Posts tagged with "fired"

Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Continue Reading

Non-Compete Enforceability: Must Protect Legitimate Interest & Not Be Punitive

Non-Compete Enforceability: Must Protect Legitimate & Not Be Punitive
Ranciato v. Nolan, 2002 Conn. Super. LEXIS 489

Historic Restoration and Appraisal, LLC (HRA) was engaged in the business of restoring primarily detached single-family homes that had suffered casualty damage from fire and/or water. The company employed Mr. Timothy Nolan to work as a project manager for jobs located throughout the state of Connecticut. Mr. Nolan’s employment began on November 18, 1996 and the company informed him shortly thereafter that his employment was contingent on the execution of a non-compete agreement. The parties signed the restrictive covenant on November 21, 1996 and it prohibited Mr. Nolan from performing the same services offered by HRA in the states of Connecticut, Massachusetts, and Rhode Island for a period of three years. The agreement did not affect Mr. Nolan’s ability to offer painting or home improvement services that were not in connection to fire and/or water damage. In exchange for this employment restriction, the agreement stipulated that Mr. Nolan’s annual salary would be $48,500. He felt that he would be fired if he failed to sign the agreement and signed it without consulting a legal professional.
HRA fired Mr. Nolan on January 24, 1997 after repeated incidents of discovering that he was receiving lewd and inappropriate materials via the company’s fax machine. He began to work for McGuire Associates shortly after HRA discharged him and performed marketing and business development services in the capacity of his new position. Unlike HRA, McGuire is a preferred builder and the court held that it did not compete with HRA. The company sued Mr. Nolan in Connecticut state court and asked the court to enforce the non-compete agreement that the parties had executed. The Superior Court of Connecticut in New Haven rejected HRA’s request and held that the company “suffered no financial loss as a result of the defendant’s employment by McGuire”.
According to the non-compete agreement, Mr. Nolan can be in breach only if he works at a company that is “in competition with” HRA. While the court acquiesced that HRA and McGuire were both in the construction industry, it held that they performed significantly different services and were not in competition with each other for clients or projects. The industry classified HRA as a “fire chaser” because it received most of its jobs by monitoring police reports and fire scanners to alert them of individuals that needed repairs for fire and/or water damage. McGuire however was a preferred builder and provided services for not only single-family homes, but also commercial and municipal buildings. The courts interpreted the significant differences between the two companies as adequate evidence that Mr. Nolan was not “in competition with” HRA because of his new employment with McGuire.
Furthermore, the court discussed the reasons why a court would enforce a non-compete covenant, specifically referencing the legal system’s desire to balance and protect the parties’ interests. Courts generally grant injunctions to enforce a non-compete agreement when the plaintiff employer can provide adequate evidence that the former employee’s breach will result in adverse financial consequences. The court noted that this policy did not apply to the case since HRA had not suffered any financial loss or hardship and Mr. Nolan did not have any access to confidential information that would be harmful to the company should it be disclosed.
Additionally, the court concluded that the time and geographical restrictions in the agreement were unreasonable given the facts of the case. HRA did not have anything to lose because of McGuire employing Mr. Nolan because of the differences in their business operations and the court held that the restrictions, if enforced, would only serve to prevent Mr. Nolan from employment at another company. The policy to enforce non-compete agreements focuses on protecting the interests of the employer and not to punish the employee and excessively restrict future employment opportunities. Specifically, the court cited that HRA could only “benefit from protection in the New Haven area” and that the “tri-state restriction imposed on the defendant was not necessary to protect any legitimate interests of the plaintiff and, therefore, [the agreement] was not ‘reasonably limited’”.
If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Continue Reading

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Lawrence R. Gilmore v. Scott T. Brandt, 2011 WL 5240421 (D. Colo. Oct. 31, 2011).

In a recent case before United States District Court for the District of Colorado, Lawrence Gilmore (“Gilmore”) filed a motion to confirm the Financial Industry Regulatory Authority (“FINRA”) arbitration award in his favor, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9. Scott Brandt (“Brandt”) responded by filing a motion to vacate the FINRA award pursuant to the FAA, 9 U.S.C. § 10. The court granted Gilmore’s motion to confirm the award, entered judgment for the award and denied Brandt’s motion to vacate the award.

