In an important decision affecting the enforcement of arbitration agreements for class actions, Judge Harold Baer of the U.S. District Court of the Southern District of New York ruled yesterday that Merrill Lynch and Bank of America cannot remove to arbitration a suit initiated by various advisors in the district court because FINRA Rules “explicitly prohibit the enforcement of arbitration agreements against a member of a putative class or collective action.” Specifically, Judge Baer relied on FINRA Rule 2268-Requirements When Using Predispute Arbitration Agreements for Customer Accounts. The relevant portion of FINRA Rule 2268 states:
“All agreements shall include a statement that “No person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action; or who is a member of a putative class who has not opted out of the class with respect to any claims encompassed by the putative class action until: (i) the class certification is denied; or (ii) the class is decertified; or (iii) the customer is excluded from the class by the court. Such forbearance to enforce an agreement to arbitrate shall not constitute a waiver of any rights under this agreement except to the extent stated herein.”
According to court records, the case was initially filed last May and alleges that bank brokers called “financial solutions advisers” are non-exempt non-managerial employees and that, as a result, they are entitled to receive overtime pay. There is an estimated one hundred (100) plus members of the proposed class. Although this is only a procedural victory for the advisors (i.e., they will be able to remain in court as opposed to FINRA arbitration), the merits of the advisors’ claims remain to be determined.