Did You Hear the One About the Oligarch Money Launderer and Arms Dealer?

March 11, 2021

For those of us who practice law, there are two distinct aspects of most cases. First, we have the substantive side of the dispute -- the lurid allegations and demands for damages with lots of zeros after the dollar sign. Second, we have the procedural side of things that involves when and where to file a pleading and whether a given court has jurisdiction. More often than not, the early reports about a lawsuit involve so-called motion practice, where we watch the procedural wheels and gears of the law turn and mesh, but sometimes seize up. In a recent federal case, the often boring motion practice reveals an underlying fact pattern that's an eye opener.

The Banned Oligarch Money Launderer and Arms Dealer

As today's featured litigation unwinds, we find Defendants not wanting to be in the United States District Court for the Southern District of New York ("SDNY"), and, accordingly, they file a Motion to Compel Arbitration. Kevin Rollag, Plaintiff, v. Cowen Inc., Cowen and Company, LLC, Gavin O'Reilly, and Scott Lemone, Defendants (Opinion and Order, United States District Court for the Southern District of New York, 20-CV-5138)
http://brokeandbroker.com/PDF/RollagOpSDNY210303.pdf But to dwell on the droll motion practice of Rollag v. Cowen is to lose sight of a fascinating fact pattern. By way of a brief prelude, in May 2018, Plaintiff Kevin Rollag started in Cowen and Company's Investment Banking Division. As set forth in part under the "Background' portion of the SDNY Opinion:

In late 2019, Plaintiff began raising concerns to Defendant O'Reilly and others at the Company about what he viewed as the improper inclusion in a financing deal of an investor who was "a Russian/Israeli oligarch banned from Canada for 19 years, and reputed to be engaged in money laundering and arms dealing." See Compl. ¶¶ 6, 45. On multiple occasions, O'Reilly told Plaintiff to set aside his concerns. Id. ¶¶ 52, 57. In January 2020, a month after he first raised concerns, Plaintiff received an uncharacteristically "aggressive" and critical year-end review, and a lower-than-normal bonus. Id. ¶¶ 100-107, 119. 

Beginning in early March 2020, O'Reilly allegedly engaged in a pattern of hostile, intimidating, and aggressive conduct toward Plaintiff. Id. ¶ 124. On March 6, 2020, Plaintiff's wife was suddenly hospitalized with pregnancy complications and gave birth to the couple's first child about a month earlier than the expected due date. Id. ¶ 126. Plaintiff alleges that O'Reilly became angry at him for taking an unexpectedly early parental leave and, at one point, publicly and aggressively expressed his antagonism on a Zoom call. See id. ¶¶ 126-140. Plaintiff subsequently sent an email to O'Reilly and another managing director that memorialized his reservations about the financing deal. Id. ¶¶ 141-142. Thereafter, O'Reilly and others stopped discussing the deal in front of Plaintiff or on electronic communications that he would receive. Id. ¶ 95. After Plaintiff contacted Defendant Lemone to express concerns about both the deal and O'Reilly's conduct, the Company stopped staffing Plaintiff on new deals. Id. ¶¶ 147, 161-162. On June 4, 2020, Cowen "summarily terminated" Plaintiff. Id. ¶ 168.

pages 3 - 4 of the SDNY Opinion

SDNY Lawsuit

On July 6, 2020, Rollag filed the SDNY lawsuit alleging discrimination on the basis of his parental status, and retaliation on the basis of protected activity, in violation of the Family and Medical Leave Act ("FMLA") and the New York State Human Rights Law. Simultaneously, Rollag filed a complaint with the Occupational Safety and Health Administration ("OSHA") of the United States Department of Labor alleging whistleblower retaliation in violation of Section 806 of Sarbanes-Oxley -- and on January 20, 2021, SDNY granted him leave to amend his Complaint to include the Sarbanes-Oxley claim. In response, the Defendants moved to compel arbitration of all claims other than the Sarbanes-Oxley. 

In seeking remand to arbitration, Defendants cite to the "Arbitration" provision in an April 17, 2018, Terms & Condition of Employment document that was executed by Plaintiff:

17. Arbitration. Any disputes arising out of or relating to your employment or the termination of your employment will be submitted to and resolved exclusively by Financial Industry Regulatory Association in accordance with its rules, unless you are not registered or are not subject to FINRA's jurisdiction, then by the American Arbitration Association ("AAA") pursuant to the AAA's Employment Rules and Mediation Procedures. . . . This arbitration provision applies to, but is not limited to, statutory discrimination, harassment, and retaliation claims under federal, state and local law.

. . .

This Arbitration provision does not apply to: (a) a claim for injunctive relief permitted under these Terms and Conditions of Employment, for which jurisdiction shall be reserved in the federal and/or state courts in New York County, with the parties consenting to personal jurisdiction; (b) any claim arising under Sarbanes-Oxley; and (c) claims prohibited by law from being arbitrated.

