In our June 24, 2011, article for Outside Counsel, titled ” How ‘AT&T Mobility’ Changes the Course of Securities Class Actions, Arbitrations,” we discussed the then-recent U.S. Supreme Court decision in AT&T Mobility v. Concepcion.1 At that time, we predicted that Concepcion, which held the Federal Arbitration Act (FAA) preempts state law defenses to contractual class action and arbitration waivers, would likely lead to a conflict between the FAA and long-standing FINRA rules prohibiting member firms from compelling class litigants to arbitrate their disputes. Almost two years after Concepcion, that prediction has come true.
On Feb. 21, 2013, a FINRA Hearing Panel issued a detailed, 48-page opinion in the matter of Department of Enforcement v. Charles Schwab & Co., holding that, consistent with Concepcion, the brokerage could not be penalized by FINRA for inserting a class action and arbitration waiver provision into their customer agreements.2 While there remains a possibility that the opinion will be overturned, the decision’s reasoning is sound and will likely result in other brokerage firms following Schwab’s lead.
