Wilko v. Swan
346 U.S. 427 (1953)

Annotate this Case

U.S. Supreme Court

Wilko v. Swan, 346 U.S. 427 (1953)

Wilko v. Swan

No. 39

Argued October 21, 1953

Decided December 7, 1953

346 U.S. 427

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Syllabus

In an action brought by a customer against a securities brokerage firm to recover damages, under the civil liabilities provisions of § 12(2) of the Securities Act of 1933, for alleged misrepresentation in the sale of securities, held that an agreement for arbitration of any controversy arising in the future between the parties was void under § 14, notwithstanding the provisions of the United States Arbitration Act. Pp. 346 U. S. 428-438.

(a) The agreement to arbitrate future controversies was void under § 14 of the Securities Act as a "stipulation" binding the customer to "waive compliance" with a "provision" of the Act. Pp. 346 U. S. 432-435.

(b) The right of an aggrieved person under § 22(a) to select the judicial forum is a "provision" of the Securities Act that cannot be waived under § 14 thereof. Pp. 346 U. S. 434-438.

(c) As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, Congress must have intended § 14 to apply to waiver of judicial trial and review. P. 346 U. S. 437.

201 F.2d 439, reversed.

Petitioner sued respondents to recover damages under the Securities Act of 1933. Respondents' motion to stay the action, pursuant to § 3 of the United States Arbitration Act, was denied by the District Court. 107 F.Supp. 75. The Court of Appeals reversed. 201 F.2d 439. This Court granted certiorari. 345 U.S. 969. Reversed, p. 346 U. S. 438.

Page 346 U. S. 428

MR. JUSTICE REED delivered the opinion of the Court.

This action by petitioner, 346 U. S. against respondents, partners in a securities brokerage firm, was brought in the United States District Court for the Southern District of New York, to recover damages under § 12(2) of the Securities Act of 1933. [Footnote 1] The complaint alleged that, on or about January 17, 1951, through the instrumentalities of interstate commerce, petitioner was induced by Hayden, Stone and Company to purchase

Page 346 U. S. 429

1,600 shares of the common stock of Air Associates, Incorporated, by false representations that pursuant to a merger contract with the Borg Warner Corporation, Air Associates' stock would be valued at $6.00 per share over the then current market price, and that financial interests were buying up the stock for the speculative profit. It was alleged that he was not told that Haven B. Page (also named as a defendant, but not involved in this review [Footnote 2]), a director of, and counsel for, Air Associates was then selling his own Air Associates' stock, including some or all that petitioner purchased. Two weeks after the purchase, petitioner disposed of the stock at a loss. Claiming that the loss was due to the firm's misrepresentations and omission of information concerning Mr. Page, he sought damages.

Without answering the complaint, the respondent moved to stay the trial of the action pursuant to § 3 of the United States Arbitration Act [Footnote 3] until an arbitration in accordance with the terms of identical margin agreements was had. An affidavit accompanied the motion stating that the parties' relationship was controlled by the terms of the agreements, and that, while the firm was willing to arbitrate, petitioner had failed to seek or proceed with any arbitration of the controversy.

Finding that the margin agreements provide that arbitration should be the method of settling all future

Page 346 U. S. 430

controversies, the District Court held that the agreement to arbitrate deprived petitioner of the advantageous court remedy afforded by the Securities Act, and denied the stay. [Footnote 4] A divided Court of Appeals concluded that the Act did not prohibit the agreement to refer future controversies to arbitration, and reversed. [Footnote 5]

The question is whether an agreement to arbitrate a future controversy is a "condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision" of the Securities Act which § 14 [Footnote 6] declares "void." We granted certiorari, 345 U.S. 969, to review this important and novel federal question affecting both the Securities Act and the United States Arbitration Act. Cf. Frost & Co. v. Coeur D'Alene Mines Corp.,312 U. S. 38, 312 U. S. 40.

As the margin agreement, in the light of the complaint, evidenced a transaction in interstate commerce, no issue arises as to the applicability of the provisions of the United States Arbitration Act to this suit, based upon the Securities Act. 9 U.S.C. (Supp. V, 1952) § 2. Cf. Tejas Development Co. v. McGough Bros., 165 F.2d 276, 278, with Agostini Bros. Bldg. Corp. v. United States, 142 F.2d 854. See Sturges and Murphy, Some Confusing Matters Relating to Arbitration, 17 Law & Contemp.Prob. 580.

