Third Circuit Issues First Appellate Decision Compelling Arbitration of Dodd-Frank Whistleblower Claim

In Khazin v. TD Ameritrade, No. 14-1689, 2014 WL 6871393 (3rd Cir. Dec. 8, 2014), the Third Circuit affirmed a lower court’s decision compelling arbitration of a Dodd-Frank whistleblower retaliation claim.  This is the first circuit court decision to address whether such claims are arbitrable, and the decision is consistent with two district court opinions that have previously addressed the issue

Khazin alleged that TD Ameritrade terminated his employment in retaliation for reporting a potential securities regulation violation to his supervisor.  He filed a Dodd-Frank whistleblower claim under the securities whistleblower provision and TD Ameritrade moved to compel arbitration pursuant to the arbitration clause in Khazin’s employment agreement.

On appeal, Khazin argued that the arbitration clause was not enforceable in light of an anti-arbitration provision found in Dodd-Frank’s amendments to the Sarbanes-Oxley Act (“SOX”), which states that “[n]o predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.”  But applying a plain reading of the statutes, the Third Circuit held that SOX’s anti-arbitration provision did not apply to the Dodd-Frank securities retaliation claim raised by Khazin, because the latter is “not located within the same title of the United States Code, let alone the same section” as SOX’s anti-arbitration provision.   The court rejected Khazin’s contention that Congress unintentionally omitted the anti-arbitration language from the Dodd-Frank securities retaliation statute while including the language in the commodities whistleblower provision, the consumer financial protection whistleblower provision, and in SOX’s whistleblower provision, reasoning that the “fact that Congress did not append an anti-arbitration provision to the Dodd-Frank cause of action while contemporaneously adding such provisions elsewhere suggests … that the omission was deliberate.”

Notably, the Third Circuit affirmed on a different ground than that relied upon by the district court in compelling arbitration.  The District Court of New Jersey had compelled arbitration on the ground that SOX’s anti-arbitration provision did not apply retroactively to invalidate the arbitration clause within Khazin’s employment agreement, which predated it.   In reaching its conclusion, the Third Circuit “express[ed] no opinion on whether the District Court properly concluded that the Anti-Arbitration Provision does not invalidate preexisting agreements.”