September 25, 2020 - This Week at the Ninth

This Week at the Ninth: Class Waiver and FINRA

This week, we take a look at the Ninth Circuit’s decision handing an important victory to banks by declaring FINRA rules against compelled arbitration don’t bar enforcement of class waivers.

LAVER v. CREDIT SUISSE SECURITIES (USA), LLC
The Court holds that a FINRA rule prohibiting compelled arbitration of class-action claims does not bar enforcement of agreements not to pursue class litigation in any forum.

Panel: Judges Gould, Murguia, and Feinerman (N.D. Ill.), with Judge Feinerman writing the opinion.

Key Highlight: “[E]ven assuming Rule 13204 qualifies as a ‘congressional command,’ the Rule does not bar class waivers with the clarity necessary to displace the FAA’s instruction that courts enforce arbitration agreements according to their terms.”

Background: Christopher Laver worked as a financial adviser at Credit Suisse Securities USA (CSSU), which is a member of FINRA, a securities industry self-regulatory organization. Laver brought a putative class action suit against CSSU, alleging that he was owed deferred compensation. CSSU moved to dismiss Laver’s class claims and compel arbitration of his individual claims based on a class waiver and an arbitration clause in his employment agreement. In response, Laver contended that FINRA Rule 13204(a)(4), which prohibits compelled arbitration “with respect to any claim that is the subject of [a] certified or putative class action,” barred CSSU from enforcing the class waiver. The district court rejected Laver’s argument and granted CSSU’s motion to dismiss.

Result: The Ninth Circuit affirmed. It explained that the Federal Arbitration Act “requires courts to enforce agreements to arbitrate according to their terms” unless that mandate is “overridden by a contrary congressional command.” The Court concluded that Rule 13204 is not “contrary” to the arbitration agreement at issue and thus declined to decide whether the Rule qualifies as a “congressional command.”

First, the Court rejected Laver’s argument that Rule 13204’s prohibition on enforcing arbitration agreements also bars enforcement of class waivers included in an arbitration agreement. It noted that the Rule prevents enforcement only of an “agreement to arbitrate,” whereas Laver’s agreement not to pursue class litigation in any forum was not an “agreement to arbitrate.” The Court thus concluded that the Rule does not bar enforcement of a class waiver “simply because it is included in a document that also contains an agreement to arbitrate.”

Second, the Court disagreed with Laver’s contention that Rule 13204 bars enforcement of class waivers regardless whether they appear in an arbitration agreement. Citing the Supreme Court’s decision in Epic Systems v. Lewis, the Court observed that the standard for determining whether a congressional command is “contrary” to an arbitration agreement “is difficult to meet”; it requires “a clearly expressed congressional intention that such a result should follow.” The Court determined that Rule 13204 did not meet that standard. It reasoned that the Rule “does not expressly prohibit, and in fact does not even mention, class waivers.” The Rule’s final sentence, which provides that the Rule “do[es] not otherwise affect the enforceability of any rights under” FINRA’s arbitration code “or any other agreement,” strengthened this conclusion. The Court also rejected Laver’s reliance on a FINRA Board of Governors decision adopting a contrary view of a related Rule, explaining that “FINRA’s understanding of a FINRA rule or the rule’s relationship to the FAA cannot overcome the absence of a ‘clear and manifest’ prohibition against class waivers in Rule 13204.”

The Court thus concluded that “[b]ecause the class waiver survives, Laver relinquished his right to bring class claims in any forum.” And since Laver was “left with only individual claims, Rule 13204(a)(4)’s prohibition on enforcing arbitration agreements directed at putative or certified class claims has no application.” The Court observed that its holding aligned with a decision from the Second Circuit, “the only appeals court decision to have addressed a materially identical dispute.”