In response to a Presidential message urging that there be added to the ancient rule of caveat emptor the further doctrine of "let the seller also beware," [Footnote 7] Congress passed

Page 346 U. S. 431

the Securities Act of 1933. Designed to protect investors, [Footnote 8] the Act requires issuers, underwriters, and dealers to make full and fair disclosure of the character of securities sold in interstate and foreign commerce, and to prevent fraud in their sale. [Footnote 9] To effectuate this policy, § 12(2) created a special right to recover for misrepresentation, which differs substantially from the common law action in that the seller is made to assume the burden of proving lack of scienter. [Footnote 10] The Act's special right is enforceable in any court of competent jurisdiction -- federal or state -- and removal from a state court is prohibited. If suit be brought in a federal court, the purchaser has a wide choice of venue, the privilege of nationwide service of process, and the jurisdictional $3,000 requirement of diversity cases is inapplicable. [Footnote 11]

The United States Arbitration Act establishes by statute the desirability of arbitration as an alternative to the complications of litigation. The reports of both Houses on that Act stress the need for avoiding the delay and expense of litigation, [Footnote 12] and practice under its terms raises

Page 346 U. S. 432

hope for its usefulness both in controversies based on statutes [Footnote 13] or on standards otherwise created. [Footnote 14] This hospitable attitude of legislatures and courts toward arbitration, however, does not solve our question as to the validity of petitioner's stipulation by the margin agreements, set out below, to submit to arbitration controversies that might arise from the transactions. [Footnote 15]

Petitioner argues that § 14, note 6supra, shows that the purpose of Congress was to assure that sellers could not maneuver buyers into a position that might weaken their ability to recover under the Securities Act. He contends that arbitration lacks the certainty of a suit at law under the Act to enforce his rights. He reasons that the arbitration paragraph of the margin agreement is a stipulation that waives "compliance with" the provision

Page 346 U. S. 433

of the Securities Act, set out in the margin, conferring jurisdiction of suits and special powers. [Footnote 16]

Respondent asserts that arbitration is merely a form of trial to be used in lieu of a trial at law, [Footnote 17] and therefore no conflict exists between the Securities Act and the United States Arbitration Act, either in their language or in the congressional purposes in their enactment. Each may function within its own scope, the former to protect investors, and the latter to simplify recovery for actionable violations of law by issuers or dealers in securities.

Respondent is in agreement with the Court of Appeals that the margin agreement arbitration paragraph, note 15supra, does not relieve the seller from either liability or burden of proof, note 1supra, imposed by the Securities Act. [Footnote 18] We agree that, insofar as the award in arbitration

Page 346 U. S. 434

may be affected by legal requirements, statutes or common law, rather than by considerations of fairness, the provisions of the Securities Act control. [Footnote 19] This is true even though this proposed agreement has no requirement that the arbitrators follow the law. This agreement of the parties as to the effect of the Securities Act includes also acceptance of the invalidity of the paragraph of the margin agreement that relieves the respondent sellers of liability for all "representation or advice by you or your employees or agents regarding the purchase or sale by me of any property. . . ."

The words of § 14, note 6supra, void ant "stipulation" waiving compliance with any "provision" of the Securities Act. This arrangement to arbitrate is a"stipulation,"

Page 346 U. S. 435

and we think the right to select the judicial forum is the kind of "provision" that cannot be waived under § 14 of the Securities Act. That conclusion is reached for the reasons set out above in the statement of petitioner's contention on this review. While a buyer and seller of securities, under some circumstances, may deal at arm's length on equal terms, it is clear that the Securities Act was drafted with an eye to the disadvantages under which buyers labor. Issuers of and dealers in securities have better opportunities to investigate and appraise the prospective earnings and business plans affecting securities than buyers. It is therefore reasonable for Congress to put buyers of securities covered by that Act on a different basis from other purchasers.

When the security buyer, prior to any violation of the Securities Act, waives his right to sue in courts, he gives up more than would a participant in other business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him and surrenders it at a time when he is less able to judge the weight of the handicap the Securities Act places upon his adversary.

