Broker-Dealer Litigation - Greenberg Traurig LLP

FINRA award was entitled to full faith and credit, even though it was not confirmed, because it
was a judicial proceeding with a final judgment on the merits. The issues that the employer
sought to preclude – relating to the wage dispute with the financial advisor’s coworker – were
fully litigated during the FINRA arbitration, and, even though the panel did not outline the basis
for its award, the court could infer based on the circumstances that the panel decided the issues.
The award was binding upon the financial advisor, who was a party to those proceedings. As a
result, the court granted the former employer’s motion and held that the FINRA arbitration did
preclude re-litigating certain issues. The court declined to find that the JAMS arbitration had a
preclusive effect, however, because the issues that the financial advisor sought to preclude were
not litigated during the JAMS arbitration. The arbitration related only to the financial advisor’s
entitlement to deferred compensation, while the issues that the financial advisor sought to
preclude related to the wage dispute with his coworker. The court found that issue preclusion
was inappropriate because the former employer did not have a full and fair opportunity to litigate
the issues relating to the wage dispute with the financial advisor’s coworker. The court refused
to preclude the issues from the JAMS arbitration and denied the financial advisor’s motion.
Lewis v. UBS Fin. Servs. Inc., 2011 WL 4727795 (N.D. Cal. Sept. 30, 2011).
A financial advisor brought a putative class action in state court against his former
employer, a broker-dealer. The financial advisor claimed that the broker-dealer’s administration
of its recruiting bonuses violated California state law. After removing the case to federal court,
the broker-dealer moved to compel arbitration based on five separate arbitration agreements: one
in the financial advisor’s Form U-4, which he used to register as a securities advisor, two
arbitration agreements in promissory notes for forgivable loans he received from the brokerdealer,
and two employment agreements with arbitration clauses. The financial advisor argued
that the case was not appropriate for arbitration under any of the five agreements because the
agreements provide that the NASD or NYSE govern arbitration and neither of those entities
exist. The financial advisor also argued that the case was not appropriate for arbitration because
the arbitration agreements have class action waivers that are not enforceable under California
law. The court disagreed with both of the financial advisor’s arguments. First, the court noted
that one of the arbitration agreements specifically provided for FINRA arbitration and, even if it
had not, the court could compel FINRA arbitration because FINRA is a successor entity to the
NASD/NYSE. Second, the court found that a recent U.S. Supreme Court decision overruled the
California precedent holding that class action waivers in arbitration agreements are
unenforceable. Specifically, the court noted that AT&T Mobility v. Concepcion, 131 S.Ct. 1740
(2011) expressly stated when state law prohibits arbitration of a category of claims, the FAA
preempts state law. The court further held that all of the financial advisor’s claims were subject
to arbitration, including his statutory claims and claim for injunctive relief. The court reasoned
that the statutory claims could be arbitrated because he was able to pursue these claims to the
same extent in arbitration as he could in court. The court reasoned that the injunctive relief claim
was likewise subject to arbitration because, even though it was expressly excluded from
arbitration under the terms of one promissory note, the injunctive relief the financial advisor
sought was not based on that promissory note. The court dismissed the matter for arbitration
based on these findings.
R.
457