Dean Witter Reynolds Inc. v. Byrd

The Federal Arbitration Act makes written arbitration agreements “valid, irrevocable, and enforceable,” subject only to generally applicable grounds for revoking a contract. Its operative provisions leave no discretionary room for a court to deny arbitration of issues covered by a valid agreement. Because Byrd's state-law claims fell within the broad customer-agreement clause, the court had to compel their arbitration.

The Court rejected the Ninth Circuit's intertwining doctrine, under which a court could retain arbitrable claims when they were factually and legally entangled with nonarbitrable federal claims. That doctrine substitutes judicial preferences for consolidated litigation in place of the parties' contractual choice and the command of the Act.

Congress's central purpose in enacting the Arbitration Act was not simply to promote speedy or efficient dispute resolution. Its primary purpose was to overcome the historical judicial hostility to arbitration agreements and to put those agreements on the same footing as other contracts. Efficiency may be a benefit of arbitration, but it does not override the statutory obligation to enforce the agreement the parties made.

Bifurcation is therefore an accepted consequence of enforcing arbitration agreements. As the Court had recognized in Moses H. Cone Memorial Hospital v. Mercury Construction Corp., federal law sometimes requires piecemeal resolution precisely because that is necessary to give effect to an arbitration clause. Absent a contrary policy embodied in another federal statute, the possibility of parallel proceedings cannot justify refusing arbitration.

The lower courts had feared that an arbitrator's factual findings on the state claims might bind the federal court in the securities case, thereby interfering with the federal court's authority over the federal claim. The Court concluded that this concern rested on an uncertain assumption: arbitration awards do not automatically receive preclusive effect in later federal litigation.

McDonald v. West Branch showed that neither the full-faith-and-credit statute nor federal common law necessarily requires preclusion from an unappealed arbitration award. Arbitration is not a state judicial proceeding, and it may not provide an adequate substitute for adjudication of federal statutory or constitutional rights.

Courts can protect any federal interest at the proper stage by deciding what preclusive effect, if any, an arbitration award should receive after arbitration is complete. Because preclusion doctrine can address the problem directly, district courts need not manipulate the sequence of proceedings by either retaining arbitrable claims for trial or staying arbitration in advance. The Court did not decide the precise preclusive effect that Byrd's arbitration might later have.