The U.S. District Court for the District of New Jersey recently held that the Dodd-Frank Act does not operate retroactively to bar pre-dispute arbitration agreements, and thus required a plaintiff to arbitrate his Dodd-Frank whistleblower retaliation claim.  Boris Khazin v. TD Ameritrade Holding, No. 13-cv-4149 (D.N.J. March 11, 2014).

Background

Plaintiff Boris Khazin commenced his employment with the Company as an investment oversight officer in 2006 and, as part of that employment, executed a pre-dispute arbitration agreement whereby he agreed to arbitrate any and all claims relating to his employment.  In April 2012, Plaintiff became aware of a certain financial product that allegedly failed to comply with relevant securities regulations.  According to Plaintiff, that product was overpriced and charged customers excessive overhead fees.  Plaintiff allegedly expressed his concerns to his supervisor, who instructed him to conduct a “revenue impact analysis” for the product.  His analysis allegedly showed that instituting a corrective change would result in a $1.15 million loss for the Company.  Plaintiff was allegedly instructed not to institute such corrective change and his employment was terminated a few months later.  Thereafter, he reported his concerns to the SEC and filed a retaliation claim against TD Ameritrade under the Dodd-Frank whistleblower protection provision.

Ruling

The Company moved to dismiss the Dodd Frank claim or, alternatively, to compel arbitration pursuant to the pre-dispute arbitration agreement.  The court denied the motion to dismiss, rejecting the argument that Plaintiff’s claim failed because he did not report his concerns to the SEC prior to his discharge.  However, the court granted the Company’s motion to arbitrate.  Although Dodd Frank invalidates a range of pre-dispute arbitration agreements, the court ruled that the law does not retroactively bar any pre-dispute arbitration agreements and that the arbitration agreement was enforceable because the parties executed a valid arbitration agreement prior to Dodd-Frank’s enactment.

Implications

Dodd-Frank invalidates pre-dispute agreements regarding whistleblower claims under the Sarbanes-Oxley Act, the Commodities Exchange Act and claims filed by employees who report potential violations of federal consumer financial laws.  18 U.S.C. §1514A(e); 7 U.S.C. § 26(n)(2); 12 U.S.C. § 5567(d)(2).   But, Dodd-Frank does not invalidate pre-dispute arbitration agreements regarding whistleblower claims under the Securities Exchange Act (Section 922).  This decision does not directly address the issue of whether employers may in all instances compel arbitration of Section 922 claims.  Rather, the court simply ruled that the pre-dispute arbitration agreement at issue was enforceable because it was entered into prior to Dodd-Frank’s enactment.  The court therefore left unanswered whether it would have compelled arbitration if the parties had entered into the arbitration agreement after Dodd-Frank was enacted.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower…

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Restrictive Covenant & Trade Secret, and Whistleblower Practice. Steven’s national practice focuses on defending companies in federal and state courts and in arbitration fora against the full spectrum of employment-related claims, including claims of executives; restrictive covenant violations; employee raiding; theft of trade secrets; whistleblower retaliation under the Sarbanes-Oxley Act, the Dodd-Frank Act and similar state laws; and wage-and-hour violations, including class, collective and PAGA actions.

Steven has successfully handled trials in multiple jurisdictions; prevailed in seeking and defending against applications for temporary restraining orders and preliminary injunctions; defended one of the largest Illinois-only class actions in the history of the federal courts in Illinois (over 90k putative class members); and prevailed following his oral arguments before federal and state appellate courts. He brings his litigation experience (beginning in 1998) to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has the unusual experience of testifying in federal court in connection with investigations. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He is a Fellow of the College of Labor and Employment Lawyers. Chambers has reported:

  • Steven is “one of the best in the country and has a lot of experience”;
  • Steven is as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field”;
  • He is thoughtful, attentive and demonstrates an acute understanding of matters top of mind for business-minded general counsel; and
  • “He is someone who can navigate the twists and turns of litigation without difficulty.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a ”Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a U.S. Library of Congress Burton Award Winner for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal. The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

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