United States District Court, D. Massachusetts
REPORT AND RECOMMENDATION RE: DEFENDANTS' MOTION TO COMPEL ARBITRATION AND STAY PROCEEDINGS (DOCKET ENTRY # 18)
MARIANNE B. BOWLER, Magistrate Judge.
In this employment termination dispute, defendants CMFG Life Insurance Company ("CMFG"), CUNA Brokerage Services, Inc. ("CBSI"), Tim Halevan ("Halevan"), CBSI's chief compliance officer, and Stephen Michael Collins ("Collins"), a sales manager at CMFG, (collectively "defendants") seek to compel plaintiff Swan Shen ("Shen") to arbitrate counts III through VII in a seven count complaint and to stay this litigation during the pendency of the arbitration proceedings under the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 3-4. (Docket Entry # 18). Shen opposes the motion both as to arbitration and a stay. (Docket Entry # 23). After conducting a hearing, this court took the motion (Docket Entry # 18) under advisement.
Shen, a Massachusetts resident, originally filed the complaint in the Massachusetts Superior Court Department (Suffolk County). The claims all arise under state law. The first two counts consist of employment discrimination claims under Massachusetts General Laws chapter 151B based on "national origin, color, ancestry and/or race" (Count I) and gender (Count II). (Docket Entry # 8). The remaining counts allege: (1) a failure to pay wages in violation of the Massachusetts Wage Act, Massachusetts General Laws chapter 149 ("the Wage Act") (Count III); (2) a breach of the covenant of good faith and fair dealing (Count IV); (3) defamation (Count V); (4) an intentional infliction of emotional distress (Count VI); and (5) an intentional interference with contractual relations (Count VII).
On the basis of diversity jurisdiction, defendants removed this action to the United States District Court for the District of Massachusetts and filed an answer. Without engaging in any significant discovery (Docket Entry # 20), defendants filed the motion to compel.
Briefly summarized, the complaint alleges that defendants discriminated against Shen, an Asian female born in China, during her employment as a financial advisor with CMFG. (Docket Entry # 8, ¶¶, 11-14, 95-108). She was also a registered representative under the Financial Industry Regulatory Authority ("FINRA") with CBSI. (Docket Entry # 8, ¶ 11). After a successful career as a top financial advisor at CMFG, the company terminated her employment in August 2013 and refused to pay her previously earned incentive pay. (Docket Entry # 8, ¶¶ 11, 14-18, 53, 60, 61, 83-86). Halevan then drafted and CBSI filed a Uniform Termination Notice for Securities Industry Registration required by FINRA ("Form U-5") containing purportedly false and defamatory reasons for the termination, namely, copying and pasting client signatures, altering forms and using consolidated customer statements without pre-approval. (Docket Entry # 8, ¶¶ 65, 69-73, 126, Ex. A). During her employment, CMFG repeatedly denied her a full-time assistant even though advisors at her level typically had one, if not two, full-time assistants. (Docket Entry # 8, ¶¶ 19-22). After her termination, CMFG replaced her "with two white male employees" having either more customer complaints or less job stability than Shen. (Docket Entry # 8, ¶ 58).
In March 2001, Shen began working in Waltham, Massachusetts as a financial advisor at a credit union for CMFG. (Docket Entry # 8, ¶¶ 11, 13) (Docket Entry # 8, p. 30). CMFG requires its financial advisors to register with CBSI, "a FINRA-registered broker/dealer that... provides brokerage services to credit union members." (Docket Entry # 8, ¶¶ 7, 11) (Docket Entry # 21, ¶ 7). FINRA, the successor entity to NASD, "is a self-regulatory organization and national securities association that is registered with the Securities and Exchange Commission." WC Capital Mgmt., LLC v. UBS Securities, LLC, 711 F.3d 322, 326 n.2 (2nd Cir. 2013); (Docket Entry # 21, ¶¶ 3, 4). As a FINRAregistered broker/dealer (Docket Entry # 8, ¶ 7) (Docket Entry # 21, ¶¶ 3, 4), CBSI was a "member" of FINRA. See FINRA Rule 13100(o), http://www.finra.org/industry/finra-rules (henceforth "FINRA Rules" or "FINRA Rule") (defining a "member" as "any broker or dealer admitted to membership in FINRA").
All persons engaged "in the investment banking or securities business of a member" must register with NASD or its successor, FINRA. See FINRA Rule 1031(a) ("[a]ll persons engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with NASD"); (Docket Entry # 21, ¶ 5). As part of her employment with CMFG, Shen therefore became "a FINRA-registered representative with [CBSI]." (Docket Entry # 8, ¶ 11).
