Opelia Rodriguez De Quijas, et al., Plaintiffs-appellees, v. Shearson/lehman Brothers, Inc., F/k/a Shearson/americanexpress, Inc., and Jon Grady Deaton,defendants-appellants.mary Grace Norman, Plaintiff-appellee, v. Shearson/lehman Brothers, Inc., F/k/a Shearson/americanexpress, Inc., Etc., et al., Defendants-appellants.adelina Trapero, Plaintiff-appellee, v. Shearson/lehman Brothers, Inc., F/k/a Shearson/americanexpress, Inc., Its Successors and Assigns, and Jongrady Deaton, Jointly and Severally,defendants-appellants.gene Griffin and Gertrud Griffin, Plaintiffs-appellees, v. Shearson/lehman Brothers, Inc., F/k/a Shearson/americanexpress, Inc., Etc., et al., Defendants-appellants, 845 F.2d 1296 (5th Cir. 1988)

In these consolidated cases we confront the issue of whether claims brought under Sec. 12(2) of the Securities Act of 1933, 15 U.S.C. § 77 l(2) (1982), are subject to predispute arbitration agreements. This issue arises in the wake of Shearson/American Express, Inc. v. McMahon, --- U.S. ----, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987), which enforced a predispute agreement to arbitrate Sec. 10(b) claims under the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1982). We find Sec. 12(2) claims to be arbitrable as well, notwithstanding the earlier precedent of Wilko v. Swan, 346 U.S. 427, 74 S. Ct. 182, 98 L. Ed. 168 (1953).

Appellees are individual investors in Brownsville, Texas, who suffered financial losses as the alleged result of unauthorized, fraudulent transactions in securities. Approximately $190,000 was invested by the Rodriguez De Quijas family; $38,000 by Mary Grace Norman; $100,000 by Adelina Trapero; and $80,000 by Gene and Gertrud Griffin. They sued appellants Jon Grady Deaton, the agent in charge of the accounts, and Shearson/American Express, Inc. ("Shearson"), pleading violations of various state and federal laws.¹  Appellant Shearson moved to compel arbitration pursuant to an arbitration clause contained in the customer agreements signed by each appellee,²  and in accordance with the Federal Arbitration Act.³  The district court ordered arbitration of all claims except for the federal securities claims.

The district court correctly followed the Supreme Court's decision in Wilko v. Swan, supra, which clearly set out the invalidity of agreements to arbitrate Sec. 12(2) claims under the Securities Act. Until recently, Wilko was interpreted in this Circuit as barring arbitration of Securities Exchange Act claims as well. E.g. Mayaja, Inc. v. Bodkin, 803 F.2d 157 (5th Cir. 1986), cert. denied in part --- U.S. ----, 107 S. Ct. 3210, 96 L. Ed. 2d 697 (1987) vacated in part, --- U.S. ----, 107 S. Ct. 3205, 96 L. Ed. 2d 692 (1987); Bustamante v. Rotan Mosle, Inc., 802 F.2d 815 (5th Cir. 1986); King v. Drexel Burnham Lambert, Inc., 796 F.2d 59 (5th Cir. 1986) vacated, --- U.S. ----, 107 S. Ct. 3203, 96 L. Ed. 2d 690 (1987). But the Supreme Court with Shearson/American Express, Inc. v. McMahon, supra, established the arbitrability of Securities Exchange Act claims. Appellant Shearson asserts that McMahon effectively overrules Wilko and allows arbitration of Securities Act claims.

Appellees do not contest the arbitrability of their Exchange Act claims following McMahon. They argue only that Wilko remains good law and prohibits arbitration of claims brought under Sec. 12(2) of the Securities Act. Appellees argue further that even if Sec. 12(2) claims are arbitrable, the parties lacked the requisite intent to agree to arbitration. We address these claims.

The Supreme Court in McMahon, enforced a predispute agreement to arbitrate claims brought under Sec. 10(b) of the 1934 Exchange Act. Supra, --- U.S. at ----, 107 S. Ct. at 2343. In doing so, it refused under the 1934 Act to follow the reasoning of Wilko v. Swan, which invalidated predispute agreements to arbitrate 1933 Act claims. Wilko, supra, at 438, 74 S. Ct. at 188-89. The McMahon majority opinion does not expressly overrule Wilko; the precise issue of the arbitrability of Sec. 12(2) claims was not before the court.⁴  Nevertheless, the reasoning in McMahon completely undermined Wilko, as this Court noted in Noble v. Drexel Burnham Lambert, Inc., 823 F.2d 849, 850 n. 3. (5th Cir. 1987) ("McMahon undercuts every aspect of Wilko v. Swan ...; a formal overruling of Wilko, appears inevitable--or, perhaps, superfluous.").

