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Non-FINRA Arbitration Pact Could Be Enforced by Credit Suisse

Saturday, February, 13, 2016

According to a ruling from the US Court of Appeals for the Second Circuit, a team of financial advisors who previously worked with Credit Suisse Securities LLC needs to arbitrate an employment-related dispute before a private arbitration panel, as opposed to a Financial Industry Regulatory Authority forum.


The advisers believed a FINRA rule required them to arbitrate in a FINRA forum, despite the employment agreements stating an independent service provider was required. According to the court, FINRA arbitration can be waived in a pre-dispute agreement, as long as another forum is designated and that FINRA’s default rules can be overridden by more specific contractual returns.


The group of advisers was made up of five people from Los Angeles who entered into employment agreements in 2008. The agreements included a dispute resolution provision that included as a final step for grievances to be “binding arbitration before one of three independent service providers.”


Prior to their resignation from Credit Suisse, the advisers had a dispute about the amount of money they owed under the optional programs offered to employees to hedge certain compensation. If a loss was experienced they were required to repay the company the deficit. After resigning, the company began arbitration proceedings with third-party organization JAMS and the advisers followed up with counterclaims. The advisers were also accused of soliciting clients and employees after they moved to Merrill Lynch without permission.


Mediation proved unsuccessful and an arbitration using FINRA was begun by Merrill Lynch and the advisers, but Credit Suisse wanted to continue work with JAMS. The court ruled in favor of the latter.