Gibson Dunn Strikes Back for FINRA in Schwab Suit over Class Action Waivers
The Financial Industry Regulatory Authority isn't taking kindly to Charles Schwab & Co.'s efforts to get a San Francisco federal district court judge to bless provisions requiring customers of the brokerage to sign class action waivers.
By Ross ToddFebruary 23, 2012
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The Financial Industry Regulatory Authority isn’t taking kindly to Charles Schwab & Co.’s efforts to get a San Francisco federal magistrate judge to bless provisions requiring customers of the brokerage to sign class action waivers. In a full-throated 18-page motion filed Tuesday, FINRA’s lawyers at Gibson, Dunn & Crutcher urged Judge Elizabeth Laporte to dismiss Schwab’s suit against the securities industry’s self-regulatory agency. (Gibson Dunn fighting against class-action waivers? That certainly made us do a double take.)
“Nowhere in the complaint does Schwab identify the legal basis for its claim,” wrote Gibson’s Ethan Dettmer in FINRA’s motion to dismiss.
Tuesday’s filing points out that FINRA has enacted two SEC-approved rules that apply to Schwab’s class-action waiver: That class actions can’t be handled in FINRA arbitrations and that FINRA members can’t limit the rights of investors to take claims that can’t be arbitrated to court.
The motion also takes issue with Schwab’s rush to file suit, claiming that the brokerage failed to exhaust or “even begin pursuing its administrative remedies–before filing this improper retaliatory lawsuit.” FINRA asserts that the court has no jurisdiction to adjudicate the dispute under federal securities laws and argues that since Schwab filed its complaint before the administrative review process was complete, the matter should be dismissed on grounds of ripeness, standing, and abstention. “This court–indeed any court–lacks jurisdiction because Schwab fails to identify any statute providing it with a private right of action to assert its declaratory judgment claim,” Gibson Dunn’s Dettmer wrote.
Dettmer directed our request for comment to a FINRA spokesperson, who declined to comment beyond the filing.
Schwab’s lawyers at Arnold & Porter filed a motion for preliminary injunction on behalf of the brokerage on Monday that leans heavily on the U.S. Supreme Court’s Concepcion and CompuCredit decisions, which give greater deference to class-action waivers under the Federal Arbitration Act. Schwab argues that FINRA’s rules don’t actually prohibit a broker-dealer and its customers from agreeing to preclude class actions in favor of individual arbitration, but “even if they did, any such rule would be unenforceable under the FAA.”
Schwab’s counsel at Arnold & Porter, GIlbert Serota, declined to comment.
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