Broker-Dealer Litigation - Greenberg Traurig LLP

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Bank of the Commonwealth v. Hudspeth, 714 S.E.2d 566 (Va. 2011).
The former vice president of a bank’s affiliate sued the bank following his termination,
alleging various compensation claims. The bank sought to compel arbitration of the vice
president’s claims. Both the county court and the appellate court denied the bank’s motion to
compel arbitration. The bank appealed to the Virginia Supreme Court. The bank argued the
dispute must be arbitrated because the bank was either a “customer” or a “member” and because
the former vice president was an associated person of a member. FINRA requires disputes to be
arbitrated if the disputes arise from the business activities of a member and an associated person
or if arbitration is requested by a customer. The vice president conceded that he was an
associated person of a member, but asserted that the bank is neither a member firm nor a
customer. As a matter of first impression, the Virginia Supreme Court held that the bank was not
a member firm, but it was a customer entitled to compel arbitration of the vice president’s claim.
The Virginia Supreme Court reasoned that one interpretation of the FINRA rules could consider
anyone, including the bank, who receives investment and brokerage services and who is not a
broker-dealer, to be a customer. Because the U.S. Supreme Court has stated that any doubts as
to the scope of arbitrable issues should be resolved in favor of arbitration and the bank could be
considered a customer, the Virginia Supreme Court ruled that the parties must resolve their
dispute through arbitration.
Wells Fargo Advisors, LLC v. Stifel Nicolaus, LLC, 2011 WL 4695369 (Cal. App. Ct. Oct. 7,
2011).
A financial advisor resigned from his employment and began working for a new branch
of a different securities firm. His former assistant and three of his former coworkers joined the
new branch as well. The former employer brought an arbitration action against the financial
advisor and his new employer, alleging that they were stealing clients and employees and
misappropriating trade secrets, among other things. The arbitral panel rejected all of the former
employer’s claims and awarded the financial advisor and his new employer attorneys’ fees
totaling nearly one million dollars. The district court confirmed the arbitral award. The former
employer appealed. Initially, the court had to decide whether the California Arbitration Act
(“CAA”) or the Federal Arbitration Act (“FAA”) specified the grounds for vacatur. The court
concluded that California state arbitration law governed based on precedent holding that petitions
to vacate arbitration awards filed in California courts are automatically governed by the CAA. In
doing so, the court distinguished U.S. Supreme Court precedent set in Hall Street Associates,
LLC v. Mattel, Inc., 552 U.S. 576, 128 S.Ct. 1396 (2008) (holding that Section 10 of FAA
provides exclusive grounds for vacatur) because, according to the court, Hall Street only governs
when the arbitration is governed solely by the FAA, typically pursuant to the terms of the
agreement to arbitrate. Applying the CAA, the court held that the arbitral award should not be
vacated due to exclusion of evidence nor due to the new employer’s failure to disclose
documents. The former employer argued that the exclusion of two emails substantially
prejudiced its rights, but the court disagreed. The court explained that the former employer
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