In April 2011, three (3) California residents, Eliot Cohen, Philip Ricasata and Charles Shoemaker, commenced a class and collective action on behalf of themselves and other members of a proposed California class and nationwide collective group (collectively referred to as “Plaintiffs”), against UBS Financial Services, Inc. and UBS AG (collectively referred to as “UBS”). Eliot Cohen, Phillip Ricasata and Charles Shoemaker, on behalf of themselves and all others similarly situated vs. UBS Financial Services, Inc. and UBS AG, Index No. 12-cv-02147 (BSJ)(LJC). The Honorable Barbara S. Jones, in the District Court for the Southern District of New York, presided over the matter. The Plaintiffs, all current or former financial advisors, asserted class and collective action claims against UBS including violations of the Fair Labor Standards Act (“FLSA”), the California Labor Code (“CLC”) and the California Unfair Competition Law (“CUCL”). In response to Plaintiffs’ Third Amended Complaint, UBS filed a Motion to Compel Arbitration and Stay the Action (“Motion to Compel”) pursuant to the Federal Arbitration Act (“FAA”), and alleged that Plaintiffs individually agreed to arbitrate the claims raised in Plaintiffs’ Third Amended Complaint. Specifically, UBS asserted that Plaintiffs all executed a Financial Advisor Compensation Plan which required Plaintiffs and UBS to bring any claims concerning compensation, benefits or other terms of their employment to arbitration and required that Plaintiffs waive the right to commence, or be a party or member of a class or collective action regarding their employment with UBS. Moreover, UBS asserted that Plaintiffs executed other agreements with UBS, including, but not limited to, Employee Forgivable Loans and Promissory Notes, Financial Advisor Account Reassignment Agreements, FA/PW Partnering Agreements and Account Reassignment Agreements which similarly contained an arbitration provision and waiver of class/collection action provision.
In Opposition to UBS’s Motion to Compel, Plaintiffs argued that the agreements at issue were unenforceable since they violated FINRA rules governing arbitrations between financial advisors and their member firms. Specifically, Plaintiffs pointed to FINRA Rules 13204(a) and 13204(b), which respectively required that “class action claims may not be arbitrated under the [FINRA] Code,” and that “[a]ny claim that is based upon the same facts and law, and involves the same defendants as in a . . . putative class action . . . shall not be arbitrated under the [FINRA] Code.” Judge Jones disagreed with this argument and found that FINRA Rules 13204(a) and 13204(b) states that the rules “do no otherwise affect the enforceability of any rights under the Code or any other agreement.” The Judge concluded, “[t]he rule therefore: (1) recognizes that parties may choose to enter into additional agreements beyond the scope of the Code; and (2) provides that the Code does not affect the Enforceability of these additional agreements.” See Cohen, 12-cv-02147, page 7.
Finally, Plaintiffs argued that UBS waived its right to bring a motion to compel arbitration since UBS chose to transfer the matter from the Central District Court of California to the Southern District Court of New York, a district which lacks the “power to compel the parties to arbitrate in California.” Id. at 15. Judge Jones held that UBS did not waive its right to arbitrate since it did not engage in “protracted litigation that result[ed] in prejudice to the opposing party.” Id. Moreover, the Court determined that Plaintiffs’ argument that the Southern District Court of New York lacked the authority to compel arbitration in California is meritless. Judge Jones concluded that since the FINRA Director “has yet to select a forum for arbitration outside of this district, the Court finds that the instant action does not present ‘a situation analogous to that caused by arbitration agreements containing forum selection clauses.” Id. at 17.
As a result of the above consideration, on December 3, 2012, Judge Jones granted UBS’s Motion to Compel arbitration and stay the present action.
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