Compelling Arbitration of Stockholder Class Actions Based on Federal Securities Law


by Joe Bartlett, on 05/10/2008

With recent endorsements from two influential advisory bodies, i.e., the Interim Report of The Committee on Markets Regulation (the so-called "Paulson Committee")[1] and the McKinsey report sponsored by Mayor Bloomberg and Senator Schumer, "Sustaining New York's and the US' Global Financial Services Leadership,"[2] it would appear that, as soon as the same is put to the test, the SEC is likely … at least more probable than not … to relax its informal opposition to charter provisions which provide for compulsory arbitration of shareholder lawsuits, including class actions, against US public companies registered with the SEC. There is little doubt remaining that compulsory arbitration of shareholders suits, including egregiously expensive class action litigation, is legal under the Federal Arbitration Act and, therefore, preempts State law based on "unconscionability." The principal cases on this subject, emanating in fact from the US Supreme Court, are cited in the two reports and are discussed in some detail in a lengthy memorandum on the subject and now available at www.vcexperts.com, on 10/31/2006 ("Tort Reform In The Securities Sector"), Buzz of the Week and/or on the Fish & Richardson website, www.fr.com.

Article (PDF)