Federal Court Affirms Federal Jurisdiction in FINRA Arbitration Appeal

September 17, 2020

It started as a FINRA arbitration in which an associated person alleged that she was fired in retaliation for reporting misconduct. Among her claims, she alleged that she was a protected whistleblower. In her Complaint, she had named Ameriprise and three individual respondents. The FINRA Arbitration Panel granted Respondents' motions to dismiss. The case moved on to federal district court, and, from there, to federal appeals court. 

2018 FINRA Arbitration Claim

In a FINRA Arbitration Statement of Claim filed in September 2016 and as amended thereafter, associated person Claimant Badgerow alleged that:

non-party REJ Properties, Inc. d/b/a Walters, Meyer, Trosclair & Associates' ("Company") unwritten compensation agreement and payment method of commissions violated SEC and FINRA regulations; Claimant was fired in retaliation for reporting the Individual Respondents' conduct to Ameriprise in violation of Louisiana Law; non-party Company tortiously interfered with Claimant's employment agreement; and Claimant's employment agreement's non-compete and non-solicitation provisions are invalid and non-party Company tortiously interfered with Claimant's book of business after wrongful termination in violation of Louisiana's Unfair Trade Practices & Consumer Protection Law ("LUPTA"). In Claimant's Second Amended and Restated Statement of Claim, she added as a cause of action that Ameriprise was a joint employer and is jointly and severally liable for the actions of the Individual Respondents and non-party Company. The causes of action relate to Claimant's allegations that she was involuntarily terminated from her employment with non-party Company, a franchise of Ameriprise. 

Claimant Badgerow sought back pay from the non-party Company; front-pay damages to cover her period of unemployment and loss of matching benefits; treble damages of $1.125 million for the non-party Company and Respondent Walters' alleged tortious interference with her book of business; fees; costs; and a declaratory judgment that Respondent Ameriprise's conduct created a joint employer relationship with the non-party Company. An allegation by Claimant that in 2015 she was subjected to harassment that was so severe by Respondent Meyers and his team that she sought medical attention was removed after Claimant objected to an Order of Production and she withdrew that allegation. Respondents generally denied the allegations, and Respondents Meyer, Trosclair, and Walters filed Counterclaims asserting breach of contract and violation of the Louisiana Trade Secrets Act. 

In the Matter of the Arbitration Between Denise A Badgerow , Claimant, v. Ameriprise Financial Services, Inc., Thomas James Meyer, Ray Anthony Trosclair, and Gregory Alan Walters, Respondents 
Thomas James Meyer, Ray Anthony Trosclair, and Gregory Alan Walters, Counter-Claimants, v. Denise A Badgerow, Counter-Respondent  (FINRA Arbitration 16-02759/ December 28, 2018) 

The FINRA Arbitration Panel dismissed Claimant Badgerow's claims with prejudice and denied the Counterclaim. As set forth in part in the FINRA Arbitration Decision:

[A]fter hearing arguments of counsel, the Panel granted Ameriprise's motion to dismiss on the basis that Claimant failed to prove Ameriprise was a "joint employer." The Individual Respondents' motions to dismiss were deferred pending additional briefing by the parties.
. . .
On November 20, 2018, the Panel and the Individual Respondents held a recorded in person conference to hear the parties' oral argument on the Individual Respondents' motions to dismiss. The Individual Respondents argued that Claimant's theories of recovery were legally and/or factually without merit. Claimant opposed the motions to dismiss. After due deliberation, the Panel granted the Individual Respondents' motions to dismiss and found that Claimant did not: 1) establish liability for the Individual Respondents under the Louisiana Whistleblower Act; 2) prove a tortious interference with contract claim against the Individual Respondents; and 3) prove any claim against the Individual Respondents under the Louisiana Unfair Trade Practice Act or establish any other basis for recovery under the Amended and Restated Statement of Claim. 

Motion to Vacate at EDLA

Following the FINRA Arbitration Award of December 2018, in May 2019, Badgerow filed a Petition to Vacate in Louisiana state court based upon allegations of fraud committed by Respondents Walters, Meyer and Trosclair (herein, the "Defendants") in the FINRA arbitration upon the FINRA arbitrators. The Defendants removed the state action to the United States District Court for the Eastern District of Louisiana, where Plaintiff Badgerow filed a Motion to Remand citing lack of federal subject-matter jurisdiction; and, Defendants filed a Motion to Confrim the FINRA Arbitration Award. 
Denise A. Badgerow, Plaintiff, v. Greg Walters, Thomas Meyer, and Ray Trosclair, Defendants  (Order, United States District Court of Eastern District of Louisiana ("EDLA"), 19-CV-10353 / June 26, 2019)
http://www.brokeandbroker.com/PDF/BadgerowOrderEDLA190626.pdf In part, EDLA characterized the matters before it as follows [Ed: footnotes omitted]:

Civil Action 19-10353 is a petition to vacate the arbitration award that this Court has already confirmed, on the basis of fraud allegations that this Court has already determined to be legally frivolous. (17-9492-Rec. Doc. 161). Once the case was removed the Principals moved to confirm the arbitration award issued in their favor. Badgerow then moved to remand the case to state court. 

