Posted on Tuesday, January 13th, 2015.
Stephen E. Trimboli, Esq.
Trimboli & Prusinowski, L.L.C.
In a case of first impression, the Third Circuit holds that the anti-arbitration provisions of the Dodd-Frank Act do not bar the arbitration of whistleblower claims brought under the whistleblower protection provisions of the Dodd-Frank Act.
Boris Khazin v. TD Ameritrade Holding Company, et al., _ F.3d_, 2014 WL 6871393, C.A.3 (N.J.), December 8, 2014, available at http://ww2.ca3.uscourts.gov/opinarch/141689p.pdf
In a case of first impression for federal circuit courts generally, the Third Circuit held that the anti-arbitration provisions of the Dodd-Frank Act do not bar the arbitration of whistleblower claims brought under the whistleblower protection provisions of the Dodd-Frank Act.
The case arose under an employment contract between a financial services professional and his employer that called for the arbitration of all disputes. The employee discovered that one the employer’s financial products had been priced in a manner that violated applicable securities regulations and repeatedly reported the discovery to his supervisor, who allegedly told him repeatedly not to correct the problem because correction would lead to a loss in revenue for one of the divisions for which the supervisor was responsible. Shortly thereafter, the employee was confronted with a purported billing irregularity that led to his termination. The employee brought suit under the whistleblower protection provisions of the Dodd-Frank Act, which provide for a private right of action for aggrieved whistleblowers. 15 U.S.C. Sec. 78u-6(h). The employer moved to have the dispute submitted to arbitration. The employee argued that his arbitration agreement was nullified by other provisions of the Dodd-Frank Act that prohibit the enforcement of pre-dispute arbitration agreements in certain whistleblower disputes.
The District Court enforced the arbitration agreement on the ground that the Dodd-Frank anti-arbitration provisions could not be applied retroactively to arbitration agreements that were already in existence when Dodd-Frank became law. On appeal, the Third Circuit affirmed, but on a different ground.
Prior to Dodd-Frank, whistleblowers who suffered retaliation for reporting securities law violations had recourse to a private right of action under the Sarbanes-Oxley Act of 2002, 18 U.S.C. Sec. 1514A. The Sarbanes-Oxley cause of action requires claimants first to exhaust administrative remedies by filing an administrative complaint with the Secretary of Labor through the Occupational Safety and Health Administration, and limits the available remedy to back pay, plus interest.
Dodd-Frank created a separate and distinct cause of action for securities law whistleblowers, codified at 15 U.S.C. Sec. 78u-6(h). Unlike Sarbanes-Oxley, the Dodd-Frank cause of action contains no exhaustion requirement, and allows a claimant to recover double back pay, plus interest.
Dodd-Frank also appended an anti-arbitration provision to Sarbanes-Oxley cause of action that states, “No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” 18 U.S.C. Sec. 1514A(e)(2). Similar provisions were added to the whistleblower protection provisions of the Commodity Exchange Act, 7 U.S.C. Sec. 26(n)(2), and to the Consumer Financial Protection Act, 12 U.S.C. Sec. 5567(d)(2). However, no anti-arbitration provision was appended to the new Dodd-Frank whistleblower cause of action, and the Third Circuit found this to be controlling. “The text and structure of Dodd-Frank compel the conclusion that whistleblower retaliation claims brought pursuant to 15 U.S.C. Sec. 78u-6(h) are not exempt from predispute arbitration agreements.”
The employee argued that Congress’ “broader purpose of enhancing protections for whistleblowers” would be undermined if the arbitration ban was not extended to the Dodd-Frank cause of action, that it was “counterintuitive” to treat the Dodd-Frank and Sarbanes-Oxley causes of action differently, and that “a bill as massive as Dodd-Frank will inevitably contain gaps not intended by Congress.” The Court rejected these arguments. That “Congress did not append an anti-arbitration provision to the Dodd-Frank cause of action while contemporaneously adding such provisions elsewhere suggests … that the omission was deliberate.” The Dodd-Frank and Sarbanes-Oxley causes of action “differ significantly in a number of respects that might explain Congress’ reluctance to exempt Dodd-Frank claims from arbitration.” And as to the employee’s argument about Congress’ “broader purpose,” the Court observed:
Further, under the Federal Arbitration Act (FAA), courts are required to enforce agreements to arbitrate, even when the claims at issue are federal statutory claims, unless the FAA mandate is overridden by a contrary congressional command. No such command is found in the Dodd-Frank cause of action.
Having decided the matter on statutory grounds, the Khazin Court declined to decide the issue of retroactive application.