The dispute underlying the FINRA arbitration began when Brandt, a representative of Lighthouse Capital Corporation, suggested that Gilmore invest $92,000 in Diversified Lending Group, Inc. (“DLG”). Gilmore made the investment, which was quickly decimated. Gilmore alleged that DLG was a Ponzi scheme and filed a Statement of Claim with FINRA. Rather than seek a stay of arbitration, Brandt contested the issue of arbitrability by appending a statement of jurisdictional objection to his FINRA Arbitration Submission Agreement and raising jurisdictional objections throughout the arbitration proceedings. FINRA appointed a panel of arbitrators to hear the matter; however, the arbitration panel did not directly address Brandt’s jurisdictional objection. In December 2010, the panel issued an arbitration award in Gilmore’s favor for compensatory damages of $106,024.68, post-judgment interest, and attorneys’ fees.

In his motion for vacatur, Brandt argued that he never entered into an arbitration agreement with Gilmore; therefore, their dispute should not have been subjected to arbitration. The district court found that Brandt had sufficiently preserved his objection to arbitrability, and that it fell to the court to decide whether the dispute was in fact arbitrable.

Because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995). When Brandt first sought to be licensed to sell securities, he executed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”), which contained a section agreeing “to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA].” The court determined that the agreement embodied in Brandt’s Form U-4 would constitute an agreement to arbitrate the dispute with Gilmore only if FINRA rules required this dispute to be arbitrated.

FINRA Rule 12200 is a broad provision that generally applies to any customer dispute arising in connection with the business activities of a FINRA member. Specifically, FINRA Rule 12200 requires that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure if: (1) arbitration is required by written agreement or requested by a customer; (2) the dispute is between a customer and a FINRA member or associated person; and (3) the dispute arises in connection with the business activities of the FINRA member or associated person. By submitting his Statement of Claim to FINRA for arbitration, Gilmore was clearly requesting arbitration of the dispute. The district court found that Gilmore was in a customer relationship with Brandt because Brandt had induced him to invest in DLG. Additionally, the district court found that Gilmore’s claims related to Brandt’s recommendation of an investment in particular securities fell within the class of disputes reasonably regulated by FINRA. Therefore, the district court determined that FINRA Rule 12200 required the dispute between Gilmore and Brandt be submitted to arbitration. Because of this result, Brandt’s U-4 Form was determined to be his agreement to submit to arbitration of the dispute.

Because the arbitration panel had jurisdiction to decide the dispute, the award decision is entitled to deference by the federal court. 9 U.S.C. § 9-11. Because Brandt provided no argument that satisfied the statutory grounds for vacatur of an arbitration award, 9 U.S.C. § 10(a), the court granted Gilmore’s motion for confirmation of the arbitration award of compensatory damages of $106,024.68, with interest, and attorneys’ fees.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Continue Reading

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Federal Court Found Form U-4 and FINRA Rules to Constitute a Sufficient Basis for an Arbitration Agreement Between the Parties

Lawrence R. Gilmore v. Scott T. Brandt, 2011 WL 5240421 (D. Colo. Oct. 31, 2011).

In a recent case before United States District Court for the District of Colorado, Lawrence Gilmore (“Gilmore”) filed a motion to confirm the Financial Industry Regulatory Authority (“FINRA”) arbitration award in his favor, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9. Scott Brandt (“Brandt”) responded by filing a motion to vacate the FINRA award pursuant to the FAA, 9 U.S.C. § 10. The court granted Gilmore’s motion to confirm the award, entered judgment for the award and denied Brandt’s motion to vacate the award.

The dispute underlying the FINRA arbitration began when Brandt, a representative of Lighthouse Capital Corporation, suggested that Gilmore invest $92,000 in Diversified Lending Group, Inc. (“DLG”). Gilmore made the investment, which was quickly decimated. Gilmore alleged that DLG was a Ponzi scheme and filed a Statement of Claim with FINRA. Rather than seek a stay of arbitration, Brandt contested the issue of arbitrability by appending a statement of jurisdictional objection to his FINRA Arbitration Submission Agreement and raising jurisdictional objections throughout the arbitration proceedings. FINRA appointed a panel of arbitrators to hear the matter; however, the arbitration panel did not directly address Brandt’s jurisdictional objection. In December 2010, the panel issued an arbitration award in Gilmore’s favor for compensatory damages of $106,024.68, post-judgment interest, and attorneys’ fees.

In his motion for vacatur, Brandt argued that he never entered into an arbitration agreement with Gilmore; therefore, their dispute should not have been subjected to arbitration. The district court found that Brandt had sufficiently preserved his objection to arbitrability, and that it fell to the court to decide whether the dispute was in fact arbitrable.

