ngress intended to provide investors with a "special right to recover for misrepresentation [in] which à the seller is made to assume the burden of proving lack of scienter." The Court apparently felt that mandatory arbitration would circumvent the rights of the investors provided by the 1933 Act. The Wilko decision thus made all cases under the 1933 Act non-arbitrable.
The Court's decision, however, went against the tide of federal policy, which favored arbitration as a means of dispute settlement and had been established in 1925 with the enactment of the Federal Arbitration Act (FAA). This statute provides that a party to a dispute can petition a federal court to compel the opposing party to submit to arbitration of the dispute where the parties signed a valid arbitration in agreement. As a result of the Supreme Court's reluctance to enforce the Act, lower federal courts were confused as to the interpretation and application of the Act.
By the middle part of the 1980s, however, the Court was willing to broaden the scope of enforceability of arbitration agreements. Three cases, Dean Witter Reynolds v. Byrd, Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., and Shearson/American Express Inc. v. McMahon, cemented the federal policy favoring arbitration as a means of resolving civil disputes. In Byrd, the Court held that bifurcation of arbitrable claims from non-arbitrable claims was permissible, and mandated the prompt arbitration of the arbitrable claims. In Mitsubishi, the Court held that international antitrust disputes were arbitrable, in spite of the burden it might place on the foreign parties.
It was McMahon, however, which had the most impact upon the securities industry. In this case, the Court held that parties to a pre-dispute arbitration agreement did not waive any substantive rights granted by the Securities Exchange Act of 1934 and that such an agreement should be enforced with the same rig...