CHICAGO – A class-action lawsuit against UBS will be settled in arbitration after a recent Supreme Court ruling shifted the framework on which the plaintiffs had relied.
Plaintiffs Shannon Zoller and Alexander Beigelman sued UBS, claiming the company systematically fired employees to avoid paying out annual bonuses. Zoller was terminated from UBS in 2013 and Beigelman in 2015.
The former employees claimed the company employed a scheme in which it promised annual bonuses that were never paid because employees were terminated before the end of the year. Their suit alleged the company “benefit[s] from its employees’ labor without fully paying for it, accrue[s] tax benefits as it writes off bonuses that it never actually pays, and insulate[s] itself from subsequent litigation through its coercive use of severance agreements that require ex-employees to release UBS from any claims.”
Under their employment contracts, UBS employees are required to seek arbitration on legal disputes with the company. In 2018, U.S. District Judge Matthew Kennelly ruled that UBS could not compel arbitration of the claims because their complaints do not violate the arbitration clauses in their employment agreements. UBS appealed, and while that appeal was pending, the U.S. Supreme Court ruled in Epic Systems Corp. v. Lewis that arbitration provisions preventing employees from bringing class or collective proceedings are enforceable.
In light of that ruling, Kennelly found Zoller and Beigelman could not show why they should not be compelled to arbitration.
“The plaintiffs do not dispute that their claims fall within the scope of their arbitration agreements or that those agreements are enforceable under Epic Systems,” Kennelly wrote. “Instead, they contend that the arbitration organization – the Financial Industry Regulatory Authority – is not a suitable forum because it does not permit the effective vindication of their rights.”
The plaintiffs took issue with the organization’s hiring and training standards and its procedural systems, arguments UBS said were forfeited because they were not raised in the original motion to compel arbitration. Kennelly agreed, noting that the recent Supreme Court ruling may have altered the framework of the arbitration agreement, but did not impact the plaintiff’s arguments against the regulatory authority.
“When the plaintiffs submitted their [original] response brief, they were aware that [the outcome of the Epic Systems case could compel their claims to arbitration],” the court wrote. “The plaintiffs’ choice not to make more or different arguments about … the suitability [of the] forum does not excuse their forfeiture.”
Beigelman’s complaint also includes an age discrimination claim, which the plaintiffs said UBS is “judicially estopped from moving to compel arbitration.” They said a UBS attorney said in an earlier hearing that because the two parties had not agreed to arbitrate the discrimination claim as required under Financial Industry Regulatory Authority rules, the claim was not before the arbitration panel. Judicial estoppel, they said, prevents UBS from reversing position now.
Kennelly said the claim is without merit because it was Beigelman who initiated the arbitration proceeding and chose not to include his discrimination claim at that time.
“It is apparent that UBS was not selecting one forum over another but rather describing which issues were in the case at that time,” Kennelly wrote. “It does not follow that in so doing UBS disclaimed its intent to pursue arbitration of a hypothetical … claim that Beigelman had not yet raised.”
Because the case, if it proceeds at all, will now proceed in arbitration, it has been terminated by the court.
Plaintiffs have been represented by Linda Debra Friedman and Matthew J. Singer, of Stowell & Friedman Ltd. of Chicago.
UBS has been represented by the firms of Howard & Howard PLLC of Chicago and Gibson, Dunn & Crutcher LLP of Washington, D.C.