On October 24, 2014, in Khazin v. TD Ameritrade Holding Corp, et al., the U.S. Court of Appeals for the Third Circuit heard oral argument on an issue of first impression (within that forum): whether Dodd-Frank applies retroactively to invalidate pre-dispute arbitration agreements. Dodd Frank expressly invalidates pre-dispute arbitration agreements of whistleblower claims brought under Section 1057, SOX and the Commodities Exchange Act. Notably, however, Dodd-Frank does not invalidate pre-dispute arbitration agreements of whistleblower claims under Securities Exchange Act (“SEA”), 15 U.S.C. §78u-6(h)(1)(A). Nor does Dodd-Frank explicitly address the retroactivity of its anti-arbitration provisions.
Plaintiff-Appellant Boris Kharzin (“Plaintiff-Appellant”) urged the Court to retroactively apply Dodd-Frank’s anti-arbitration provision to invalidate his pre-dispute arbitration agreement. Khazin, a former TD Ameritrade Inc. (Company) investment oversight officer, executed a pre-dispute arbitration agreement in 2006. He was discharged in August 2012 and filed suit under the SEA whistleblower provision. The U.S. District Court for the District of New Jersey ignored the fact that Dodd Frank did not amend the SEA to invalidate pre-dispute arbitration agreements, and instead compelled arbitration on the grounds that Dodd-Frank did not operate retroactively to bar pre-dispute arbitration agreements.
On appeal, Plaintiff-Appellant’s counsel argued that the District Court’s denial of retroactive application was incorrect because the goal of Dodd-Frank is to protect whistleblowers and encourage them to come forward, which would may not be realized if a case is relegated to arbitration.
As reported by The Legal Intelligencer, during the argument Senior Judge Morton Greenberg commented:
“you know what I couldn’t understand about this … I cannot understand how Congress didn’t deal with this … . It would have been so easy to say, ‘This shall only apply … hereafter,’ or, ‘applies retroactively.’ I just can’t understand that.”
Judge Greenberg further questioned the Company’s counsel, stating: “[t]hese agreements were in very large use … and Congress must have known that … maybe Congress just assumed that this was just outlawing those agreements.” The Company’s counsel responded: “[o]r Congress could have been taking the prospective approach.” He further argued that allowing for retroactive application would improperly dissolve portions of contracts that individuals had freely entered in the past. And he noted that while this question is one of first impression before the Third Circuit, there were about 12 to 13 cases that addressed the retroactivity question and only two of these courts applied Dodd-Frank’s anti-arbitration provision retroactively.
We recognize that this is a matter of significance to our readers and will monitor this case closely.