Even though the provisions of the Securities Act, advantageous to the buyer, apply, their effectiveness in application is lessened in arbitration as compared to judicial proceedings. Determination of the quality of a commodity [Footnote 20] or the amount of money due under a contract is not the type of issue here involved. [Footnote 21] This case requires subjective findings on the purpose and knowledge

Page 346 U. S. 436

of an alleged violator of the Act. They must be not only determined, but applied, by the arbitrators without judicial instruction on the law. As their award may be made without explanation of their reasons and without a complete record of their proceedings, the arbitrators' conception of the legal meaning of such statutory requirements as "burden of proof," "reasonable care," or "material fact," seenote 1supra, cannot be examined. Power to vacate an award is limited. [Footnote 22] While it may be true, as the Court of Appeals thought, that a failure of the arbitrators to decide in accordance with the provisions of the Securities Act would "constitute grounds for vacating the award pursuant to section 10 of the Federal Arbitration Act," [Footnote 23] that failure would need to be made clearly to appear. In unrestricted submission, such as the present margin agreements envisage, the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error

Page 346 U. S. 437

in interpretation. [Footnote 24] The United States Arbitration Act contains no provision for judicial determination of legal issues such as is found in the English law. [Footnote 25] As the protective provisions of the Securities Act require the exercise of judicial direction to fairly assure their effectiveness, it seems to us that Congress must have intended § 14, note 6supra, to apply to waiver of judicial trial and review. [Footnote 26]

This accords with Boyd v. Grand Trunk Western R. Co.,338 U. S. 263. [Footnote 27] We there held invalid a stipulation restricting an employee's choice of venue in an action under the Federal Employers' Liability Act. Section 6 of that Act permitted suit in any one of several localities, and § 5 forbade a common carrier's exempting itself from any liability under the Act. [Footnote 28] Section 5 had been adopted to avoid contracts waiving employers' liability. [Footnote 29] It is

Page 346 U. S. 438

to be noted that, in words, it forbade exemption only from "liability." We said the right to select the "forum" even after the creation of a liability is a "substantial right," and that the agreement restricting that choice would thwart the express purpose of the statute. We need not and do not go so far in this present case. By the terms of the agreement to arbitrate, petitioner is restricted in his choice of forum prior to the existence of a controversy. While the Securities Act does not require petitioner to sue, [Footnote 30] a waiver in advance of a controversy stands upon a different footing. [Footnote 31]

Two policies, not easily reconcilable, are involved in this case. Congress has afforded participants in transactions subject to its legislative power an opportunity generally to secure prompt, economical, and adequate solution of controversies through arbitration if the parties are willing to accept less certainty of legally correct adjustment. [Footnote 32] On the other hand, it has enacted the Securities Act to protect the rights of investors, and has forbidden a waiver of any of those rights. Recognizing the advantages that prior agreements for arbitration may provide for the solution of commercial controversies, we decide that the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the Act.

Reversed.

|346 U.S. 427|

* The Securities and Exchange Commission participated as amicus curiae throughout this case, and has shared petitioner's burden in presenting the case to the Court.

[Footnote 1]

48 Stat. 74, 15 U.S.C. § 77a et seq., § 12(2), 48 Stat. 84, 15 U.S.C. § 77l(2), provides:

"Any person who --"

"* * * *"

"(2) sells a security (whether or not exempted by the provisions of section 77c of this title, other than paragraph (2) of subsection (a) of section 77c of this title), by the use of any means or instruments of transportation or communication in interstate commerce or of the mails, by means of a prospectus or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing of such untruth or omission), and who shall not sustain the burden of proof that he did not know, and in the exercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue either at law or in equity in any court of competent jurisdiction, to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security."

[Footnote 2]

See Wilko v. Swan, 201 F.2d 439, 445.

[Footnote 3]

9 U.S.C. § 1 et seq. (Supp. V, 1952). Section 3 provides:

"If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration."

[Footnote 4]

Wilko v. Swan, 107 F.Supp. 75.

[Footnote 5]

Wilko v. Swan, 201 F.2d 439.

