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Ex-UBS Advisors Forced into Finra Arbitration by Federal Court Judge

By Miriam Rozen June 17, 2019

In a long-awaited ruling, a federal judge has ordered ex-UBS employees — including former managing director Alexander Beigelman — to arbitrate at Finra their claims that the wirehouse unlawfully fired them and others before it had to pay out their promised bonuses.

Beigelman and the others had sought to pursue their claims against UBS as a class action in a public courthouse.

But Judge Matthew Kennelly of the United States District Court for the Northern District of Illinois issued the June 5 ruling denying them that route for now.

Kennelly’s new ruling followed an appeals court decision issued in January that, siding with UBS, vacated his previous March 2018 order, which had let Beigelman and the others keep their proposed class action in his court.

In its January ruling, the U.S. Court of Appeals for the Seventh Circuit agreed to UBS’s request to vacate Kennelly’s decision based on the U.S. Supreme Court’s ruling in another case, Epic Systems v. Lewis. In that case, the court decided in May 2018 that the federal laws governing arbitrations trumped the National Labor Relations Act when it came to class action waivers in arbitration employment agreements.

The NLRA bars employers from taking steps to prevent employees’ collective actions. Until the high court issued its Epic ruling, Kennelly and some other federal judges could have interpreted the NLRA as barring arbitration agreements that included class-action waivers.

Linda Friedman of Stowell & Friedman represents Beigelman and the other plaintiffs. Her response to Kennelly’s most recent ruling reflected her view that the nation’s high court, with so many Republican-appointed justices, is no friend of employees and instead a dear one of employers. “Elections have consequences,” Friedman, who has won more than $300 million in class action settlements from wirehouses for former employees with class action litigation, wrote in an email.

A UBS spokesman did not respond to a request for comment for this story. Eugene Scalia, a law partner in the Washington, D.C. office of Gibson, Dunn & Crutcher, and the son of the late Supreme Court Justice Antonin Scalia, represents UBS in the litigation.

In arguments to let Beigelman and the others stay in federal court, Friedman had not disputed that, under the Epic ruling, class-action arbitration waivers — such as the ones UBS was relying on — were now enforceable. Instead, Friedman argued that Finra is “not a suitable forum because it does not permit effective vindication” of her clients’ rights. Finra lacks appropriate standards for hiring and training arbitrators and a reliable system for ensuring panels receive all parties’ documents, Friedman argued. Friedman also argued that Finra’s arbitrator pool and selection process leads to systemic bias.

Kennelly, however, concluded that Friedman’s clients were making these arguments about Finra’s lack of suitability too late in the procedural process and therefore they had forfeited their rights to advance them. As a result, Kennelly wrote he did not need to determine the merits of those arguments about Finra in order to compel Beigelman and the others to arbitrate.

In the lawsuit, which FA-IQ previously covered, Beigelman alleged he and other terminated UBS employees faced an unfair 'take it or leave it' choice unreasonably foisted on them by the wirehouse when it laid them off.

Beigelman had to relinquish his rights to sue the wirehouse or forfeit $500,000 in deferred compensation, he alleged. That was on top of having already unfairly been forced to forfeit an additional $468,000 for his prior year’s bonus, since he was laid off only days before UBS was scheduled to distribute that money, according to his lawsuit.

As it happened, Beigelman refused to give up his rights and instead opted to fight UBS to get the bonus, deferred compensation, and — at the same time — preserve his right to sue the wirehouse for age discrimination.

Previously, a Finra panel agreed to UBS’s request to dismiss Beigelman’s claim for his bonus. But the same Finra panel would not let UBS dismiss Beigelman’s claim for his deferred compensation and severance, and it would not let UBS claw back, as the wirehouse has attempted, $10,000 it had previously distributed to Beigelman.