Credit Suisse Sec. (USA) LLC v. Tracy

Decision Date28 January 2016
Docket NumberDocket No. 15–345–CV.
Parties CREDIT SUISSE SECURITIES (USA) LLC, Petitioner–Appellee, v. John David TRACY, Charles Tharnstrom, Leonard Kortekaas, Christopher Chapin, and Steven Lazny, Respondents–Appellants.
CourtU.S. Court of Appeals — Second Circuit

Alexander C.B. Barnard, Credit Suisse Securities (USA) LLC, New York, NY (Stephen M. Kramarsky, Ariel P. Cannon, and Angela L. Harris, Dewey Pegno & Kramarsky LLP, New York, NY, on the brief) for PetitionerAppellee.

Cynthia R. Levin Moulton, Moulton, Wilson & Arney, LLP, Houston, TX (Louis M. Lagalante, Gallagher, Harnett & Lagalante LLP, New York, NY, on the brief) for RespondentsAppellants.

Before: NEWMAN, SACK, and DRONEY, Circuit Judges.

DRONEY, Circuit Judge.

The RespondentsAppellants are five former employees of Credit Suisse Securities (USA) LLC ("Credit Suisse") who entered into employment agreements with Credit Suisse that included provisions to resolve all employment-related disputes by arbitration before a private arbitration provider. Following their resignation from Credit Suisse, the employees began arbitration proceedings before the Financial Industry Regulatory Authority ("FINRA") concerning employment-related disputes. Credit Suisse sought to compel the employees to dismiss the FINRA arbitration and pursue their claims in a non-FINRA arbitral forum. The district court (Buchwald, J. ) granted Credit Suisse's petition and entered judgment ordering the employees to pursue their claims in a non-FINRA arbitral forum.

On appeal,1 the employees argue that FINRA Rule 13200 prohibits waiver of arbitration in a FINRA forum. For the reasons set forth below, we hold Rule 13200 does not prohibit a pre-dispute waiver of a FINRA arbitral forum.

Accordingly, we AFFIRM the judgment of the district court.

BACKGROUND

RespondentsAppellants John David Tracy, Charles Tharnstrom, Leonard Kortekaas, Christopher Chapin, and Steven Lazny (collectively "Employees") are a team of Los Angeles-based financial advisors who began working at Credit Suisse in April 2008 after resigning from Goldman Sachs & Co.2 Upon beginning work at Credit Suisse, Employees entered into employment agreements that included a provision to resolve all employment-related disputes through the Credit Suisse Employment Dispute Resolution Program ("EDRP"). The agreements provide as follows:

All United States employees are subject to the Credit Suisse United States Employment Dispute Resolution Program, as amended from time to time (the "Program"). The Program provides that all employment-related claims, including all statutory claims, an employee may at any time have are to be resolved through a three-step process consisting of an internal grievance procedure; mediation before an independent service provider; and (in the case in which a claim is not resolved through the first two steps) binding arbitration before one of three independent service providers in accordance with its arbitration rules. Any disputes arising hereunder shall be resolved in accordance with such Program. A copy of the Program as currently in effect is annexed hereto.3

J.A. 55.

The EDRP provided further details as to the three-step process discussed in the contract, including that "[a]ll arbitrations under the Program will be conducted by a single arbitrator, or upon written consent of both parties, a panel of three arbitrators, supplied by JAMS4 or the American Arbitration Association [ (the "AAA") ]."5 J.A. 191.

While still employed at Credit Suisse, a dispute arose between Employees and Credit Suisse. That dispute was a result of certain challenges raised by Employees to the amounts they owed Credit Suisse under the Credit Suisse "Currency Facility" plan.6 The Currency Facility plan was an optional program for employees to "hedge" equity portions of their compensation from fluctuations in exchange rates. In the event an employee suffered a loss under the program, the employee was required to pay Credit Suisse any deficit. Employees disputed the amounts Credit Suisse claimed they owed under the plan and attempted, unsuccessfully, to resolve the dispute through the first two stages of the EDRP, including private mediation.