Given that the Court has already considered and rejected Badgerow's fraud challenge to the arbitration award, the sole question before the Court is whether it has subject matter jurisdiction over the removed action so as to grant the Principals' motion to confirm the award and enter a final judgment in their favor. Both parties have provided extensive briefing in conjunction with Badgerow's motion to remand the case to state court. Badgerow's position is straightforward: She asserts that under the well-pleaded complaint rule a federal court lacks jurisdiction over her petition to vacate because it raises only state law issues. After all, the fraud allegations that Badgerow raises in resisting the award are directed solely at her state law whistleblower claim. The Principals' position is likewise straightforward: They contend that federal question jurisdiction applies because the Louisiana whistleblower claim was premised on violations of federal law, and that the Court should apply the "look through" approach . . . ..

at Pages 2 - 3 of the EDLA Order

In denying Plaintiff's Motion to Remand to state Court and in granting Defendants' Motion to Confirm the FINRA Arbitration Award, EDLA finds in part that:

[B]adgerow's position is that the petition only involves state law because she only seeks to vacate the award with respect to the state law whistleblower claim. To the contrary, the award was based on state law as well as federal law because Badgerow included as part of the arbitration her joint employer claims that were grounded on federal employment law. This Court is persuaded that Badgerow cannot deprive the Court of subject matter jurisdiction over an action to vacate the award by stripping off a single state law claim as a basis for attacking the award.7 Because the award itself included federal claims, the Court is persuaded that federal question jurisdiction applies notwithstanding the artfully pleaded petition. Therefore, the motion to remand is denied.

at Pages 4 - 6 of the EDLA Order

5Cir Appeal

On appeal to the United States Court of Appeals for the Fifth Circuit ("5Cir"), Badgerow only challenges EDLA's finding that it had jurisdiction to rule on the merits of her petitions to vacate and remand. Denise A. Badgerow, Plaintiff/Appellant, v. Greg Walters, Thomas Meyer, and Ray Trosclair, Defendants/Appellees (Opinion, United States Court of Appeals for the Fifth Circuit ("5Cir"), No. 19-30766 / September 15, 2020)
http://brokeandbroker.com/PDF/BadgerowOp5Cir200915.pdf  In parsing through Badgerow's arguments on appeal, 5Cir frames the issue before it as follows [Ed: footnotes omitted]:

The district court's application of the look-through analysis proceeded in the following steps: (1) Federal jurisdiction exists over the petition to vacate if at least one of Badgerow's claims in the FINRA arbitration was predicated on federal law; (2) Badgerow's joint-employer claim against Ameriprise in the FINRA arbitration was predicated on federal employment law; (3) The joint-employer claim against Ameriprise in the FINRA arbitration may confer federal jurisdiction, even though the dismissal of that claim is not a dismissal that Badgerow seeks to vacate with her petition to vacate; and (4) Federal jurisdiction therefore exists over the petition to vacate because of the federal claim against Ameriprise in the FINRA arbitration. 

On appeal, Badgerow argues that the third step of the analysis was erroneous because only claims in the FINRA arbitration that were made against the Principals, the defendants in the petition to vacate, may be considered for the purposes of determining federal jurisdiction over the petition. She thus argues that because she does not seek to vacate the FINRA arbitrators' dismissal of her claim against Ameriprise and has not named Ameriprise as a defendant in this action, the claim against Ameriprise in the FINRA arbitration cannot be considered in the look-through analysis. We next move to the merits of this objection.

at Pages 5 - 6 of the 5Cir Opinion

In ultimately denying Badgerow's arguments and affirming EDLA, 5Cir finds in part that:

In this opinion, we have held that the district court had jurisdiction over Badgerow's petition to vacate, which was filed in, and removed from, the Louisiana state court. To resolve that question, we have first acknowledged that we are bound by our court's Quezada decision to apply the look-through analysis as defined by the Supreme Court in Vaden. Applying the look-through analysis, we have held, first, that the district court correctly found that Badgerow's Title VII declaratory judgment claim against Ameriprise in the FINRA arbitration was a federal-law claim. We have held, second, that all of Badgerow's claims against the Principals and Ameriprise in the FINRA arbitration arose from the same common nucleus of operative fact, and that under the principle of supplemental jurisdiction, federal jurisdiction obtains over Badgerow's state-law tortious interference and whistleblower claims. The district court therefore properly held that Badgerow's federal claim against Ameriprise in the FINRA arbitration invested federal jurisdiction over Badgerow's Louisiana petition to vacate the FINRA arbitration award as to the Principals. Because there was federal jurisdiction over the removed petition to vacate, denial of remand back to the Louisiana state court was proper.

at Pages 8 - 9 of the 5Cir Opinion

Bill Singer's Comment

We read through a FINRA Arbitration Award, the EDLA Opinion, and the 5Cir Opinion and we never quite understand what constituted the guts of Badgerow's case. In part, the lack of disclosure is engendered by the procedural issues that drove the case from arbitration to the federal courts. On the other hand, it's tough to put everything into context without some understanding of what prompted Badgerow's Complaint. 

