A former rep with First Command Financial Planning claims that the firm’s advisor contract violates Finra rules by forcing some pay disputes into arbitration forums run by the American Arbitration Association.

The former advisor, Kirk Baur of Marlton, N.J., a 17-year veteran of First Command, left the firm in July 2014 to join DaVinci Financial Designs LLC of  Columbia, S.C.

Fort Worth, Tex.-based First Command, which targets military personnel as clients, brought a Finra arbitration claim against Baur alleging violations of his non-competition agreement.

In a counterclaim, Baur says First Command is improperly holding onto $767,000 in deferred compensation.

While this kind of dispute between advisors and firms isn’t unusual, First Command has taken the unusual step of trying to force Baur’s deferred-pay claim into another forum, the American Arbitration Association (AAA), while keeping the non-competition claim at Finra.

First Command Financial Planning claims that its parent company, First Command Financial Services, which administers the deferred-comp plan, is not a Finra member and therefore cannot be forced to arbitrate at Finra.

But Finra rules require that all industry disputes be arbitrated before its own panels.

In March, the Finra arbitrators hearing the case ruled that Baur’s compensation claim would remain at Finra. Finra’s director of arbitration later upheld that ruling, according to Christopher Trowbridge, one of Baur’s lawyers at Bell Nunnally & Martin LLP in Dallas.

The Finra case is set to begin in October.

But in May, First Command asked a Texas federal court to intervene and force Baur to pursue his pay dispute at the AAA. That federal court action is pending.

Meanwhile, Baur’s attorneys have asked Finra to sanction First Command for requiring the use of the AAA to litigate disputes with First Command entities that are not Finra members.

First Command spokesman Mark Leach declined comment, citing the pending litigation.       

Trowbridge says First Command’s legal tactic looks an awful lot like what Merrill Lynch did in 2009 with disputes over retention bonuses.The bonuses were offered to many Merrill brokers after the firm merged with Bank of America. Merrill required its reps to resolve those cases in New York state courts rather than Finra arbitration.

First Command’s action “is in flagrant violation of Finra rules, and precisely the type of conduct for which Finra recently imposed significant sanctions upon Merrill Lynch,” Trowbridge complained in a letter to Finra.

In 2012, Finra fined Merrill $1 million for its bonus-dispute policy.

            “Frankly, I’m really surprised that First Command is willing to take this legal position,” Trowbridge added in an interview.

            The two-track litigation that First Command is pursuing “increases the costs--the legal fees—for a financial advisor who wants to leave First Command,” he said.

            Baur’s dispute with First Command parallels the fight DaVinci founder Jim Agostini went through when he left First Command in 2012, along his eight-person team.

Like Baur, First Command sued the DaVinci advisors , alleging the brokers improperly retained information and materials belonging to First Command after they left. The firm refused to pay out more than $1 million in deferred compensation to the reps.

In November 2013, a Finra arbitration panel awarded the DaVinci brokers $1.1 million in deferred pay, but awarded $200,000 in damages to First Command.

First Command appealed that arbitration ruling, claiming that the Finra panel did not have jurisdiction over the deferred-pay dispute. A Texas state court dismissed the appeal in June 2014, and Agostini and his reps finally got their money.