Broker-Dealer Litigation - Greenberg Traurig LLP

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PFS Invs., Inc. v. Imhoff, 2011 U.S. Dist. LEXIS 31417 (E.D. Mich. Mar. 25, 2011).
At issue was whether a registered representative was required to arbitrate his state court
claims against his former employer, its affiliates, and various company personnel. The dispute
arose following the representative’s decision to leave his longtime employer and begin selling
securities with a close competitor. After this fact came to light, the parent company’s counsel
contacted the competitor’s largest insurance provider and allegedly defamed the representative
by creating doubt as to whether the insurance provider should allow him to sell its products.
After buy-out negotiations relating to the representative’s book of business were frustrated, the
representative filed a thirty-two count complaint in Michigan state court, alleging that his former
employer was liable for conversion, tortious interference, unjust enrichment, and various other
claims. In his complaint, the representative maintained that Defendants committed acts
inconsistent with the right to arbitrate and so prejudiced his rights that they lost their right to
compel arbitration. Additionally, the representative argued that FINRA rules permit a court to
hear claims for injunctive relief. In determining that the representative was required to arbitrate
his claims, in light of his agreement to do so in his Form U-4, the court explained that, under
some circumstances, a non-party to an arbitration agreement may compel a party that signed to
agreement. Likewise, the court found that the theory of equitable estoppel was appropriate in
this case because it would be inequitable to allow the representative to avoid arbitrating his
claims simply by naming non-FINRA member affiliated companies as defendants.
Yuan v. Getco, LLC, 2011 U.S. Dist. LEXIS 89991 (N.D. Ill. Aug. 12, 2011).
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A securities trader filed a claim in state court alleging claims under the Illinois Wage
Payment and Collection Act. In his complaint, the trader alleged that Defendants violated the
Act by failing to pay him several million dollars worth of bonuses and commissions owing from
his work for Defendants. Based on federal subject matter jurisdiction, Defendants removed the
action to federal court and sought an order directing the parties to arbitrate the claims. In support
of their position, Defendants argued that Plaintiff’s Form U-4 incorporates the mandatory
arbitration provisions of the security exchanges with which Plaintiff was registered, including
NYSE Arca, NASDAQ and NYSE. Given that NYSE Arca was the primary regulator of both
parties, the court focused its attention to that SRO’s arbitration provisions. First, the court found
that both parties were in fact “associated persons” under NYSE Arca rules as Plaintiff was an
employee of an Equity Trading Permit (“ETP”) Holder and the parent companies and their
members and directors satisfied NYSE Arca Rule 1.1(f) as “any person directly or indirectly
controlling, controlled by or under common control with an ETP Holder.” Next, the court
rejected Plaintiff’s argument that by filing a Form U-5 he was not subject to arbitration, stating
that such a filing would have no impact on the employee’s prior agreement to arbitrate his
claims. Citing one of its earlier opinions, the court added that, absent clear evidence that the
parties intended to override this presumption of arbitration, an employee’s agreement to arbitrate
survives his termination. Finally, the court rejected Plaintiff’s remaining argument that FINRA’s
six year eligibility rule prohibited the panel from addressing wage-payment claims that occurred
before that period. The court made clear that FINRA Rule 13206 specifically reserves for the
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