September 18, 2019 Quotes Andrew Kay and Randy Seybold on Virginia's Ban on Arbitration Clauses in Advisor Contracts

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On September 18, 2019, Andrew Kay and Randy Seybold were quoted in regarding Virginia's State Corporation Commission's ban on advisors using mandatory arbitration clauses in advisory contracts. According to the article, the ban is unlikely to withstand a legal challenge.

Mandatory arbitration clauses are "contrary to the fiduciary duty" that investment advisors owe to their clients, according to Virginia's state regulators. But Seybold and Kay said that the rule "is almost certainly preempted by [the Federal Arbitration Act] and therefore unenforceable."

"The agency's stated rationale for the rule is that mandatory arbitration provisions in investment advisors' clients' contracts are 'inherently unfair,'" the lawyers write. "But that kind of reasoning reflects the very 'hostility to arbitration agreements' that was the basis for Congress's enactment of the FAA in the first place. As a result, it should not be surprising that the Supreme Court has repeatedly rejected this type of hostility to arbitration in holding that state laws prohibiting arbitration agreements are preempted by the FAA."