[Footnote 6]

48 Stat. 84, 15 U.S.C. § 7m. Section 14 provides:

"Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void."

[Footnote 7]

H.R.Rep.No.85, 73d Cong., 1st Sess. 2.

[Footnote 8]

S.Rep.No.47, 73d Cong., 1st Sess. 1. See Oklahoma-Texas Trust v. SEC, 100 F.2d 888, 891.

[Footnote 9]

48 Stat. 74, Preamble; 48 Stat. 77, 15 U.S.C. § 77d. See Frost & Co. v. Coeur D'Alene Mines Corp.,312 U. S. 38, 312 U. S. 40.

[Footnote 10]

Seenote 1supra.

"Unless responsibility is to involve merely paper liability, it is necessary to throw the burden of disproving responsibility for reprehensible acts of omission or commission on those who purport to issue statements for the public's reliance. . . . To impose a lesser responsibility would nullify the purposes of this legislation."

H.R.Rep.No.85, 73d Cong., 1st Sess. 9-10.

[Footnote 11]

§ 22(a), 48 Stat. 86, as amended 49 Stat. 1921, 15 U.S.C. § 77v(a). See Deckert v. Independence Shares Corp.,311 U. S. 282, 311 U. S. 289. Existing remedies at law and equity are retained. § 16, 48 Stat. 84, 15 U.S.C. § 77p.

[Footnote 12]

H.R.Rep.No.96, 68th Cong., 1st Sess. 1-2; S.Rep.No.536, 68th Cong., 1st Sess. 3. See Marine Transit Corp. v. Dreyfus,284 U. S. 263.

[Footnote 13]

Agostini Bros. Bldg. Corp. v. United States, 142 F.2d 854; Watkins v. Hudson Coal Co., 151 F.2d 311; Donahue v. Susquehanna Collieries Co., 138 F.2d 3; Donahue v. Susquehanna Collieries Co., 160 F.2d 661; Evans v. Hudson Coal Co., 165 F.2d 970.

[Footnote 14]

Marine Transit Corp. v. Dreyfus,284 U. S. 263; Kentucky River Mills v. Jackson, 206 F.2d 111; Campbell v. American Fabrics Co., 168 F.2d 959; Columbian Fuel Corp. v. United Fuel Gas Co., 72 F.Supp. 843, aff'd, 165 F.2d 746; Matter of Springs Cotton Mills v. Buster Boy Suit Co., 275 App.Div. 196, 88 N.Y.S.2d 295, aff'd, 300 N.Y. 586, 89 N.E.2d 877; White Star Mining Co. v. Hultherg, 220 Ill. 578, 77 N.E. 327; Oregon-Washington R. & N. Co. v. Spokane, P. & S. R. Co., 83 Ore. 528, 163 P. 600; Sturges, Commercial Arbitrations and Awards, pp. 502, 793-798.

[Footnote 15]

"Any controversy arising between us under this contract shall be determined by arbitration pursuant to the Arbitration Law of the New York, and under the rules of either the Arbitration Committee of the Chamber of Commerce of the New York, or of the American Arbitration Association, or of the Arbitration Committee of the New York Stock Exchange or such other Exchange as may have jurisdiction over the matter in dispute, as I may elect. Any arbitration hereunder shall be before at least three arbitrators."

[Footnote 16]

48 Stat. 86, as amended, 49 Stat. 1921, 15 U.S.C. § 77v(a). Section 22(a) provides:

"The district courts of the United States . . . shall have jurisdiction . . . concurrent with State and Territorial courts, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter. Any such suit or action may be brought in the district wherein the defendant is found or is an inhabitant or transacts business, or in the district where the sale took place, if the defendant participated therein, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections [1292-93] and [1254] of Title 28. No case arising under this subchapter and brought in any State court of competent jurisdiction shall be removed to any court of the United States. . . ."

Seenote 11supra.

[Footnote 17]

See Murray Oil Products v. Mitsui & Co., 146 F.2d 381, 383; American Locomotive Co. v. Chemical Research Corp., 171 F.2d 115, 120.

