Forcing Customers to Waive Rights Has Consequences

Linden vs. American Express Financial Advisors – since forcing Claimant to give up her rights under California law, court vacates order compelling arbitration.

Linden v. American Express Financial Advisors, Inc., No. CIV 205839 (Cal. Super. Ct., Ventura Cty., 9/25/02). Agreement to Arbitrate * Enforceability * Equitable Doctrine (Impossibility; Impracticality; Unconscionability).

Forcing a party to waive state law protections in order to obtain arbitration services can result in an unenforceable agreement.

Responding to the existence of ethics standards for arbitrators in California (“California Standards”) that are inconsistent with its own arbitration rules, the NASD has informed parties awaiting the appointment of arbitrators to their cases that their options are limited to: (1) mediating a settlement; (2) accepting an out-of-state hearing situs, or (3) waiving the California Standards and arbitrating in California.

This case, for which we have transcripts of two oral arguments, illustrates the constantly changing landscape with which California lawyers, courts and parties have been dealing and the arguments and concerns that arise, when one party wants to pull out. At the first scheduled argument on September 9, Ms. Linden, an elderly person, “not particularly healthy,” with a California lawyer, fought the notion of arbitrating out-of-state and the Court sympathized. “…[H]aving to take an attorney, who I assume is not licensed to practice out of state, and witnesses from here and herself from here, overcoming that burden, if it goes forward, is beyond inconvenient, and I don’t think it is appropriate to order her to do that.

Because the Court anticipated a possible resolution by the federal court in the NASD-NYSE v. Judicial Council case in late September, it scheduled further argument after that date.

At the second round, there was no legal resolution in the Judicial Council case as to whether the California Standards would apply to NASD arbitration, but AEFA counsel was able to argue that NASD would soon offer the waiver option. Thus, he posited, if Ms. Linden truly wanted to arbitrate, she could proceed with no fewer rights that she had before the California Standards were adopted, simply by abiding, as she had agreed to do, by the NASD arbitration rules.

Ms. Linden argues, though, that she has to waive her protections under California law, in order to get an arbitration hearing. The Court states its concern that the Standards have been designed to apply to “every arbitration that had not yet occurred…. [T]here are people all over the State of California who are required to comply with mandatory arbitration to which they agreed before the rules came into effect and they now have the benefits of new rules.” Why should they “have to waive the benefits of California law” just “because their dispute happens to involve stock….[?]”

AEFA’s counsel tries to bring the Court back to the fact that the contract to arbitrate can be performed and that it is neither impractical or impossible to do so. Nevertheless, the Court declares itself ready to rule: “I’m going to find that to arbitrate out of state would be impractical under the specific facts of this case….; I’m going to find that it is inherently unfair and a violation of Mrs. Linden’s due process to require her to waive the rights that she has under California’s arbitration disclosure statute in order to proceed with arbitration in California; And I’m going to vacate the order dismissing the proceeding and compelling arbitration.” (ed: An appeal in this case has been filed with the Second Appellate District of the California Court of Appeal.) (SLC Ref. No. 03-02-04)

Copyright 2003 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.


Need help with a securities law issue? Call New York Securities Lawyer at 212-509-6544 or visit the website. Representing investors and advisers across the country for over 30 years.

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.