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Third Circuit Affirms Right to FINRA Arbitration, Widens Circuit Split

The U.S. Court of Appeals for the Third Circuit recently ruled that a broker cannot avoid FINRA arbitration with a customer through contractual forum selection clause that fails to specifically mention arbitration (Reading Health v. JP Morgan, No. 16-4234 (3d Cir. Aug. 7, 2018)). The court’s opinion denying the company’s appeal widens an existing circuit split on the issue of contractual forum selection clauses superseding FINRA’s mandatory arbitration rules.

Under FINRA Rules 12200 and 13200, disputes arising between a FINRA member and its associated persons or customers must be arbitrated through the FINRA arbitration process. In the Third Circuit case, the customer had filed a statement of claim with FINRA in relation to various auction rate securities (ARS) offerings the company had underwritten. The broker refused to arbitrate, and the customer filed in the Eastern District of Pennsylvania seeking to compel arbitration.  The customer won at the district court level, and the broker appealed based on a forum selection clause in its broker-dealer agreements that stated:
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