The basic premise of Wilko is that a predispute agreement to arbitrate Sec. 12(2) claims is invalid by virtue of Sec. 14 of the Securities Act, 15 U.S.C. § 77n. (1982). Section 14 voids any stipulation "to waive compliance with any provision" of the Securities Act. The Wilko court held the jurisdictional provision of the Securities Act to be the type of non-waivable provision contemplated in Sec. 14. Wilko, supra, 346 U.S. at 434, 74 S. Ct. at 186. The Supreme Court states in McMahon, however, that Sec. 29(a) of the Exchange Act, 15 U.S.C. § 78cc(a) (1982), which is a non-waiver provision virtually identical to Sec. 14 of the Securities Act, does not bar predispute arbitration agreements. McMahon, supra, --- U.S. at ----, 107 S. Ct. at 2338-39.⁵ 

The Supreme Court reconciles McMahon with Wilko by characterizing the 1953 opinion as outdated in its bias against arbitration. The McMahon majority opinion reinterprets Wilko, as follows: "Wilko must be read as barring waiver of a judicial forum only where arbitration is inadequate to protect the substantive rights at issue." McMahon, supra, at ----, 107 S. Ct. at 2339. As McMahon makes clear, the Supreme Court no longer considers arbitration inadequate to protect substantive rights. Id., at ----, 107 S. Ct. at 2340-41. For this proposition, the court relied upon Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth Inc., 473 U.S. 614, 105 S. Ct. 3346, 87 L. Ed. 2d 444 (1985); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 105 S. Ct. 1238, 84 L. Ed. 2d 158 (1985); Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S. Ct. 927, 74 L. Ed. 2d 765 (1983); and Scherk v. Alberto-Culver Co., 417 U.S. 506, 94 S. Ct. 2449, 41 L. Ed. 2d 270 (1974). Advances in arbitration noted by the Supreme Court, particularly the broad oversight authority of the Securities Exchange Commission, McMahon, supra, --- U.S. at ----, 107 S. Ct. at 2341, apply equally to the protection of substantive rights under both the Securities Act and the Exchange Act.

Appellees argue, however, that congressional intent is the crucial distinction between the two Acts. They claim that Congress, by preserving Wilko in the 1975 revisions of the Exchange Act, manifested its intent that at least Sec. 12(2) claims should remain non-arbitrable.⁶  We find it implausible that Congress intended to prohibit arbitration of Securities Act claims but intended to allow courts to determine the arbitrability of Exchange Act claims.⁷  Similarly fine distinctions between the two Acts have been presented throughout the course of the debate over securities arbitration. See, e.g., McMahon, supra, at ----, 107 S. Ct. at 2347 n.n. 1-2 (Blackmun J., dissenting). We do not, however, find these asserted distinctions controlling on the issue of arbitration. The Supreme Court opinion in McMahon, which binds us here, turns solely on the adequacy of arbitration to resolve securities disputes. It does not distinguish between the Exchange Act and the Securities Act. Furthermore, it has been the position of this Court that, for the purposes of arbitration, similarities between the Securities Act and the Exchange Act outweigh any differences between them. Sibley v. Tandy Corp., 543 F.2d 540, 543 n. 3 (1976). We thus follow the reasoning of the Supreme Court in McMahon and our own decision in Noble which lead directly to the obsolescence of Wilko and the arbitrability of Securities Act Sec. 12(2) claims.

Appellees claim that even if Sec. 12(2) claims are arbitrable, the intent to agree to arbitration was lacking in their cases. At the time the agreements were signed, claim appellees, Securities Act claims were controlled by Wilko and clearly were not subject to arbitration. We cannot conclude that appellees lacked the intent to agree to arbitration because, at the time the customer agreements were signed, courts refused to honor clauses compelling arbitration of securities claims. At the time the contracts were signed, the same circumstances existed barring arbitration of Exchange Act claims. E.g. Sibley, supra, at 543. But appellees cannot now contend that they lacked the intent to arbitrate their Exchange Act claims in view of the Court's holding in McMahon. Neither the Supreme Court nor this Circuit considered the earlier lack of authorization to be an obstacle in McMahon, supra or Noble, supra. Both cases ordered arbitration of Exchange Act claims under analogous circumstances.

Authority no longer exists to deny arbitration of the Sec. 12(2) claims, as the parties agreed in their contracts. Arbitration must be directed both as to the Securities Act claims and Exchange Act claims. That portion of the judgment of the district court which denied directing arbitration of the Securities Act Sec. 12(2) and the Securities and Exchange Act Sec. 10(b) claims is

REVERSED.