In Denise A. Badgerow, Plaintiff, v. REJ Properties, Inc., et al., Defendants  (Order, EDLA, 17-CV-09492 / January 10, 2018) 
http://brokeandbroker.com/PDF/BadgerowOrderEDLA180110.pdf, we come across Badgerow's initial effort to file her claims in federal court. That case ended with EDLA granting Defendant Ameriprise's Motion to Dismiss for Failure to State a Claim and to Compel Arbitration; and denying  Defendant REJ Properties, Inc. d/b/a Walters, Meyer, Trosclair & Associates Motion to Dismiss Class Claims and Motion to Compel Arbitration, Dismiss Action, and Strike Jury Demand. All of which sent us into the 2018 FINRA Arbitration and down the tortured trail of jurisdictional disputes. Be that as it may, the 2018 EDLA Order asserts in pertinent part that [Ed: footnotes omitted]:

Ameriprise is a registered broker dealer that offers financial products and services to customers through several models, including through a franchisee-based platform of independent advisors who own and operate their own businesses, as franchises. (Rec. Doc. 27-2, Odash decl. ¶ 3). The principals of WMT-Gregory Walters, Thomas Meyer, and Roy Trosclair-were independent franchise advisors for Ameriprise during the period of Badgerow's employment. (Id. ¶ 4). Ameriprise did not have a franchise agreement with REJ Properties, Inc. (Id. ¶ 5).

After completing a 90-day probationary period with WMT, Badgerow was promoted to Associate Financial Advisor ("AFA") on January 1, 2014. (Rec. Doc. 1, Complaint § 12). Her work as an AFA was supervised by Gregory Walters, one of three directors at WMT. (Id. ¶ 12). 

Badgerow contends that she had an oral agreement with WMT that she would receive a base salary of $30,000 per year plus commissions. Badgerow was not provided a written compensation agreement. (Id. ¶ 14). Badgerow complains that WMT retroactively changed her compensation structure in October 2014 after she made a large commissioned sale. (Id. ¶ 15). Badgerow alleges that the new compensation structure was enforced only against her and not against similarly situated male employees. (Id. ¶ 17). She also alleges that she was earning quarterly bonuses that were half the amount of her male counterparts. (Id. ¶ 24). 

Badgerow also alleges that she was subjected to constant office harassment after she declined to work as Walters' assistant. The harassment was instigated by Tommy Meyer, another director at WMT, and his team, including other females. (Id. ¶¶ 20-21). Even though Badgerow was promoted to the role of Financial Advisor ("FA"), Meyer determined that all FAs would keep the title of "associate" until they attained five years of service with WMT. (Id. ¶ 23). In December 2015, after complaining constantly to Walters, Badgerow was moved to a separate office to avoid any further distress to Meyer, segregating her from the rest of the WMT team and putting her in an office all by herself. (Id. ¶ 25). 

On July 26, 2016, Walters terminated Badgerow after she refused to resign. (Id. ¶ 29). According to the Complaint, Walters fired Badgerow in retaliation for speaking with Marc Cohen, a compliance officer with Ameriprise. (Id. ¶ 29).

Badgerow filed a Charge of Discrimination against WMT on September 8, 2016, claiming gender discrimination and retaliation. (Rec. Doc. 27-3 at 5). On October 6, 2016, she amended the charge to include class allegations. (Id. at 8). On June 27, 2017, the EEOC issued a dismissal and notice of rights (Id. at 13).

at Pages 2 - 4 of the 2018 EDLA Order

Federal Court Affirms Federal Jurisdiction in FINRA Arbitration Appeal (BrokeAndBroker.com Blog)

SEC Charges Private Company with Fraud (SEC Release)

SEC Adopts Amendments to Enhance Retail Investor Protections and Modernize the Rule Governing Quotations for Over-the-Counter Securities (SEC Release)

Montana Broker Sentenced to Prison for Multimillon-Dollar Investment-Fraud Scheme (DOJ Release)

Seven International Cyber Defendants, Including "Apt41" Actors, Charged In Connection With Computer Intrusion Campaigns Against More Than 100 Victims Globally / Two Defendants Arrested in Malaysia; Remaining Five Defendants, One of Whom Allegedly Boasted of Connections to the Chinese Ministry of State Security, are Fugitives in China (DOJ Release)

CFTC Charges Texas Man with Misappropriating Over $8.3 Million In Customer Funds / Defendant Agrees to Liability, Federal Judge Issues Permanent Injunction and Orders Registration, Trading Bans (CFTC Release)

CFTC Charges 4 Florida Men, 1 New Jersey Man, and Their Companies in $4.75 Million Forex Ponzi Scheme / CFTC Secures Federal Court Ruling Freezing Assets (CFTC Release)

Russian Nationals Indicted for Conspiracy to Defraud Multiple Cryptocurrency Exchanges and Their Customers / Defendants Allegedly Perpetrated World-Wide Attacks on Cryptocurrency Platforms and Manipulated the Market to Defraud Customers of at Least $16.8 Million (DOJ Release)