Dean Witter Reynolds Inc v. Byrd

• Decision Date: 04 March 1985
• Docket Number: No. 83-1708,83-1708
• Parties: DEAN WITTER REYNOLDS INC., Petitioner, v. A. Lamar BYRD
• Court: U.S. Supreme Court

470 U.S. 213

105 S.Ct. 1238

84 L.Ed.2d 158

DEAN WITTER REYNOLDS INC., Petitioner,

v A. Lamar BYRD.

No. 83-1708.

Argued Dec. 4, 1984.

Decided March 4, 1985.

Syllabus

In 1981, respondent invested $160,000 in securities through petitioner broker-dealer. The parties had a written agreement to arbitrate any disputes that might arise out of the account. Thereafter, the value of the account declined by more than $100,000. Respondent then filed an action against petitioner in Federal District Court, alleging violations of the Securities Exchange Act of 1934 and of various state-law provisions. Petitioner filed a motion to compel arbitration of the pendent state claims under the parties' agreement and to stay arbitration pending resolution of the federal action. Petitioner argued that the Federal Arbitration Act—which provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for revocation of any contract"—required the District Court to compel arbitration of the state claims. The District Court denied the motion, and the Court of Appeals affirmed.

Held: The District Court erred in refusing to grant petitioner's motion to compel arbitration of the state claims. Pp. 216-224.

(a) The Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even when the result would be the possibly inefficient maintenance of separate proceedings in different forums. By its terms, the Act leaves no room for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. The Act's legislative history establishes that its principal purpose was to ensure judicial enforcement of privately made arbitration agreements, and not to promote the expeditious resolution of claims. By compelling arbitration of state-law claims, a district court successfully protects the parties' contractual rights and their rights under the Arbitration Act. Pp. 216-221.

(b) Neither a stay of arbitration proceedings nor joined proceedings is necessary to protect the federal interest in the federal-court proceeding. The formulation of collateral-estoppel rules affords adequate protection to that interest. Pp. 221-223.

726 F.2d 552, reversed and remanded.

Eugene W. Bell, Los Angeles, Cal., for petitioner.

Eric V. Benham, San Diego, Cal., for respondent.

Justice MARSHALL delivered the opinion of the Court.

The question presented is whether, when a complaint raises both federal securities claims and pendent state claims, a Federal District Court may deny a motion to compel arbitration of the state-law claims despite the parties' agreement to arbitrate their disputes. We granted certiorari to resolve a conflict among the Federal Courts of Appeals on this question. 467 U.S. 1240, 104 S.Ct. 3509, 82 L.Ed.2d 818 (1984).

I

In 1981, A. Lamar Byrd sold his dental practice and invested $160,000 in securities through Dean Witter Reynolds Inc., a securities broker-dealer. The value of the account declined by more than $100,000 between September 1981 and March 1982. Byrd filed a complaint against Dean Witter in the United States District Court for the Southern District of California, alleging a violation of §§ 10(b), 15(c), and 20 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78o(c), and 78t, and of various state-law provisions. Federal jurisdiction over the state-law claims was based on diversity of citizenship and the principle of pendent jurisdiction. In the complaint, Byrd alleged that an agent of Dean Witter had traded in his account without his prior consent, that the number of transactions executed on behalf of the account was excessive, that misrepresentations were made by an agent of Dean Witter as to the status of the account, and that the agent acted with Dean Witter's knowledge, participation, and ratification.

