Commercial Division Blog

Posted: February 13, 2021 / Categories Commercial, Arbitation, Mediation and Other ADR

Broker's Dispute Not Covered by FINRA Arbitration Rules

On February 4, 2021, the First Department issued a decision in Matter of Barsanti v. UBS Asset Mgt. (Ams.) Inc., 2021 NY Slip Op. 00616, holding that a broker's dispute was not covered by FINA's arbitration rules, explaining:

The parties' arbitration agreement does not obligate respondent to submit to arbitration of its dispute with petitioner before FINRA. The agreement provides that arbitration of "Covered Claims," as therein defined, "shall be conducted either under the auspices and rules of FINRA, where applicable, or JAMs. Thus, contrary to petitioner's contention, the agreement is not an automatic entitlement to FINRA arbitration; nor does it embody an agreement to FINRA arbitration on respondent's part. Indeed, FINRA, which is best situated to interpret its own rules, stated in an October 1, 2018 memorandum that this dispute did not automatically qualify for arbitration before it because respondent was not a FINRA-registered entity. FINRA advised that it might consider cases such as this one on a voluntary, case-by-case basis, but not before both parties had executed an agreement to submit to its jurisdiction. While petitioner characterizes an agreement to submit to FINRA's jurisdiction as a mere ministerial act, by requiring such an agreement, FINRA demonstrated that, under the present circumstances, its jurisdiction was not automatically triggered by the parties' dispute. While petitioner contends that respondent was required to execute an agreement to submit to FINRA's jurisdiction, he does not point to any provision in the agreement that supports his contention. In addition, while he questions the authority of the FINRA senior case specialist who sent the October 1, 2018 memorandum, he offers no reason that a memorandum written on FINRA letterhead by a senior case specialist should not be deemed a valid statement of FINRA's position in this case.

Petitioner's reliance on FINRA Rule 13200 is misplaced, as this dispute belongs in none of the categories of disputes addressed by that rule. Nor does petitioner's having maintained his securities licenses with respondent's FINRA-member affiliate avail him, given that his present claims are not asserted against the affiliate and do not concern his registration.

The cases that petitioner relies on are inapposite. In those cases, a non-FINRA member lender issuing a forgivable loan in connection with an employment agreement between a FINRA-registered employee and a FINRA-member employer was compelled to submit to FINRA arbitration despite not being a signatory to the employment agreement. Petitioner cites no cases where FINRA arbitration was imposed where only one of the parties to the employment agreement was a FINRA member.

(Internal quotations omitted).

Commercial litigation involves more than courts. Disputes often are--by agreement--decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at if you or a client have a question regarding a dispute that is subject to an arbitration agreement.