Broker-Dealer Litigation - Greenberg Traurig LLP

Lorbietzki v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 2011 WL 855354 (D. Nev. Mar. 9,
2011)
A financial advisor and a broker-dealer executed an employment agreement in 2009.
Contemporaneously, the financial advisor executed a Form U-4 to register with various
regulatory organizations. Less than a year later, the broker-dealer terminated the financial
advisor’s employment. The financial advisor sued the broker-dealer alleging that it had
terminated his employment without cause and, thus, breached the parties’ employment
agreement. The broker-dealer moved to compel arbitration pursuant to the terms of the
arbitration clause in the Form U-4. The financial advisor opposed the motion, arguing that the
employment agreement, which was executed on the same day as the Form U-4, does not require
arbitration and contains a merger clause. The court determined that, although both facts about
the employment agreement were true, the arbitration clause in the Form U-4 was still a valid
agreement to arbitrate under which the court could compel arbitration. Moreover, the
employment agreement was silent on the method of resolving disputes and accordingly, the court
could infer that the Form U-4 was intended to answer how the parties were to resolve disputes.
Once the court determined that the Form U-4 contained a valid arbitration agreement, it turned to
whether the parties’ dispute fell within the scope of the arbitration clause. Pursuant to the
arbitration clause, “members” and “associated persons” were required to arbitrate their disputes.
The broker-dealer was a “member” because it was admitted to FINRA membership and the
financial advisor was an “associated person” because he was a former member. The dispute
arose out of their business activities because hiring, employment, and termination directly
implicated some of the most fundamental aspects of the parties’ business relationship.
Accordingly, the court stayed the proceedings pending arbitration and compelled the parties to
arbitrate their dispute.
Feller v. Wells Fargo Advisors, LLC, 2011 WL 3331265 (M.D. Fla. Aug. 3, 2011)
A broker-dealer brought an arbitration action against its former employee, a financial
advisor, seeking to recover the balance due on a promissory note for an outstanding loan. The
financial advisor filed an action in state court seeking rescission of the promissory note, among
other things. The broker-dealer removed the case to federal court and filed a motion to compel
arbitration. The financial advisor conceded the validity of the arbitration clause in her
promissory note, but argued that the claims were outside the scope of the agreement. The court
found that the arbitration clause was broad, covering “any controversy arising out of this note,”
and included the financial advisor’s claim for fraud in the inducement of the contract. Even if
the claims fell outside the scope of the arbitration agreement in the promissory note, the court
found that the parties would be required to arbitrate their claims pursuant to at least two other
arbitration agreements: one in the financial advisor’s employment contract and one in the Form
U-4 which the financial advisor signed to register with the NASD and others. Accordingly, the
court stayed the case so that the parties could arbitrate their dispute.
R.
R.
459