When Byrd invested his funds with Dean Witter in 1981, he signed a Customer's Agreement providing that "[a]ny controversy between you and the undersigned arising out of or relating to this contract or the breach thereof, shall be settled by arbitration." App. to Pet. for Cert. 11. Dean Witter accordingly filed a motion for an order severing the pendent state claims, compelling their arbitration, and staying arbitration of those claims pending resolution of the federal-court action. App. 12. It argued that the Federal Arbitration Act (Arbitration Act or Act), 9 U.S.C. §§ 1-14, which provides that arbitration agreements "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract," § 2, required that the District Court compel arbitration of the state-law claims. The Act authorizes parties to an arbitration agreement to petition a federal district court for an order compelling arbitration of any issue referable to arbitration under the agreement. §§ 3, 4. Because Dean Witter assumed that the federal securities claim was not subject to the arbitration provision of the contract and could be resolved only in the federal forum, it did not seek to compel arbitration of that claim.¹ The District Court denied in its entirety the motion to sever and compel arbitration of the pendent state claims, and on an interlocutory appeal the Court of Appeals for the Ninth Circuit affirmed. 726 F.2d 552 (1984).

II

Confronted with the issue we address ²—whether to compel arbitration of pendent state-law claims when the federal court will in any event assert jurisdiction over a federal-law claim—the Federal Courts of Appeals have adopted two different approaches. Along with the Ninth Circuit in this case, the Fifth and Eleventh Circuits have relied on the "doctrine of intertwining." When arbitrable and nonarbitrable claims arise out of the same transaction, and are sufficiently intertwined factually and legally, the district court, under this view, may in its discretion deny arbitration as to the arbitrable claims and try all the claims together in federal court.³ These courts acknowledge the strong federal policy in favor of enforcing arbitration agreements but offer two reasons why the district courts nevertheless should decline to compel arbitration in this situation. First, they assert that such a result is necessary to preserve what they consider to be the court's exclusive jurisdiction over the federal securities claim; otherwise, they suggest, arbitration of an "intertwined" state claim might precede the federal proceeding and the factfinding done by the arbitrator might thereby bind the federal court through collateral estoppel. The second reason they cite is efficiency; by declining to compel arbitration, the court avoids bifurcated proceedings and perhaps redundant efforts to litigate the same factual questions twice.

In contrast, the Sixth, Seventh, and Eighth Circuits have held that the Arbitration Act divests the district courts of any discretion regarding arbitration in cases containing both arbitrable and nonarbitrable claims, and instead requires that the courts compel arbitration of arbitrable claims, when asked to do so. These courts conclude that the Act, both through its plain meaning and the strong federal policy it reflects, requires courts to enforce the bargain of the parties to arbitrate, and "not substitute [its] own views of economy and efficiency" for those of Congress. Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 646 (CA7 1981).⁴

We agree with these latter courts that the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums. Accordingly, we reverse the decision not to compel arbitration.

III

The Arbitration Act provides that written agreements to arbitrate controversies arising out of an existing contract "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. By its terms, the Act leaves no place for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed. §§ 3, 4. Thus, insofar as the language of the Act guides our disposition of this case, we would conclude that agreements to arbitrate must be enforced, absent a ground for revocation of the contractual agreement.

It is suggested, however, that the Act does not expressly address whether the same mandate—to enforce arbitration agreements holds true where, as here, such a course would result in bifurcated proceedings if the arbitration agreement is enforced.⁵ Because the Act's drafters did not explicitly consider the prospect of bifurcated proceedings, we are told, the clear language of the Act might be misleading. Thus, courts that have adopted the view of the Ninth Circuit in this case have argued that the Act's goal of speedy and efficient decisionmaking is thwarted by bifurcated proceedings, and that, given the absence of clear direction on this point, the intent of Congress in passing the Act controls and compels a refusal to compel arbitration. They point out, in addition, that in the past the Court on occasion has identified a contrary federal interest sufficiently compelling to outweigh the mandate of the Arbitration Act, see n. 1, supra, and they conclude that the interest in speedy resolution of claims should do so in this case. See, e.g., Miley v. Oppenheimer & Co., 637 F.2d 318, 336 (CA5 1981); Cunningham v. Dean Witter Reynolds, Inc., 550 F.Supp. 578, 585 (ED Cal.1982).

We turn, then, to consider whether the legislative history of the Act provides...