Rodriguez de Quijas v. Shearson/American Express, Inc. case brief

Rodriguez de Quijas v. Shearson/American Express, Inc. case brief summary
490 U.S. 477 (1989)

CASE SYNOPSIS

Petitioners obtained a writ of certiorari for review of a judgment of the United States Court of Appeals for the Fifth Circuit, which held that the arbitration clause in petitioners' investment contract was not nullified by § 14 of the Securities Act of 1933 (Act), 15 U.S.C.S. § 77n, and that their claims under § 12(2) of the Act, 15 U.S.C.S. § 771(2), should be submitted to arbitration.

CASE FACTS
When petitioners invested funds with a broker, they signed a contract agreeing to arbitrate all disputes. When petitioners lost their money, they filed claims against a broker and respondent alleging, inter alia, claims under § 12(2) of the Securities Act of 1933 (Act), 15 U.S.C.S. § 771(2). The district court ordered all claims except the § 12(2) claims into arbitration, and the appellate court ordered those claims into arbitration as well.

DISCUSSION

• On certiorari, the court overturned the decision in Wilko v. Swan, 346 U.S. 427, which construed § 14 of the Act to prohibit arbitration. 
• The court held that § 14 of the Act prohibited the waiver of any of the substantive provisions of the Act. 
• However, the provisions of the Act which granted venue to federal courts was procedural, rather than substantive. 
• Thus, the arbitration clause in the investment contract did not waive any of the substantive provisions of the Act. The court affirmed the judgment of the appellate court.

CONCLUSION

The court affirmed the order because arbitration was favored by federal law and because arbitration did not affect the substantive provisions of the Securities Act of 1933, but was a procedural remedy only. The court overruled its prior decision prohibiting arbitration, on the basis that the prior decision was incorrectly decided, and the rationale for that decision no longer applied.

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