On March 27, 2014, Employees resigned from Credit Suisse and became employed by Merrill Lynch. As a result of the still unpaid balance relating to the Currency Facility plan, Credit Suisse commenced arbitration on this issue in JAMS on April 15, 2014. On May 14, 2014, Employees filed a statement of counter-claims and affirmative defenses in that arbitration.7

Also on May 14, 2014, Credit Suisse initiated a JAMS mediation against Employees claiming improper solicitation of Credit Suisse clients and employees in connection with their move to Merrill Lynch. On October 7, 2014, following unsuccessful mediation of the employment-related claims, Employees and Merrill Lynch initiated an arbitration against Credit Suisse with FINRA. That Statement of Claim asserted that Credit Suisse breached an industry agreement regarding employee mobility and clients' interests of privacy and freedom of choice called the "Protocol for Broker Recruiting,"8 and was liable to Employees for defamation, tortious interference, and unfair competition.

Rather than participate in the FINRA arbitration, Credit Suisse commenced an action in the Southern District of New York seeking an order to stay or dismiss the FINRA arbitration and to compel arbitration by JAMS in accordance with the EDRP. Credit Suisse argued that the claims raised by Employees were "Employment–Related Claims" under the EDRP and were therefore required to be arbitrated before JAMS or AAA. Employees argued before the district court that FINRA Rule 13200 ("Rule 13200"), which provides that "a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among ... Members and Associated Persons," prohibited Credit Suisse from selecting a non-FINRA arbitral forum for arbitration. The district court granted Credit Suisse's petition, ordered Employees to dismiss their claims in the FINRA arbitration and compelled arbitration in a JAMS forum.9 Employees appeal the district court's judgment effectuating that order.

DISCUSSION
I. Standard of Review

This Court reviews the grant of a petition to compel arbitration de novo. Cap Gemini Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360, 364 (2d Cir.2003).

II. FINRA Rule 13200

FINRA is an independent organization authorized by Congress to regulate the U.S. securities markets and professionals who sell securities in the United States. "FINRA is a self-regulatory organization ["SRO"] that (among other things) sponsors an arbitration forum." Cohen v. UBS Fin. Servs., Inc., 799 F.3d 174, 176 (2d Cir.2015). Use of the FINRA arbitration forum to adjudicate disputes between its member securities firms and "associated persons" is governed by the Code of Arbitration Procedure for Industry Disputes (the "Code"), which regulates different features of arbitration between FINRA members and their employees.Id. Again, Rule 13200 of the Code states:

Except as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among ... Members and Associated Persons.

J.A. 166.

The parties do not dispute that Credit Suisse is a FINRA "member" or that Employees are "associated persons" under Rule 13200. Neither do they question the fact that the Employees' employment-related claims and Credit Suisse's improper-solicitation claims "arise[ ] out of the business activities" of Credit Suisse and Employees. See FINRA Rule 13200. Nor is there any dispute that, as a member of FINRA, Credit Suisse is bound to follow FINRA's arbitration rules. Arbitration rules, as we have previously concluded, bind FINRA members, see UBS Fin. Servs., Inc. v. W. Va. Univ. Hosps., Inc., 660 F.3d 643, 648–49 (2d Cir.2011) ("Upon joining FINRA, a member organization agrees to comply with FINRA's rules ... including its Code and relevant arbitration provisions contained therein."). Nor do the parties dispute that Employees entered into the employment agreements that contained the EDRP provision, or that the EDRP provided for resolution of employment-related claims in a private non-FINRA arbitral forum.

The parties do disagree, however, as to whether Rule 13200 requires them to arbitrate their disputes before FINRA. Employees argue that the plain language of Rule 13200 requires arbitration in a FINRA forum and that the rule is not subject to waiver. Credit Suisse contends to the contrary that notwithstanding the mandatory language of Rule 13200, it can be waived by a private pre-dispute arbitration agreement pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq., such as that included in Employees' employment agreements.10

We first address whether there is an inconsistency between the arbitration provisions of the employment agreements and Rule 13200, and we then address whether the Rule 13200 requirement of arbitration in the FINRA forum may be waived in a pre-dispute agreement.

A. Inconsistency Between FINRA Rule 13200 and the EDRP

Employees argue that the plain terms of Rule 13200 require arbitration under the Code. Unless there is an explicit exception in the FINRA Rules,11 Employees argue, FINRA requires arbitration in a FINRA forum.

Rule 13200 plainly requires arbitration pursuant to the FINRA code: "a dispute must be arbitrated under the Code." To interpret the plain language of the Rule otherwise would render the phrase "under the Code" of no effect. This Court must construe the text of the rule so that no part is rendered inoperative or superfluous. Cf. Krys v. Farnum Place, LLC (In re Fairfield Sentry Ltd.), 768 F.3d 239, 245 (2d Cir.2014).

Credit Suisse argues that Rule 13200 makes no mention of a specific forum and so...

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