Finding a conflict between FINRA Rule 13200 and a pre-dispute private agreement to arbitrate before a non-FINRA forum, the Second Circuit holds that “FINRA Rule 13200 does not prohibit a pre-dispute waiver of a FINRA arbitral forum.” Credit Suisse Securities (USA) LLC v. John David Tracey et al, No. 15-345-cv, January 28, 2016. Accordingly, the Second Circuit affirmed the district court’s order dismissing the former employees’ claims before a FINRA panel and compelling them to pursue their clams in the JAMS forum.
Respondents-Appellants “Employees” entered into employment agreements providing that all employment claims were to be resolved pursuant to the Credit Suisse Employment Dispute Resolution Program (EDRP). The EDRP provides that all employment-related disputes are subject to a three-step process consisting of an internal grievance procedure, mediation before an independent service provider and binding arbitration before one of three independent service providers and their respective rules.
While Employees were still employed by Credit Suisse, a dispute arose over amounts Employees owed Credit Suisse under a ‘Currency Facility Plan’ that allowed employees to ‘hedge equity portions of their compensation from fluctuations in exchange rates.’ In March 2014, Employees resigned and joined Merrill Lynch. In April 2014, Credit Suisse commenced arbitration of the issues related to the Currency Facility Plan under the auspices of JAMS; employees filed responsive papers.
In May 2014, Credit Suisse commenced a mediation with Employees on the issue of their improper solicitation of Credit Suisse clients and employees in connection with their relocation to Merrill. The mediation, conducted by JAMS, was not successful. In October 2014, Employees and Merrill Lynch commenced an arbitration against Credit Suisse on the improper solicitation issue with FINRA. Instead of participating in the FINRA arbitration, Credit Suisse filed an action in the Southern District of New York to stay or dismiss the FINRA arbitration and to compel arbitration by JAMS pursuant to the EDRP.
Credit Suisse argued that Employees’ claims were employment related and thus subject to the EDRP which provides for JAMS or AAA arbitration. Employees claimed that FINRA Rule 13200 provides that disputes between members and their employees “must’ be arbitrated under the FINRA code.
The Second Circuit first determined that there was, in fact, an inconsistency between FINRA Rule 13200 and the Credit Suisse EDRP as the former requires arbitration in a FINRA forum. and the latter requires arbitration in a non-FINRA forum.
The Court next considered whether FINRA Rule 13200 could be waived. Relying on prior decisions addressing the conflict between an SRO’s broad arbitration provisions and a specific pre-dispute agreement, the Court held that an “SRO’s arbitration provisions are default rules which may be overridden by more specific contractual terms.”
In reaching its decision, the Court rejected Employees’ argument that since a pre-dispute complete waiver of arbitration has been held unenforceable in the employment context, waiver of the FINRA forum should not be allowed stating that “[f]orum preference does not raise the same public policy concern as a complete waiver of arbitration.” The Court also dismissed Employees’ argument that FINRA arbitration allowed for consistency in awards as the typical FINRA award continued “little helpful information.” Finally, the Court found that Employees had not provided any basis for their claim that FINRA arbitrators were more qualified than JAMS or AAA arbitrators.