Khazin v. TD Ameritrade Holding Corporation: Dodd-Frank Whistle-Blower Must Arbitrate Reprisal Claims

In Khazin v. TD Ameritrade Holding Corp., 773 F.3d 488 (3d Cir. 2014), the United States Court of Appeals for the Third Circuit (the “Court of Appeals”) affirmed the district court’s holding, which dismissed Boris Khazin’s (“Khazin”) Dodd-Frank retaliation claim against TD Ameritrade Holding Corp., TD Ameritrade Inc., Amerivest Management Co., and Luke Demmissie (collectively “TD”). In addition, the Court of Appeals affirmed the district court’s holding, which compelled arbitration pursuant to a predispute arbitration agreement between Khazin and TD. The Court of Appeals concluded that Khazin’s claim did not qualify for the statutory exemption from the arbitration agreement with TD.

According to the factual allegations, Khazin worked for TD providing professional financial services and performing due diligence on the company’s outgoing financial products. Khazin signed an agreement with TD, agreeing to arbitrate any dispute related to his employment. After discovering the price of one of TD’s products failed to comply with applicable securities regulations, Khazin suggested a price change to his supervisor, Demmissie. Upon learning that the proposed price change would result in a loss of $1,150,000 in revenue, Demmissie allegedly instructed Khazin to discontinue communication about the pricing violation and informed Khazin that TD would not make the price change. Khazin’s employment was later terminated for a supposed billing inconsistency.

Khazin filed suit in New Jersey state court, alleging violation of both state law and the Dodd-Frank Act. After the court dismissed his claims without prejudice for lack of subject matter jurisdiction, Khazin brought a whistleblower claim under the Securities Exchange Act.  See 15 U.S.C. § 78u-6(h).  TD then filed a motion to dismiss and to compel arbitration in accordance with the arbitration agreement between Khazin and TD.

In its motion, TD argued the anti-arbitration provision in the Dodd-Frank Act, which provided an exemption from predispute arbitration agreements (“Anti-Arbitration Provision”), did not apply to claims brought under 15 U.S.C. § 78u-6(h), and therefore did not shield Khazin from his contractual obligation to arbitrate the dispute. As an alternative, TD argued Dodd-Frank’s Anti-Arbitration Provision did not provide retroactive exemption from an arbitration agreement signed, as in Khazin’s case, prior to the enactment of the Act. 

The district court held the Anti-Arbitration Provision did not invalidate arbitration agreements executed prior to the passage of Dodd-Frank. Consequently, the court granted TD’s motion to dismiss and compelled Khazin to arbitrate.  Khazin appealed, arguing the Anti-Arbitration Provision and the essence of the Dodd-Frank Act rendered his arbitration agreement unenforceable.

SOX created protection for whistleblowers and provided them with a private right of action.  See 18 U.S.C. § 1514A.  Dodd-Frank included provisions that prohibited employer retaliation against whistleblowers.  The Act included a private right of action for violations of the anti-retaliation provision.  See 15 U.S.C. § 78u-6(h).  In addition, the Act provided that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.” 18 U.S.C. §1514A(e)(2).  

The Court of Appeals held that the anti-arbitration provision applied only to actions under 18 U.S.C. §1514A and not actions under 15 U.S.C. § 78u-6(h).  In doing so, the Court relied on the language of the Anti-Arbitration Provision and the structure of the Act.

First, the Court of Appeals reasoned that the phrase “arising under this section” in 18 U.S.C. §1514A(e)(2) expressly limited the application of the Anti-Arbitration Provision to disputes arising under SOX.  Because Khazin’s claim arose under Dodd-Frank, the court held the Anti-Arbitration Provision was not applicable.  

The Court of Appeals also found the structure of the Dodd-Frank Act particularly relevant, noting that Congress did not add an anti-arbitration provision to the Dodd-Frank cause of action but simultaneously appended anti-arbitration provisions to claims arising under various other sections. Thus, the Court of Appeals determined that Congress deliberately excluded Dodd-Frank claims from anti-arbitration protection, despite Khazin’s argument that the omission was inadvertent. Consequently, the Court of Appeals affirmed, though on different grounds, the district court’s order dismissing Khazin’s claim and compelling arbitration pursuant to his employment agreement. 

The primary materials for this post can be found at the DU Corporate Governance website.