Because arbitration is entirely a matter of contract, a party cannot be required to arbitrate a dispute that it has not agreed to submit to arbitration. See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 57 (1995). When Brandt first sought to be licensed to sell securities, he executed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”), which contained a section agreeing “to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA].” The court determined that the agreement embodied in Brandt’s Form U-4 would constitute an agreement to arbitrate the dispute with Gilmore only if FINRA rules required this dispute to be arbitrated.

FINRA Rule 12200 is a broad provision that generally applies to any customer dispute arising in connection with the business activities of a FINRA member. Specifically, FINRA Rule 12200 requires that a dispute must be arbitrated under the FINRA Code of Arbitration Procedure if: (1) arbitration is required by written agreement or requested by a customer; (2) the dispute is between a customer and a FINRA member or associated person; and (3) the dispute arises in connection with the business activities of the FINRA member or associated person. By submitting his Statement of Claim to FINRA for arbitration, Gilmore was clearly requesting arbitration of the dispute. The district court found that Gilmore was in a customer relationship with Brandt because Brandt had induced him to invest in DLG. Additionally, the district court found that Gilmore’s claims related to Brandt’s recommendation of an investment in particular securities fell within the class of disputes reasonably regulated by FINRA. Therefore, the district court determined that FINRA Rule 12200 required the dispute between Gilmore and Brandt be submitted to arbitration. Because of this result, Brandt’s U-4 Form was determined to be his agreement to submit to arbitration of the dispute.

Because the arbitration panel had jurisdiction to decide the dispute, the award decision is entitled to deference by the federal court. 9 U.S.C. § 9-11. Because Brandt provided no argument that satisfied the statutory grounds for vacatur of an arbitration award, 9 U.S.C. § 10(a), the court granted Gilmore’s motion for confirmation of the arbitration award of compensatory damages of $106,024.68, with interest, and attorneys’ fees.

Should you have any questions relating to FINRA or arbitration issues, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County, Connecticut at 203-221-3100 or at JMaya@Mayalaw.com.

Continue Reading

What Is a Constructive Discharge?

Hopefully, you have never been fired—that is a discharge or termination.  Sometimes, however, an employee has no reasonable alternative to quitting—that is a constructive discharge.  The involuntary nature of the employee’s “quit” may enable him or her to claim the constructive discharge as an adverse employment action so as to maintain a claim for employment discrimination.  An employee’s reasonable decision to resign because of unendurable working conditions is, for remedial purposes, equated to a formal discharge.

A constructive discharge occurs when an employer indirectly, but deliberately, makes an employee’s working conditions so intolerable that the employee is forced involuntarily to resign.  The key points of inquiry are the employer’s intentional conduct and the intolerable level of the employee’s working conditions.  The standard for evaluation is objective–how would a reasonable employee behave in the particular employee’s shoes?  Subjective feelings as to the intolerable nature of the employee’s position cannot support a finding of constructive discharge.

In assessing a claim of constructive discharge, individual factors, standing alone, may be insufficient to carry the day.  For this reason, the pertinent conditions are aggregated since a reasonable person encounters life’s circumstances cumulatively rather than individually.  Some routine workplace events— e.g. a poor performance appraisal, lack of training, or increased job demands—are to be expected and do not support an inference that a reasonable person would be “compelled” to resign.  The standard for constructive discharge goes beyond difficult or unpleasant working conditions.

As is so often the case in employment law, the presence of a constructive discharge depends upon the circumstances of the particular employee involved.  If you feel that your employer deliberately made your work environment intolerable and that you were forced to quit, you should confer with a seasoned employment law litigator to determine your rights.

The employment law attorneys in the Westport, Connecticut office of Maya Murphy, P.C. have extensive experience in the negotiation and litigation of all sorts of employment-related disputes and assist clients from Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport and Fairfield in resolving such issues. Please contact our offices at 203-221-3100.

What Is a Constructive Discharge?

Hopefully, you have never been fired—that is a discharge or termination.  Sometimes, however, an employee has no reasonable alternative to quitting—that is a constructive discharge.  The involuntary nature of the employee’s “quit” may enable him or her to claim the constructive discharge as an adverse employment action so as to maintain a claim for employment discrimination.  An employee’s reasonable decision to resign because of unendurable working conditions is, for remedial purposes, equated to a formal discharge.

A constructive discharge occurs when an employer indirectly, but deliberately, makes an employee’s working conditions so intolerable that the employee is forced involuntarily to resign.  The key points of inquiry are the employer’s intentional conduct and the intolerable level of the employee’s working conditions.  The standard for evaluation is objective–how would a reasonable employee behave in the particular employee’s shoes?  Subjective feelings as to the intolerable nature of the employee’s position cannot support a finding of constructive discharge.

