{"id":91,"date":"2016-05-25T05:30:56","date_gmt":"2016-05-25T05:30:56","guid":{"rendered":"https:\/\/ajborrassolaw.com\/briefs\/?p=91"},"modified":"2017-02-22T07:31:08","modified_gmt":"2017-02-22T07:31:08","slug":"finra-jams-can-regulatory-arbitration-waived-agreement-providing-private-arbitration","status":"publish","type":"post","link":"https:\/\/ajborrassolaw.com\/briefs\/finra-jams-can-regulatory-arbitration-waived-agreement-providing-private-arbitration\/","title":{"rendered":"FINRA or JAMS – Can Regulatory Arbitration Be Waived by Agreement Providing for Private Arbitration?"},"content":{"rendered":"
\n

The Second Circuit recently addressed whether private arbitration could proceed over a competing FINRA (Financial Industry Regulatory Authority) arbitration involving a compensation dispute between Credit Suisse and former financial advisors.\u00a0Each of the former employees had entered an employment agreement with Credit Suisse that provided in part that any employment related claim would be \u201cresolved through a three-step process consisting of an internal grievance procedure; mediation before an independent service provider; and (in the case in which a claim is not resolved through the first two steps) binding arbitration before one of three independent service providers in accordance with its arbitration rules\u2026\u201d<\/p>\n

When a compensation dispute later arose, Credit Suisse filed an arbitration claim with JAMS and began mediation.\u00a0The former employees answered the JAMS arbitration, participated in mediation and later filed a FINRA arbitration claim when the mediation reached an impasse.\u00a0Credit Suisse then filed suit in the Southern District of New York to dismiss or stay the FINRA arbitration and compel arbitration before JAMS.\u00a0The district court granted Credit Suisse\u2019s motion and, on appeal, the Second Circuit affirmed.<\/p>\n

The Court first established that FINRA applied to the underlying claim.\u00a0As a financial institution, Credit Suisse was a FINRA member and the financial advisors were \u201cassociated persons\u201d pursuant to FINRA Rules.\u00a0Both were, therefore, subject to the FINRA Rules that required arbitration pursuant to its Code of Arbitration.<\/p>\n

The former employees essentially argued that FINRA was the exclusive forum pursuant to the plain language of the FINRA Rules and could not be waived. Credit Suisse contended that FINRA arbitration was not exclusive but subject to waiver through an arbitration agreement pursuant to the Federal Arbitration Act (FAA).\u00a0The Court agreed with Credit Suisse that the employment agreement was enforceable and that arbitration provisions of self-regulatory organizations, like FINRA, are \u201cdefault rules which may be overridden by more specific contractual terms.\u201d\u00a0The specific provision did not waive the right to arbitrate,<\/em> only the right to arbitrate in a particular forum<\/em>.\u00a0The case is Credit Suisse Securities (USA) LLC v. Tracy, <\/em>812 F.3d 249 (2d Cir. 2016).<\/p>\n

Following issuance of the Tracy <\/em>opinion, in July 2016, FINRA weighed in with Regulatory Notice 16-25 in which it addressed forum selection provisions and reminded members that customers do not forfeit their right to FINRA arbitration under the FINRA rules “by signing any agreement with a forum selection provision specifying another dispute resolution process or an arbitration venue other than the FINRA arbitration forum.” FINRA addressed the prior federal appellate court decisions to the contrary and noted that the rationale employed by those courts rests on the erroneous principle that FINRA’s arbitral forum “is merely ‘contractual’ and can be superseded or waived.” FINRA deemed that assumption inconsistent with its authority which has the “force of federal law” and whose rules “are not mere contracts that member firms and associated persons can modify.”<\/p>\n

FINRA recommended that customer agreements that contain pre-dispute resolution clauses providing for alternative facilities clarify that they are non-exclusive by including the following recommended provision: “This agreement does not prohibit or restrict you from requesting arbitration of a dispute in the arbitration forum as specified in the FINRA rules.”<\/p>\n

Ava Borrasso<\/strong><\/em><\/a> is the principal of <\/em>Ava J Borrasso, P.A<\/strong>.<\/em><\/a>, a Miami-based law firm that concentrates on business and international arbitration and litigation. She also serves as an Arbitrator and is a member of the commercial panel of the American Arbitration Association.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The Second Circuit recently addressed whether private arbitration could proceed\u2026 <\/p>\n","protected":false},"author":1,"featured_media":92,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-91","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-posts"],"_links":{"self":[{"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/posts\/91","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/comments?post=91"}],"version-history":[{"count":3,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/posts\/91\/revisions"}],"predecessor-version":[{"id":273,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/posts\/91\/revisions\/273"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/media\/92"}],"wp:attachment":[{"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/media?parent=91"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/categories?post=91"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ajborrassolaw.com\/briefs\/wp-json\/wp\/v2\/tags?post=91"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}