New opinion: Dodd-Frank whistleblower suits not exempt from arbitration agreements

First, the galling facts alleged:

Appellant Boris Khazin is a financial services professional and former employee of Appellees TD Ameritrade, Inc. and Amerivest Investment Management Company (collectively with other Appellees, “TD”). When Khazin began working for TD, the parties executed an employment agreement in which they agreed to arbitrate all disputes arising out of Khazin’s employment.

At TD, Khazin was responsible for performing due diligence on financial products offered to TD customers. When he eventually discovered that one of TD’s products was priced in a manner that did not comply with the relevant securities regulations, he reported this violation to his supervisor, Lule Demmissie, and recommended changing the price to remedy the violation.

In response, Demmissie instructed Khazin to conduct an analysis of the “revenue impact” of his proposed change. The analysis revealed that although remedying the violation would save customers $2,000,000, it would cost TD $1,150,000 in revenues and negatively impact the balance sheet of one of Demmissie’s divisions. After reviewing these results, Demmissie allegedly told Khazin not to correct the problem and to stop sending her emails on the subject. When Khazin subsequently approached her to renew his initial recommendation, she again informed him that no change would be made.

Over the next few months, Demmissie and TD’s human resources department confronted Khazin about a purported billing irregularity that, according to him, was unrelated to his duties and turned out to be nonexistent. Nevertheless, Khazin was told that he could no longer be trusted, and his employment was terminated.

So, TD allegedly was breaking the law and costing their customers money, but they decided to keep breaking the law and costing their customers money, because complying with the law and saving their customers money would cost them some money. And then they allegedly trumped up a reason to fire the oversight officer who found the violation. And when the fired oversight officer sued, they fought to dismiss the suit to make him arbitrate instead.

Party like its 2008.

After Wall Street’s recklessness caused the greatest global financial catastrophe since the Great Depression, Congress enacted Dodd-Frank. One of the act’s purposes was to increase financial-industry transparency, and one of the ways it did that was by paring back arbitration clauses that keep whistleblowers out of court. If banks can fire whistleblowers and then prevent those fired whistleblowers from suing in court, the thinking went, then lawbreaking banks win and whistleblowers (and the rest of us) lose.

Specifically, Dodd-Frank contains a provision that voids arbitration agreements requiring arbitration of “a dispute arising under this section.” Today, CA3 held that “this section” refers only to the older Sarbanes-Oxley act, not Dodd-Frank itself, and affirmed dismissal of a fired whistleblower’s Dodd-Frank suit.

The case is Khazin v. TD Ameritrade. Opinion by Fuentes, joined by Greenberg and Cowen. Arguing counsel were Keith Biebelberg for the fired whistleblower and Aaron Taishoff (an associate) for the whistleblower-firers.