Class and Collective Claims Not Arbitrable Under FINRA Rules

Earlier this month, in an unpublished opinion, the U.S. Court of Appeal for the Ninth Circuit ruled that a wage and hour class action, brought on behalf of financial advisors against Chase Investment Services Corp., would not be compelled to arbitration because the parties’ agreement calls for arbitration under Financial Industry Regulatory Authority (“FINRA”) rules, which exclude class claims from arbitration. Alakozai v. Chase Inv. Servs. Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (slip opinion available here).

The ruling affirmed the district court’s denial of Chase’s motion to compel arbitration, holding that “the plain language of the arbitration agreement incorporates the FINRA rules and requires arbitration of individual claims, but excludes class claims from arbitration.” Slip op. at 2. FINRA Rule 13204 provides that a FINRA member may not enforce an arbitration agreement against a member of a certified or putative class action until: class certification is denied; the class is decertified; the class member is excluded from the class by the court; or the class member elects not to participate in or withdraws from the class. The Ninth Circuit concluded that Rule 13204 precludes enforcement of Chase’s arbitration agreement because the district court had not yet addressed class certification in this case.

Similarly, last September, the Southern District court of New York denied JP Morgan Chase & Co.’s motion to compel arbitration as to four plaintiffs who had signed an employment agreement containing an arbitration provision incorporating the FINRA rules, and granted conditional certification to a class of financial advisors.  See Memorandum Order, Lloyd et al. v. JP Morgan Chase & Co. et al. and Ciullo v. JP Morgan Chase & Co. et al., Nos. 11-9305 and 12-2197 (S.D.N.Y. Sept. 9, 2013) (available here). The plaintiffs in the Lloyd and Ciullo cases alleged that JPMorgan Chase & Co. misclassified them as exempt workers and thus had denied them overtime wages. The court refused to dismiss the four plaintiffs’ claims (although it dismissed the claims of five other plaintiffs who had signed a different arbitration agreement which contained a class waiver and did not incorporate the FINRA rules), citing the district court’s decision in Alakozai. “Because the FINRA rules [13204(a) and 13204(b)], as currently in effect, clearly do not require, and indeed preclude at this juncture, arbitration of the class and collective action claims raised in this litigation, defendants’ motion to compel arbitration of the claims of [the four plaintiffs] must be denied.” Memorandum Order at 14.