy” arising from the account, subject to enforceability under federal or state law.
- Investors asserted federal securities claims, including claims under the Securities Act of 1933.
- The dispute centered on whether § 14 of the 1933 Act (prohibiting stipulations waiving compliance with the Act) invalidated predispute arbitration agreements for 1933 Act claims under the rule of Wilko v. Swan.

## Issues

1. Whether a predispute agreement to arbitrate claims under the Securities Act of 1933 is enforceable under the Federal Arbitration Act or void under § 14 of the 1933 Act.
2. Whether Wilko v. Swan should be overruled.
3. Whether the Court’s ruling should apply to the parties in the case.

## Decision

- The Supreme Court affirmed the Fifth Circuit and held that predispute agreements to arbitrate Securities Act of 1933 claims are enforceable.
- The Court overruled Wilko v. Swan, concluding it was wrongly decided and inconsistent with later arbitration decisions.
- The Court applied its ruling to the case before it, following the customary rule that new decisions govern pending cases absent substantial inequitable results.
- The Court criticized the Fifth Circuit for treating Wilko as “obsolete,” reiterating that lower courts must follow controlling Supreme Court precedent until the Supreme Court itself overrules it.

## Legal Principles

- The Federal Arbitration Act requires enforcement of arbitration agreements according to their terms unless Congress has clearly provided otherwise.
- Section 14 of the Securities Act of 1933 does not bar arbitration; an agreement to arbitrate does not, by itself, waive the statute’s substantive protections.
- The Securities Act of 1933 and the Securities Exchange Act of 1934 should be construed harmoniously; materially similar antiwaiver provisions in the two statutes are interpreted consistently with respect to arbitration.
- Lower courts must apply directly controlling Supreme Court decisions even if later cases have weakened the prior decision’s reasoning; only the Supreme Court may overrule its own precedents.

## Conclusion

The Court required arbitration of Securities Act of 1933 claims under predispute customer agreements, rejected Wilko’s reading of § 14, and applied the ruling to the litigants while reaffirming that lower courts cannot disregard controlling Supreme Court precedent.


Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (1989)