In assessing a claim of constructive discharge, individual factors, standing alone, may be insufficient to carry the day.  For this reason, the pertinent conditions are aggregated since a reasonable person encounters life’s circumstances cumulatively rather than individually.  Some routine workplace events— e.g. a poor performance appraisal, lack of training, or increased job demands—are to be expected and do not support an inference that a reasonable person would be “compelled” to resign.  The standard for constructive discharge goes beyond difficult or unpleasant working conditions.

As is so often the case in employment law, the presence of a constructive discharge depends upon the circumstances of the particular employee involved.  If you feel that your employer deliberately made your work environment intolerable and that you were forced to quit, you should confer with a seasoned employment law litigator to determine your rights.

The employment law attorneys in the Westport, Connecticut office of Maya Murphy, P.C. have extensive experience in the negotiation and litigation of all sorts of employment-related disputes and assist clients from Greenwich, Stamford, New Canaan, Darien, Norwalk, Westport and Fairfield in resolving such issues. Please contact our offices at 203-221-3100.

FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB. In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration. This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009. The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees. On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

On or about September 19, 2011, Hathaway’s employment at MSSB ended. MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment. Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note. Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note. Finally, Hathaway was to reimburse MSSB for non-refundable portion of its initial claim filing fee. The final award to MSSB totaled $542,816.00.

Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.

Continue Reading

FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB. In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration. This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009. The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees. On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

On or about September 19, 2011, Hathaway’s employment at MSSB ended. MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment. Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note. Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note. Finally, Hathaway was to reimburse MSSB for non-refundable portion of its initial claim filing fee. The final award to MSSB totaled $542,816.00.

Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.

Continue Reading

Court confirms FINRA Arbitration Award for Employee in the amount of $150,000 with interest

Scoble v. Blaylock & Partners, L.P., 2012 U.S. LEXIS 13706 (S.D.N.Y. 2012)

Matthew W. Scoble (“Scoble”) filed a petition against his former employer, Blaylock & Partners, L.P., subsequently known as Blaylock & Company, Inc. (“Blaylock”), to confirm an arbitration award pursuant to § 9 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  Scoble claimed that Blaylock breached a contract between the parties by failing to make a severance payment of $150,000 to him after Blaylock terminated his employment without cause.

The Financial Industry Regulatory Authority (“FINRA”) appointed a panel of three arbitrators to hear the matter after both parties agreed to submit the dispute to arbitration for a decision and award.  Both parties participated in the arbitration hearing that lasted several days.  Thereafter, the Arbitration Panel issued an award to Scoble in the amount $150,000 in compensatory damages.  The responsible party, Blaylock, would be liable for post-judgment interest pursuant to FINRA’s Code of Arbitration Procedure if it did not pay the award within thirty days.

The Court found that Scoble’s petition was sufficiently supported and indicated that there was no question of material fact.  Blaylock did not move to modify, vacate or correct the arbitration award and did not submit an opposition to the petition.  The petition to confirm the arbitration award was granted and judgment was entered for Scoble in the amount of $150,000 with post-judgment interest.

Should you have any questions relating to FINRA, arbitration or employment issues generally, please feel free to contact Russell J. Sweeting, Esq. by telephone at (203) 221-3100 or by e-mail at rsweeting@mayalaw.com.

What is “FINRA” and What Does (Should) It Do?

Attorneys here at Maya Murphy frequently are called upon to represent individuals who are the subject of a FINRA inquiry, or a party to a FINRA arbitration. We routinely post to our website client alerts regarding FINRA-related decisions but it recently occurred to us that we should take a step back and issue a post about FINRA itself—what it is, what it does (or doesn’t do), and where it came from. Knowledge is power and because FINRA so pervades the financial industry to be forewarned is to be forearmed.

“FINRA” is an acronym for the “Financial Industry Regulatory Authority,” a so-called “Self Regulating Organization.” On July 30, 2007, the New York Stock Exchange and the National Association of Securities Dealers (“NASD”) combined to form FINRA. To be sure, FINRA is cloaked in official garments of the purest silk. It was established under § 15A of the Securities Exchange Act of 1934, 15 U.S.C. § 78o-3, Karsner v. Lothian, 532 F.3d 876, 879 n.1 (D.C. Cir. 2008). It is authorized to exercise comprehensive oversight over “all securities firms that do business with the public.” Sacks v. SEC, 648 F.3d 945 (9th Cir. 2011) (quoting 72 Fed. Reg. 42170 (Aug. 1, 2007)). With respect to the creation of FINRA, the NASD, itself, made it clear that the new entity was directed at “the regulation of the financial markets.” Id. “By virtue of its statutory authority, NASD wears two institutional hats: it serves as a professional association, promoting the interests of its members; and it serves as a quasi-governmental agency, with express statutory authority to adjudicate actions against members who are accused of illegal securities practices and to sanction members found to have violated the Exchange Act or Securities and Exchange Commission . . . regulations issued pursuant thereto.” NASD v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005) (citations omitted).

