Finra proposal could aid broker class actions

SRO seeks to ban 'collective action' claims in arbitration; 'it opens up the federal courts to us again'

Jul 22, 2011 @ 12:03 pm

By Dan Jamieson

Finra will be proposing a rule change that might help brokers pursue class action employment claims.

The Financial Industry Regulatory Authority Inc. wants to ban from its arbitration forums so- called “collective action” claims brought under the Fair Labor Standards Act or the Age Discrimination in Employment Act.

That would make it easer to pursue court claims, according to plaintiff's attorneys who filed the suits.

The Finra board last week authorized its staff to file a proposed rule change with the Securities and Exchange Commission. The SEC would have to approve the proposal.

The rule change is being sought after federal courts last fall, and again in February of this year, ordered that collective-action wage-and-hour cases be heard in Finra arbitrations.

Finra has maintained that these types of cases, as well as class actions, are not allowed in its dispute resolution system. However, its rules mention class actions only.

Collective actions require covered plaintiffs to opt into the lawsuit, whereas class actions require an opt-out.

The actions by judges in the U.S. District Court for the Southern District of New York effectively shut out federal courts as a venue for bringing collective actions under the FLSA, said Michael Palmer, an attorney at Joseph Herzfeld Hester & Kirschenbaum LLP, who represented several broker plaintiffs in the lawsuits.

The cases, Hugo Gomez et al. v. Brill Securities Inc., and Silva Alexander Velez v. PHD Capital Advisory Services LLC, had to be refiled in New York state court stripped of their FLSA claims, Mr. Palmer said.

A rule change by Finra would help brokers pursue wage-and-hour claims, Mr. Palmer said.

“It opens up the federal courts to us again” to bring FLSA claims, he said, referring to where most of those cases are heard.

In the past, in banning class actions from the Finra arbitration system, Finra and the SEC have argued that such cases are better handled by courts.

Barry Temkin, a lawyer at Mound Cotton Wollan & Greengrass, who represented Brill Securities, declined to comment.

Emily Hayes, an attorney at Wilson Elser Moskowitz Edelman & Dicker LLP, who represented PHD Capital, did not return calls.

Several years ago, all the major brokerage firms settled broker suits over alleged violation of wage-and-hour laws, as well as overtime violations. As a result, firms adjusted their expense-sharing policies and compensation plans, and some brokers received payments.


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