[Footnote 18]

"Paragraph 3 of the margin agreement provides that all transactions 'shall be subject to the provisions of the Securities Exchange Act of 1934 and present and future acts amendatory thereto [15 U.S.C. § 78a et seq.].' It contains no express mention of the Securities Act of 1933. If reference to the 1934 Act were construed as excluding the 1933 Act, it might be argued that the agreement did not provide for arbitration of a controversy as to the liability of Hayden, Stone & Co. under section 12(2) of the 1933 Act. But we do not think the principle of expressio unius est exclusio alterius is here applicable. It may well be that the phrase 'present . . . acts . . . supplemental' to the 1934 Act should be construed to include the 1933 Act. In any event, the sale transaction would necessarily be subject to that Act. Therefore, the amicus does not regard it as material whether or not the agreement purports to make that statute applicable. We agree, and shall proceed to a consideration of the question decided below -- namely, whether the 1933 Act evidences a public policy which forbids referring the controversy to arbitration."

201 F.2d at 443.

The paragraph of the agreement referred to by the Court of Appeals as "3" reads as follows:

"All transactions made by you or your agents for me are to be subject to the constitutions, rules, customs and practices of the exchanges or markets where executed and of their respective clearing houses, and shall be subject to the provisions of the Securities Exchange Act of 1934 and present and future acts amendatory thereof or supplemental thereto, and to the rules and regulations of the Federal Securities and Exchange Commission and of the Federal Reserve Board insofar as they may be applicable. . . ."

[Footnote 19]

See Sturges, Commercial Arbitrations and Awards, 500.

[Footnote 20]

Campe Corp. v. Pacific Mills, 87 N.Y.S.2d 16, reversed, 275 App.Div. 634, 92 N.Y.S.2d 347.

[Footnote 21]

Evans v. Hudson Coal Co., 165 F.2d 970; Donahue v. Susquehanna Collieries Co., 160 F.2d 661; Watkins v. Hudson Coal Co., 151 F.2d 311; Donahue v. Susquehanna Collieries Co., 138 F.2d 3; Agostini Bros. Bldg. Corp. v. United States, 142 F.2d 854; American Almond Prod. Co. v. Consolidated Pecan S. Co., 144 F.2d 448.

[Footnote 22]

9 U.S.C. (Supp. V, 1952) § 10:

"In either of the following cases, the United States court in and for the district wherein the award was made may make an order vacating the award upon the application of any party to the arbitration --"

"(a) Where the award was procured by corruption, fraud, or undue means."

"(b) Where there was evident partiality or corruption in the arbitrators, or either of them."

"(c) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced."

"(d) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made."

"(e) Where an award is vacated and the time within which the agreement required the award to be made has not expired, the court may, in its discretion, direct a rehearing by the arbitrators."

[Footnote 23]

Wilko v. Swan, 201 F.2d 439, 445.

[Footnote 24]

Burchell v. Marsh, 17 How. 344, 58 U. S. 349; United States v. Farragut, 22 Wall. 406, 89 U. S. 413, 89 U. S. 419-421 (note the right of review); Kleine v. Catara, 14 Fed.Cas. 732, No. 7,869; Texas & P. Ry. Co. v. St. Louis Southwestern Ry. Co., 158 F.2d 251, 256; The Hartbridge, 62 F.2d 72, 73. In Mutual Benefit Health & Acc. Assn. v. United Cas. C., 142 F.2d 390, 393, the problem was dealt with on the basis of the Massachusetts law. See Sturges, note 19supra; Note, Judicial Review of Arbitration Awards on the Merits, 63 Harv.L.Rev. 681, 685, Award Based on Erroneous Rule; Cox, The Place of Law in Labor Arbitration, XXXIV Chicago Bar Rec. 205.

[Footnote 25]

Arbitration Act, 1950, 14 Geo VI, c. 27, § 21, 29 Halsbury's Statutes of England (2d ed.) p. 106.

[Footnote 26]

Cf. notes 66 Harv.L.Rev. 1326; 53 Col.L.Rev. 735; 41 Georgetown L.J. 565; 62 Yale L.J. 985.

[Footnote 27]

See also Krenger v. Pennsylvania R. Co., 174 F.2d 556; Akerly v. New York Cent. R. Co., 168 F.2d 812.