The registration process entailed completing a Uniform Application for Securities Industry Registration or Transfer form ("Form U-4"), which contains an arbitration clause. (Docket Entry # 21, ¶ 8) (Docket Entry # 21-3). Prior to completing the form, Shen authorized CBSI to review her record with the central licensing and registration depository for the United States securities industry and its regulators ("CRD"). See http://www.finra.org/industry/crd (FINRA operates "central licensing and registration system for the U.S. securities industry and its regulators, " which contains "qualification, employment and disclosure histories of more than 643, 320 active registered individuals"); (Docket Entry # 21, ¶ 8). On January 22, 2001, Shen signed an NASD/CRD Authorization form ("CRD Form"). (Docket Entry # 21-2). The CRD Form includes the following language advising Shen that the Form U-4 contained an arbitration clause:
Before signing the U-4, you should understand the following: (1) You are agreeing to arbitrate any dispute, claim or controversy that may arise between you and your firm, or a customer, or any other person, that is required to be arbitrated under the rules of the self-regulatory organizations with which you are registering. This means you are giving up the right to sue a member, customer, or another associated person in court, including the right to a trial by jury, except as provided by the rules of the arbitration forum in which a claim is filed.
(Docket Entry # 21-2). The form additionally advised Shen that an employment discrimination claim "is not required to be arbitrated under NASD rules." (Docket Entry # 21-2).
On March 21, 2001, Shen signed the Form U-4. (Docket Entry # 21-3, pp. 10-11). The form, signed by Shen and submitted by CBSI to NASD, includes the following arbitration clause: "I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the [self-regulatory organizations] indicated in Item 11 as may be amended from time to time." (Docket Entry # 21-3, pp. 1, 9) (Docket Entry # 21, ¶ 11). Shen identified NASD as the applicable self-regulatory organization ("SRO"). NSAD "changed its name to FINRA in 2007, but otherwise maintained its function and rules as a self-regulatory organization." (Docket Entry # 21, ¶ 4). FINRA Rule 13201 excludes employment discrimination claims from mandatory arbitration, i.e., counts I and II.
Notwithstanding Shen's status as a FINRA-registered representative with CBSI, she was an employee of CMFG. (Docket Entry # 8, ¶¶ 11, 13) (Docket Entry # 21, ¶ 6). Throughout her employment at CMFG, she "was one of the top financial advisors at" the company. (Docket Entry # 8, ¶ 14). Indeed, she built a customer base at the credit union with assets totaling approximately $163 million. (Docket Entry # 8, ¶ 15). During her tenure, she had only one customer complaint, which CMFG denied as without merit. (Docket Entry # 8, ¶ 16).
During her employment, Shen was a member of the senior advisor leadership team ("SALT") based on her seniority and annual performance. As a member of SALT, She was "entitled to receive annual business stipends." (Docket Entry # 8, ¶¶ 27-28) (Docket Entry # 21-1, p. 16). A registered representative agreement sets out the calculation. (Docket Entry # 21-1, p. 16). Although eligible for SALT in 2009, 2010 and 2011, "Collins prevented her membership." (Docket Entry # 8, ¶ 31).
Shen was the only Asian female financial advisor working for CMFG throughout the "country out of nearly 500 financial advisors." (Docket Entry # 8, ¶ 23). Typically, financial advisors have one or two full-time assistants. (Docket Entry # 8, ¶ 21). Shen had only a single part-time assistant. (Docket Entry # 8, ¶ 19).
Eight months before the termination, "CUNA, " i.e., CBSI or CMFG,  issued "a Corrective Action Notice and Letter of Concern" to Shen "because of signature concerns and form alterations." (Docket Entry # 8, n.2). Shen promptly admitted to the conduct and thereafter "obtained [the] affected clients' signatures on the proper forms." (Docket Entry # 8, n.2). In early August 2013, FINRA sent Shen a letter dated August 2, 2013 regarding her use of a document she had created for client meetings captioned "Periodic Review Meeting Agenda." (Docket Entry # 8, ¶ 32). Shen had stopped using the document and providing it to clients in December 2012. (Docket Entry # 8, ¶ 47). On or about August 4, 2013, she quickly resolved the matter with FINRA "by agreement." (Docket Entry # 8, n.3).
On August 28, 2013, Collins and his supervisor came into Shen's office, handed her a termination letter and "informed her that they had removed her registration with" CBSI. (Docket Entry # 8, ¶¶ 53-55). After Shen's termination, Halevan drafted and CBSI filed the Form U-5 with the aforementioned reasons for the termination. (Docket Entry # 8, ¶¶ 65, 69-70, 126 & Ex. A) (Docket Entry # 21, ¶ 14). After terminating her employment, CBSI replaced Shen with two white male employees.
Under the registered representative agreement, "Shen was entitled to receive" certain incentive pay. (Docket Entry # 8, ¶¶ 78, 80) (Docket Entry # 21-1). Shen earned incentives based on procuring new business as well as retaining existing accounts. Upon her termination, she had completed all of the work to earn the incentive pay. Collins, ...