California Court of Appeal Retains State Court Jurisdiction of BTIG Employment Retaliation Lawsuit

December 8, 2021

The allegations in Matthew McLeod's lawsuit against his former employer BTIG are lurid, and whether damages should be awarded will be determined by a trier of fact -- but will that trier be a FINRA arbitration panel or a court? McLeod sued in state court, but BTIG argued that the proper forum for the dispute was before a FINRA arbitration panel. BTIG lost its motion to compel arbitration, and, as such, McLeod's lawsuit moves forward in the California court system.

The Arbitration Clause

In November 2014, BTIG, LLC hired Matthew McLeod as an investment banker subject to his execution of a Form U4, which, in part, stated that [Ed: footnote omitted]:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm . . . that is required to be arbitrated under the rules, constitutions, or bylaws of the SROs indicated in Section 4 (SRO REGISTRATON) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

Matthew McLeod, Plaintiff/Respondent, v. BTIG, LLC, Defendant/Appellant (Opinion, California Court of Appeal , A159016 / December 6, 2021)

Blatant Religious, Racial and Gender Discrimination

All did not go well during McLeod's tenure with BTIG:

According to respondent, during his tenure with BTIG "he witnessed blatant religious, racial and gender discrimination." For example, he observed a managing director making anti-Semitic comments regarding a key client of BTIG. That same manager also directed BTIG staff to screen out female and African-American job applicants. Respondent complained directly to BTIG executives about this discrimination, but the company reportedly "did not investigate, and instead reprimanded [respondent] for making things 'awkward.' Shortly thereafter, despite never having received a negative performance review or feedback, [respondent] was fired."

at Page 3 of the CACtApp Opinion

2019 State Court Complaint

In June 2019, McLeod filed a Complaint against BTIG in the San Francisco City and County Superior Court asserting:

causes of action for retaliation in violation of the FEHA, wrongful termination in violation of public policy, injunctive relief, and unfair business practices. He alleged that in addition to being wrongfully terminated, BTIG submitted fraudulent information to FINRA resulting in a damaging designation on his publicly available FINRA profile. 

at Page 3 of the CACtApp Opinion

BTIG's Motion to Compel FINRA Arbitration

BTIG moved to compel FINRA Arbitration and to stay the state court lawsuit. BTIG asserted that pursuant to the Form U4, McLeod had agreed to arbitrate any controversy arising between him and the company involving his employment and its termination. In response, McLeod argued that the arbitration agreement was void as unconscionable and that his claims were exempt from arbitration. In ruling on BTIG's Motion to Compel, in September 2019, the trial court rejected McLeod's:

unconscionability argument and granted BTIG's petition to compel arbitration of his unfair business practices claim. The court denied the petition as to respondent's claims for retaliation and wrongful termination, concluding those claims were exempt from arbitration under FINRA's arbitration rules because the rules expressly exclude claims "  'alleging employment discrimination, including a sexual harassment claim, in violation of a statute.' " The court also denied the petition as to the claim for injunctive relief because that claim "is best characterized as part of [respondent's] FEHA retaliation claim." The court stayed the case pending completion of arbitration on the unfair business practices claim. . . .

at Page 4 of the CACtApp Opinion

BTIG Appeals

BTIG filed an Appeal with CACtApp [Ed: footnote omitted]:

BTIG, LLC (BTIG) appeals from an order denying its motion to compel arbitration as to three of the four causes of action alleged in a complaint filed by BTIG's former employee, respondent Matthew McLeod. The three claims, which allege claims for retaliation, wrongful termination, and injunctive relief, are based on respondent's contention that BTIG retaliated against him for reporting acts of discrimination in violation of the Fair Employment and Housing Act (FEHA) (Gov. Code, § 12900 et seq.). BTIG contends that respondent's claims must be submitted to arbitration even though the parties' arbitration agreement excludes claims that allege "employment discrimination . . . in violation of a statute." The trial court concluded that the three claims are not arbitrable because they fall within this exclusion. 

at Page 1 of the CACtApp Opinion

Although CACtApp concedes that the Form U4's arbitration provision is "clear and unambiguous," the appellate court acknowledges that:

[A]lthough the FINRA rules permit the arbitration of statutory employment discrimination claims if the parties privately agree to doing so, BTIG does not identify any such agreement between the parties here. Accordingly, the question presented in this appeal is whether the three causes of action for retaliation, wrongful termination, and injunctive relief allege claims of employment discrimination in violation of a statute. If they do, those claims cannot be arbitrated pursuant to the unambiguous terms of the parties' arbitration agreement. 

at Page 7 of the CACtApp Opinion


BTIG argued that McLeod did not allege that he was personally harassed or discriminated against, and, as such, his claims do not properly fall under FEHA. Further, the former employer argued that mere "retaliation" does not constitute employment discrimination. In rejecting that argument, the appellate court notes, in part that "[R]etaliation is a form of discrimination because it subjects a complainant to differential treatment on the basis of his or her opposition to discriminatory acts committed by the employer. . . ." at Page 11 of the CACtApp Opinion

Wrongful Termination

BTIG also argued that McLeod's allegation that he was "fired because he had opposed, protested, and reported discriminatory practices," constitutes a common law claim (in contradistinction to a statutory claim) for wrongful termination that is not exempt from arbitration. In rejecting that assertion, CACtApp found in part that:

Even if, as a general matter, a cause of action for wrongful termination in violation of public policy arises from common law and need not depend on the violation of an express statutory provision, there is no dispute that in this action, respondent's wrongful termination claim is predicated entirely on a violation of the FEHA. Respondent's wrongful termination claim mirrors the allegations of his retaliation claim by asserting that his termination was an act of retaliation for "opposing, protesting, and reporting discriminatory practices" in violation of the FEHA. Indeed, in the absence of these statutory allegations, respondent would have no basis upon which to state a claim for wrongful termination. Accordingly, respondent's wrongful termination claim is "[a] claim alleging employment discrimination . . . in violation of a statute." (Rule 13201(a).)

at Page 13 of the CACtApp Opinion 

Injunctive Relief

McLeod sought injunctive relief from the trial court based upon his allegation that BTIG had falsely reported to FINRA that he had been fired "because his performance did not meet expectations." The lower court found that the injunctive relief was exempt from arbitration because such a request is not solely a "cause of action" but also a remedy to redress the alleged employment discrimination and as a means to prevent a recurrence of said conduct. at Page 16 of the CACtApp Opinion. In affirming the lower court, CACtApp found in part that:

[W]e agree with the trial court that respondent's request for injunctive relief is properly understood as a request that a remedy be entered in response to BTIG's retaliation against him in violation of the FEHA. Entitlement to such relief will require respondent to 17 prove his retaliation claim. And because we have concluded that respondent's cause of action for retaliation is exempt from FINRA arbitration, so too is respondent's request for equitable relief.

at Pages 16 - 17 of the CACtApp Opinion 

Delegation of Arbitrability

Perhaps best viewed as an argument of last resort, BTIG contended that the issue of arbitrability should be handled by a FINRA arbitrator and not the state courts. CACtApp somewhat dismissively noted that:

[B]ecause BTIG asked the trial court to exercise its authority to determine the arbitrability of his claims, BTIG is estopped from advancing this contention on appeal under the doctrine of invited error. The purpose of the invited error doctrine is to "prevent a party from misleading the trial court and then profiting therefrom in the appellate court." 

at Page  17 of the CACtApp Opinion 

Accordingly, CACtApp affirms the Order denying BTIG's Motion to Compel FINRA Arbitration.