[Footnote 28]

§ 5 of the Federal Employers' Liability Act, 35 Stat. 66, 45 U.S.C. § 55, provides:

"Any contract, rule, regulation, or device whatsoever the purpose or intent of which shall be to enable any common carrier to exempt itself from any liability created by this chapter shall, to that extent, be void. . . ."

[Footnote 29]

See H.R.Rep.No.1386, 60th Cong., 1st Sess. 6. Compare Baltimore & O.S. R. Co. v. Voigt,176 U. S. 498.

[Footnote 30]

Cf. Callen v. Pennsylvania R. Co.,332 U. S. 625, 332 U. S. 631.

[Footnote 31]

Brooklyn Savings Bank v. O'Neil,324 U. S. 697, 324 U. S. 707, 324 U. S. 714.

[Footnote 32]

Cf. Wilko v. Swan, 201 F.2d at 444.

MR. JUSTICE JACKSON, concurring.

I agree with the Court's opinion insofar as it construes the Securities Act to prohibit waiver of a judicial remedy in favor of arbitration by agreement made before any controversy arose. I think thereafter the parties could agree upon arbitration. However, I find it unnecessary

Page 346 U. S. 439

in this case, where there has not been and could not be any arbitration, to decide that the Arbitration Act precludes any judicial remedy for the arbitrators' error of interpretation of a relevant statute.

MR. JUSTICE FRANKFURTER, whom MR. JUSTICE MINTON joins, dissenting.

If arbitration inherently precluded full protection of the rights § 12(2) of the Securities Act affords to a purchaser of securities, or if there were no effective means of ensuring judicial review of the legal basis of the arbitration, then, of course, an agreement to settle the controversy by arbitration would be barred by § 14, the anti-waiver provision, of that Act.

There is nothing in the record before us, nor in the facts of which we can take judicial notice, to indicate that the arbitral system as practiced in the City of New York, and as enforceable under the supervisory authority of the District Court for the Southern District of New York, would not afford the plaintiff the rights to which he is entitled. *

The impelling considerations that led to the enactment of the Federal Arbitration Act are the advantages of providing a speedier, more economical and more effective

Page 346 U. S. 440

enforcement of rights by way of arbitration than can be had by the tortuous course of litigation, especially in the City of New York. These advantages should not be assumed to be denied in controversies like that, before us arising under the Securities Act, in the absence of any showing that settlement by arbitration would jeopardize the rights of the plaintiff.

Arbitrators may not disregard the law. Specifically, they are, as Chief Judge Swan pointed out, "bound to decide in accordance with the provisions of section 12(2)." On this we are all agreed. It is suggested, however, that there is no effective way of assuring obedience by the arbitrators to the governing law. But, since their failure to observe this law "would . . . constitute grounds for vacating the award pursuant to section 10 of the Federal Arbitration Act," 201 F.2d 439, 445, appropriate means for judicial scrutiny must be implied, in the form of some record or opinion, however informal, whereby such compliance will appear, or want of it will upset the award.

We have not before us a case in which the record shows that the plaintiff, in opening an account, had no choice but to accept the arbitration stipulation, thereby making the stipulation an unconscionable and unenforceable provision in a business transaction. The Securities and Exchange Commission, as amicus curiae, does not contend that the stipulation which the Court of Appeals respected, under the appropriate safeguards defined by it, was a coercive practice by financial houses against customers incapable of self-protection. It is one thing to make out a case of overreaching as between parties bargaining not at arm's length. It is quite a different thing to find in the anti-waiver provision of the Securities Act a general limitation on the Federal Arbitration Act.

On the state of the record before us, I would affirm the decision of the Court of Appeals.

* Under the rules of the American Arbitration Association, available to the plaintiff under his contract, the procedure for selection of arbitrators is as follows:

The Association submits a list of potential arbitrators qualified by experience to adjudicate the particular controversy. In the City of New York, the list would be drawn from a panel of 4,400 persons, 1,275 of whom are lawyers. Each party may strike off the names of any unacceptable persons and number the remaining in order of preference. The Association then designates the arbitrators on the basis of the preferences expressed by both parties. See "Questions and Answers," Pamphlet of American Arbitration Association. In short, those who are charged to enforce the rights are selected by the parties themselves from among those qualified to decide.

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