FINRA is a private corporation and the largest “independent” regulator of securities firms in the United States, overseeing approximately 4,800 brokerage firms, 172,000 branch offices, and 646,000 registered securities representatives. It (not necessarily by claimant choice or mere happenstance) benefits from up to 9000 arbitration filings every year. FINRA has a staff of approximately 3,000 employees and in 2009, collected revenue of $775 Million. Senior FINRA management enjoys seven-figure annual salaries.

FINRA maintains two separate but similar “Codes of Arbitration Procedure”: one for “customer disputes” and another for “industry disputes.” In drafting its Industry Code, FINRA has apparently chosen to “trim some of the fat” off of the controlling law. For example, Rule 13209 (amended December 15, 2008) states: “During an arbitration, no party may bring any suit, legal action, or proceeding against any other party that concerns or that would resolve any of the matters raised in the arbitration.” In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz (in analyzing the analogous FINRA “customer” Rule 12209) demonstrated remarkable restraint in reminding UBS that within the Second Circuit (which includes Connecticut and New York) since at least 1998, United States District Courts have had not only the right, but also the duty to entertain requests for preliminary injunctions during the pendency of arbitration. See Am. Express Fin. Advisors, Inc. v. Thorley, 147 F.3d 229, 231 (2d Cir. 1998). But FINRA’s arbitral disdain for the twin plinths of fundamental fairness and the opportunity to confront one’s accusers does not stop there.

The Code’s §§ 13400-13402 require that at least one “non-public arbitrator” (i.e., one who within the last five years was associated with, or registered through, a broker or a dealer) serve on every three-person arbitration panel. Given the state of the economy, in general, and the sudden appearance, disappearance, and consolidation of Wall Street firms, in particular, it is not unreasonable for a “non-public arbitrator” to have past connections or future aspirations with respect to a corporate party to the arbitration.[1] This ethical tar pit is bottomless, as evinced by Rule 13410, which vests in the “Director of FINRA Arbitration” discretion to retain an arbitrator who fails to make a required disclosure, notwithstanding a timely notice of disqualification by one of the parties. See, generally, Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005).

FINRA also makes it clear that it will not permit its Code to let the discoverable truth get in the way of an otherwise productive arbitration. Rule 13506(a) ostensibly permits pre-arbitration requests for documents or information, provided such requests do “not require narrative answers or fact finding,” thereby rendering such requests virtually useless. Rule 13510 states outright that depositions are “strongly discouraged” and permitted “only under very limited circumstances.” The absence of meaningful pre-arbitration discovery makes the proceeding something akin to “trial by ambush.” Rule 13604(a) states: “The panel will decide what evidence to admit. The panel is not required to follow state or federal rules of evidence.” Finally, Rule 13904 permits rendition by the panel of a skeletal or elliptical award devoid of underlying factual findings or legal reasoning. Even if the parties jointly request an “explained decision” (requiring an additional $400.00 “honorarium” to the FINRA chairperson), only “general reasons” for the award are required, and inclusion of legal authorities and damage calculations is specifically not required. Under these circumstances, mere comprehension of the basis for the award, much less meaningful judicial review of the award even under the most stringent “manifest disregard” standard (assuming such standard of review still exists, see Stmicroelectronics, N.V. v. Credit Suisse Securities (USA) LLC 648 F.3d 68, 78 (2d Cir. 2011), is rendered impossible.

The take-away from this is that for financial industry professionals, FINRA rules, investigations, and arbitrations (however unsatisfying) are often the only game in town. If you find yourself trying to negotiate the FINRA minefield and need help, contact Bob Keepnews, Esq. at the Maya Murphy, P.C. office located in Westport at (203) 221-3100 or rkeepnews@mayalaw.com.

[1] In Arnold Chase Family, LLC v. UBS AG, 2008 U.S. Dist. LEXIS 58697 (D. Conn. Aug. 4, 2008), Judge Kravitz made pointed reference to both the sudden demise of Bear Stearns and the fact that securities customers do not have much say in the writing of FINRA’s rules. Id. at *8-9, *13-14.

Continue Reading