Additionally, Defendants cite to the arbitration clause in Restricted Stock Unit and Deferred Cash Award Agreements ("Stock Agreements") that Plaintiff entered into in April 2019 and April 2020:

Any and all disputes with the Company, the Employer, or any Affiliate arising out of or relating to this Agreement or to [Plaintiff's] employment will be submitted to and resolved exclusively by the Financial Industry Regulatory Association ("FINRA") in accordance with its rules, unless [Plaintiff] is not registered or is not subject to FINRA's jurisdiction, then by the American Arbitration Association ("AAA") pursuant to the AAA's Employment Arbitration Rules and Mediation Procedures. . . . This arbitration provision applies to, but is not limited to, statutory discrimination, harassment, and retaliation claims under federal, state and local law.

The FAA Displaces NY CPLR

SDNY notes that the parties do no dispute that the Agreements at issue are subject to the Federal Arbitration Act ("FAA"). The key issue in dispute is whether the parties intended for the issue of arbitrability to be decided at the threshold by an arbitrator or by the Court. SDNY found that the Court was vested with the power to decide arbitrability. Pointedly, SDNY considered that:

Unlike the AAA rules, which provide that " '[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement,'" Contec Corp., 398 F.3d at 208 (quoting AAA Rule R-7(a)), the FINRA Code "does not clearly and unmistakably provide for all issues of arbitrability to be arbitrated," Alliance Bernstein, 445 F.3d at 126 (evaluating NASD Rule 10324, now FINRA Rule 13413). The relevant FINRA rule is more circumscribed than its AAA counterpart, stating only that "[t]he [arbitration] panel has the authority to interpret and determine the applicability of all provisions under the Code." FINRA Rule 13413 (emphasis added). Accordingly, the Alliance Bernstein court found that the parties had delegated arbitrability in that instance on the basis that the particular arbitrability dispute-whether the Code's provision mentioning "employment discrimination . . . in violation of a statute" encompassed a claim under Sarbanes-Oxley-hinged on interpretation of the FINRA Code. 445 F.3d at 126. 

Here, by contrast, the underlying dispute as to whether NY CPLR § 7515 applies to the Agreements does not implicate the FINRA Code. FINRA Rule 13413 therefore does not apply. No other FINRA rule delegates to its arbitration panel determinations about the general scope or validity of an arbitration agreement. As a result, the Agreements' incorporation of the Code does not clearly evince the parties' intent to delegate the arbitrability question at issue here. The Court reaches the same conclusion regarding the Agreements' reference to the AAA rules. Pursuant to each Agreement, AAA rules shall apply to a dispute arising out of Plaintiff's employment only if Plaintiff is not registered with FINRA or subject to its jurisdiction. Evidence submitted by Defendants demonstrates that Plaintiff is in fact registered with FINRA. See McAdams Decl. ¶ 4, Ex. E. The AAA rules are therefore inapplicable. Nor can the Court infer clear and unmistakable evidence of an intent to delegate from their inclusion in the Agreements as an alternative body of rules, applicable to a hypothetical scenario that has no bearing on the facts of this case. 

In accordance with the presumption created by the FAA, the Court will therefore resolve the issue of arbitrability.

at Pages 8 - 9 of the SDNY Opinion

Having accepted the role of determining whether the dispute before it is arbitrable, SDNY considered the dueling arguments that NY CPLR Section 7515 essentially nullified the ability to contract for the arbitration of discrimination claims, versus, that New York law is displaced by the FAA. In finding in favor of Defendants, SDNY explained in part that:

[I]ndeed, as Defendants rightly noted at oral argument, if the parties had wished to exempt discrimination claims from arbitration, they could have done so. Second, and more importantly, the Court rejects Plaintiff's contention that the choice-of-law provision exempts the Agreements from the requirements of the FAA. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) ("When a court interprets [choice-of-law] provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration."); see also DIRECTV, Inc. v. Imburgia, 577 U.S. 47, 54-58 (2015) (holding that choice-of-law provision in arbitration agreement incorporated only "valid state law" and not state law preempted by the FAA). Parties cannot contract their way out of the FAA's displacement of state-law prohibitions on the arbitration of particular types of claims. Simply put, NY CPLR § 7515 is displaced by the FAA in any "arbitration agreement within the coverage of the Act." Moses H. Cone, 460 U.S. at 24. 

Having determined that New York's prohibition on the arbitration of discrimination claims is displaced by the FAA in this instance, the Court finds that the arbitration provisions in the Agreements cover Plaintiff's claims in this case.

at Page 11 of the SDNY Opinion

Accordingly, SDNY granted Defendants' Motion to Compel FINRA Arbitration of Plaintiff's FMLA and state-law claims. The Court invited the parties to present their positions as to whether Plaintiff's Sarbanes-Oxley claim should be stayed pending the resolution of the FINRA arbitration.


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