Some brokerage firms are successfully avoiding Finra arbitration for employment disputes—despite Finra rules to the contrary.
In several recent cases, firms have persuaded courts to uphold contractual provisions to arbitrate at the American Arbitration Association (AAA), a private forum that specializes in business disputes.
Although not a widespread trend, legal observers say the legal tactic by firms raises concerns about eroding Finra’s intended policy of providing an economical dispute-resolution process, and risks burdening registered reps with parallel proceedings.
In the most recent case, a Texas federal court this month ruled that advisor Kirk Baur of Marlton, N.J., must pursue a deferred-pay claim against First Command Financial Services before the AAA. U.S. district judge Reed O’Connor of the U.S. District Court for the Northern District of Texas in Fort Worth said that First Command Financial Services (and the parent of First Command Financial Planning) is not a broker-dealer and so is not subject to Finra rules that require arbitration of employment disputes.
At the same time, First Command Financial Planning, a broker-dealer, is pursuing a separate but related non-competition case against Baur in Finra’s arbitration forum.
That appears to leave Baur with the expensive task of litigating in two forums, despite a Finra panel’s ruling in March that the entire dispute should be heard at Finra.
A Finra hearing is scheduled to begin in October in Philadelphia, and a AAA hearing, which will probably be set in Dallas, is also in the works, Baur said.
“We’re trying to weigh what we should do with an appeal” of the court decision, Baur said.
Baur’s attorney, Christopher Trowbridge, a partner at Bell Nunnally & Martin LLP in Dallas, was not available for comment.
Mark Leach, a spokesman for First Command, declined comment.