Dean Witter Reynolds Inc. v. Byrd

Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985), is a United States Supreme Court case concerning arbitration . 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. The Court held unanimously that the Federal Arbitration Act required that those claims be heard that way when the parties were contractually obligated to do so, even where parallel claims made under federal law would still be heard in federal court.

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 . In the aftermath of the decision many district courts followed his opinion, leading to later Supreme Court rulings that greatly favored arbitration over litigation in securities disputes. It has been described as completing the federalization of American arbitration law.

Contents

• 1 Underlying dispute

• 2 Lower courts

• 3 Decision

  • 3.1 Opinion of the Court

  • 3.2 White concurrence

• 4 Subsequent jurisprudence

  • 4.1 Shearson/American Express v. McMahon

• 5 Analysis and commentary

• 6 See also

• 7 References

• 8 External links

Underlying dispute

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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 . Over the next several months his account lost more than half its value; he alleged that his broker represented to him that the account was profiting. Byrd claimed that the broker was using his account to churn , or making trades primarily to generate commissions for himself.

His client agreement with Dean Witter included a standard arbitration clause , by which the parties agreed to use that method to settle any disputes. However, it was limited by the Supreme Court's 1953 holding in _Wilko v. Swan _, another case in which an investor had sued a broker alleging fraud and the broker had responded with a motion to compel contractually mandated arbitration per the Federal Arbitration Act (FAA) passed in 1925. The plaintiff had sued under the Securities Act of 1933 , under which any provision mandating that an investor waive their right to sue was prohibited. A 7–2 majority found the latter statute was controlling .

Lower courts

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Byrd sued Dean Witter in federal court, alleging violations of both the Securities Exchange Act of 1934 and applicable California law. During the pendency of the action, Justice William Brennan had suggested in _Moses H. Cone Memorial Hospital v. Mercury Constr. Corp. _, where the petitioner sought to prevent the respondent it had already sued in state court from compelling arbitration through a federal action, that the FAA applied to proceedings in state courts as well, and that its enactment amounted to "a national policy favoring arbitration." Dean Witter moved to have Byrd's state-law claims arbitrated pending the outcome of the federal case, and was denied. It made an interlocutory appeal to the Ninth Circuit Court of Appeals .

A panel composed of circuit judges Alfred Goodwin and Thomas Tang and district judge Robert Aguilar heard the case late in 1983. They announced their decision early the next year. Unanimously, they affirmed the district court.

Writing for the panel, Goodwin reviewed the relevant law on securities cases that mixed arbitrable state claims with non-arbitrable federal one. Both courts within the Ninth Circuit, and other circuits, had considered similar arguments and decided them differently. The Sixth and Seventh circuits had stayed state claims for arbitration once the federal claim had been litigated. Others followed a doctrine called "intertwining", created in the 1981 Fifth Circuit case Miley v. Oppenheimer & Co., under which, if the district court found the circumstances underlying the federal and state claims were substantially similar, it had the discretion to deny arbitration in the interest of efficient dispute resolution.

Since the Ninth Circuit had not had to rule on the problem before, it was a question of first impression for the panel. Citing precedential holdings that a federal court has the sole jurisdiction to decide the essential issues to a federal securities claim, Goodwin felt that not permitting intertwining might frustrate both the goals of speedy dispute resolution, which he believed the FAA was intended to promote, and the preservation of access to the federal courts. "The 1925 Arbitration Act certainly did not anticipate the Supreme Court's 1953 determination that the protective intent of federal securities laws was to take priority over the economic advantages of arbitration," he wrote, concluding that the district court's denial of Dean Witter's motion was proper.

Decision

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Since the appellate court decision had created a conflict among the circuits, the Supreme Court granted _certiorari _ later in 1984. It heard oral arguments in December. Eugene Bell, a cofounder of the Los Angeles firm Jones Bell, argued for Dean Witter, while Eric V. B

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