Third Circuit Compels Arbitration in Whistleblower Action Against Bank

On December 8, 2014, in Khazin v. TD Ameritrade Holding Corp., the United States Court of Appeals for the Third Circuit decided that the anti-arbitration provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) only applieds to the whistleblower-protection causes of action arising under the Security and Exchange Act (the “Exchange Act”) and not to those arising under the Sarbanes-Oxley Act (“SOX”).

A “whistleblower” is someone, usually an employee, who reports an employer who has broken the law to an outside agency. In Khazin, TD Ameritrade, Inc. (“TD”) terminated Boris Khazin, a financial services professional, after Khazin reported to his supervisor that the price of one of TD’s products did not comply with the relevant securities regulations. Khazin’s supervisor instructed Khazin not to correct the problem because remedying the violation would cost TD two million dollars ($2,000,000) in revenue. About one month later, TD terminated Mr. Khazin when it allegedly discovered a billing irregularity. According to Mr. Khazin, the alleged irregularity was outside of his duties and responsibilities at TD. Regardless, the result of TD’s investigation was that the irregularity did not exist at all. Nevertheless, TD bank told Mr. Khazin his termination was final because he could not be trusted.

Mr. Khazin filed a complaint in the District Court of New Jersey for TD’s unlawful termination of his employment in violation of the Dodd-Frank’s whistleblower provision amending the Exchange Act. TD moved to dismiss the complaint and to compel arbitration pursuant to an employment agreement Khazin signed.

Dodd-Frank spans thousands of pages and amends a number of statutes designed to regulate the financial industry. Before Dodd-Frank was enacted, whistleblowers who suffered retaliation for reporting violations of the securities laws could only bring claims under SOX. Dodd-Frank allows whistleblowers to pursue claims under the Exchange Act as well. The Exchange Act is a more attractive statute for whistleblowers than SOX because a SOX litigant must file an administrative complaint with the Secretary of Labor and may only obtain backpay with interest. On the other hand, an Exchange Act litigant is not required exhaust administrative remedies and is entitled to two times the amount of backpay with interest.

At issue in Khazin was whether Dodd-Frank’s anti-arbitration provision, which provides “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under th[at] section,” voids predispute arbitration agreements for claims arising under the Exchange Act. The Third Circuit decided it did not. The Third Circuit held that the anti-arbitration provision of Dodd-Frank is expressly limited to a single category of disputes arising under Section 1514A of SOX and did not extend to the causes of action under the Exchange Act. Further, the court noted that in light of the liberal federal policy favoring arbitration agreements, courts are required to enforce agreements to arbitrate according to their terms unless this mandate has been overridden by a congressional command. The court found no such command in the Exchange Act. As Khazin’s only claims were under the Securities and Exchange Act, the anti-arbitration provision was inapplicable. Accordingly, the court held that predispute arbitration agreement between Khazin and TD was enforceable and dismissed Khazin’s claim.

In addition to offering guidance concerning the interpretation of Dodd-Frank, Khazin reminds litigants that the courts will defer to an arbitration agreement and dismiss claims unless there is a contrary congressional command.

If you are an employee and you believe you have been discriminated against and/or retaliated against for exposing your employer’s wrongdoings, please contact the Harman Firm, LLP.