## Facts

- Eugene and Julia McMahon opened securities accounts with Shearson/Am. Express Inc.; Julia McMahon signed customer agreements requiring arbitration of “any controversy” related to the accounts.
- The McMahons sued Shearson and its representative, alleging fraud under Securities Exchange Act § 10(b) and SEC Rule 10b-5, civil RICO violations, and related state-law claims.
- Shearson moved to stay the litigation and compel arbitration under Federal Arbitration Act (FAA) § 3.
- The district court compelled arbitration of the Exchange Act and state-law claims but held the RICO claim nonarbitrable.
- The Second Circuit held both the Exchange Act § 10(b) claims and the RICO claim nonarbitrable (while compelling arbitration of state-law claims).
- The Supreme Court granted review to decide whether Exchange Act § 10(b) claims and civil RICO claims are subject to predispute arbitration agreements governed by the FAA.

## Issues

1. Whether claims under Securities Exchange Act § 10(b) and Rule 10b-5 are subject to compulsory arbitration under the FAA despite Exchange Act provisions such as §§ 27 and 29(a).
2. Whether civil RICO claims are subject to compulsory arbitration under the FAA.

## Decision

- The Court reversed the Second Circuit and remanded.
- The Court held that Exchange Act § 10(b) and Rule 10b-5 claims are arbitrable under the FAA.
- The Court held that civil RICO claims are arbitrable under the FAA.
- The Court concluded that neither statute contains a “contrary congressional command” displacing the FAA’s requirement that arbitration agreements be enforced according to their terms.

## Legal Principles

- The FAA embodies a strong federal policy requiring courts to enforce valid arbitration agreements, including agreements covering statutory claims.
- A party resisting arbitration bears the burden to show Congress intended to preclude arbitration; that intent must be found in the statute’s text, legislative history, or purposes (a “contrary congressional command”).
- Exchange Act § 29(a) prohibits waiver of substantive obligations under the Act, not waiver of a judicial forum; it does not invalidate predispute agreements to arbitrate § 10(b) claims.
- Exchange Act § 27’s exclusive federal jurisdiction provision allocates authority among courts and does not itself create a nonwaivable right to litigate in court instead of arbitrating.
- Concerns about arbitration’s adequacy to protect federal securities rights are assessed in light of existing regulatory oversight; arbitration is permissible where substantive rights remain enforceable.
- RICO contains no express anti-waiver or jurisdictional language requiring a judicial forum, and its remedial purposes are not inherently incompatible with arbitration.

## Conclusion

The Court enforced the parties’ predispute arbitration agreement and held that both Exchange Act § 10(b) claims and civil RICO claims must be arbitrated under the FAA absent clear evidence that Congress intended to bar arbitration of those statutory rights.


Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220 (1987)