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Shearson/American Express v. McMahon
United States Supreme Court
482 U.S. 220, 107 S. Ct. 2332, 96 L. Ed. 2d 185 (1987)
Eugene and Julia McMahon (plaintiffs) were customers of Shearson/American Express, Inc. (Shearson) (defendant), a brokerage firm registered with the Securities and Exchange Commission. Julia signed two customer agreements, which provided for arbitration of any controversy related to the McMahons’ accounts with Shearson. The provision stated that any controversy would be settled through arbitration unless unenforceable by federal or state law. When disputes arose over the McMahons’ accounts, the couple filed suit in federal district court, alleging violations of the Securities Exchange Act (Exchange Act), the Racketeer Influenced and Corrupt Organizations (RICO) Act, and several state-law provisions. Under the customer agreements, Shearson moved to compel arbitration of the McMahons’ claims by invoking the Federal Arbitration Act (FAA). The district court granted the motion as to the state-law provisions but found that the Exchange Act and the RICO Act claims were not arbitrable. The case was appealed to the United States Court of Appeals for the Second Circuit, which affirmed as to the state-law claims and the RICO Act claims but reversed as to the Exchange Act claims. The case was appealed to the United States Supreme Court.
Rule of Law
Holding and Reasoning (O’Connor, J.)
Concurrence/Dissent (Blackmun, J.)
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