Posts tagged with "Massachusetts"

Court Uses Connecticut Law to Supersede Massachusetts Law in Application of Non-Compete Agreement

In Custard Insurance Adjusters v. Nardi, 2000 Conn. Super. LEXIS 1003, Mr. Robert Nardi worked at Allied Adjustment Services’ Orange, CT office beginning in September 1982 as the vice president of marketing, overseeing the adjustment of claims for insurance companies and self-insurers.  The company had Mr. Nardi sign non-compete and confidentiality agreements as a term of his employment.

The Employment Agreements

The agreements established that he could not solicit or accept claims within a fifty-mile radius of Allied’s Orange office for a period of two years following his termination.  The agreements further specified that the names and contact information of Allied’s clients were the company’s confidential property.  The choice of law provision stated that Massachusetts law would be controlling (Allied had its headquarters in Massachusetts).  On September 1, 1997, Allied sold its business and all its assets, including its non-compete agreements, to Custard Insurance Adjusters.

Mr. Nardi became increasingly worried about future employment at Custard when the company restructured its compensation format, allegedly decreasing his annual income by 25%.  At this point, Mr. Nardi began to inquire about employment at other companies and in particular contacted Mr. John Markle, the president of Mark Adjustment, with whom he had a previous professional history.  He also arranged meetings between Mr. Markle and four other current Custard employees to discuss switching companies.  While the companies are competitors in the insurance industry, Mark’s business was restricted to the New England region while Custard operated nationally.  Custard terminated Mr. Nardi and asked the court to enforce the non-compete agreement.

Determining the Choice of Law Provision

The court first sought to tackle the issue of the choice of law provision since it designated Massachusetts law as controlling but this lawsuit was brought in Connecticut state court.  The court asserted its authority over the issue and case because it could not ascertain any “difference between the courts of Connecticut and Massachusetts in their interpretation of the common law tort breach of fiduciary obligation brought against a former officer of a corporation”.

The court emphasized that above all else, the legal issue at hand was that of contractual obligations and a company’s business operations.  It asserted its authority in this respect by stating it believed “that the Massachusetts courts interpret the tort of tortious interference with contractual and business relationships the same way our [Connecticut’s] courts do”.  Additionally, the court cited that the application of Massachusetts law would undermine Connecticut’s policy to afford legal effect to the Connecticut Unfair Trade Practices Act (CUTPA) and Connecticut Uniform Trade Secrets Act (CUTSA), two-state statutes used by Custard to sue Mr. Nardi.

Determining the Enforceability of the Non-Compete Agreement

Next, the court addressed the enforceability of the non-compete agreement signed by Mr. Nardi and Allied.  Mr. Nardi contended that the provisions of the agreement were only binding upon the signatory parties (himself and Allied) and that Custard lacked the authority to enforce its provisions.  He asked the court to deny Custard’s request to enforce the non-compete because it was “based on trust and confidence” between the signatory parties and “was thus not assignable”.  The court rejected this train of thought because the non-compete explicitly contained an assignability clause and it held that the non-compete covenant was properly and legally transferred to Custard under Massachusetts law.

Mr. Nardi based a substantial portion of his defense on the claim that Custard violated, and therefore invalidated, the agreement when it modified his compensation format.  He alleged that he was the victim of unjustified reductions in his professional responsibilities and compensation following Custard’s acquisition of Allied in 1997.  Mr. Nardi, however, was still an executive at the new company despite a reduction in rank and he himself had expressed excitement about becoming an executive at a national, instead of a regional, company.

The Court’s Findings

The court ultimately found the non-compete to be valid and enforceable, therefore granting Custard’s request for injunctive relief.  It assessed the facts of the case and Mr. Nardi’s current position to amend the time restriction of the agreement, however.  Taking into account that he was starting a family and had a young child in conjunction with estimates that the full restrictions could amount to a 60-70% loss of business for Mr. Nardi, the court reduced the time limitation from two years to six months.  The court concluded that while the provisions were reasonable at face value, they could have unforeseen consequences that would have severely impaired Mr. Nardi’s ability to make a living in order to provide for his family.


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.

Connecticut Non-Compete Prohibits Client Solicitation in Investment Services Industry

In Robert J. Reby & Co. v. Byrne, 2006 Conn. Super. LEXIS 2115, Mr. Patrick Byrne worked at Robert J. Reby & Co., a financial firm in Danbury, Connecticut, as a registered investment advisor from June 2005 to July 2005.  The company advises high net worth individuals and families in the areas of trusts, wealth management, and taxation.  Mr. Byrne signed an employment contract with Robert J. Reby & Co. wherein it contained a non-compete agreement that stipulated he be prohibited from soliciting the company’s clients or disclosing any of its confidential information in the event of his termination.

Following Mr. Byrne’s short employment with Robert J. Reby & Co. he began to work at Aspetuck Financial Management, LLC, a wealth management firm based in Westport.  Robert J. Reby & Co. alleged that Mr. Byrne solicited its clients for his new firm, Aspetuck, in direct violation of the non-compete agreement.  Mr. Byrne countered that the provisions of the non-compete were unreasonable in the sense that it placed an excessive restraint on his trade and prevented him from pursuing his occupation.

The Court’s Decision

The court held that the non-compete agreement between Mr. Byrne and Robert J. Reby & Co. contained reasonable terms and was enforceable.  It failed to see any merits in Mr. Byrne’s claim that the agreement was too broad and created an insurmountable occupational hardship.  The provisions of the agreement only restricted a very small segment of Mr. Byrne’s occupational activities.

The terms he agreed to only prevented him from soliciting the specific and limited group of people that were clients of Robert J. Reby & Co..  The court held that the covenant was not a pure anti-competitive clause because it did not prevent him from engaging in the investment services industry as a whole.  This limited scope with regard to the prohibition levied upon Mr. Byrne caused the agreement to be reasonable and therefore enforceable.

The court also took time to discuss the public policy behind finding the non-compete agreement enforceable and establishing the legitimacy of the agreement.  Companies, according to the court, have a legitimate interest in protecting their business operations by preventing former employees from exploiting or appropriating the goodwill of its clients that it developed at its own, and not the employees’, expense.

If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment contract, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.

Federal Court Confirms FINRA Arbitration Award that Refuses to Classify a Forgivable Loan as Employee Compensation Subject to the Wage Act

Pauline Sheedy v. Lehman Brothers Holdings, Inc., 2011 WL 5519909 (D. Mass. Nov. 14, 2011)

In a recent Massachusetts case, Pauline Sheedy (“Sheedy”), a former managing director at Lehman Brothers, Inc., filed an action in state court seeking to vacate a Financial Industry Regulatory Authority (“FINRA”) arbitration award entered in favor of Lehman Brothers Holdings, Inc. (“LBHI”).  LBHI removed the case from state to federal court, and filed a motion to dismiss Sheedy’s complaint, confirm the FINRA arbitration award, and award “collection expenses.”  The United States District Court for the District of Massachusetts allowed LBHI’s motion.

Case Background

The underlying dispute in this case involves LBHI’s efforts to collect the unpaid principal balance, plus interest and fees, for a forgivable loan that was extended to Sheedy when she began her employment with Lehman Brothers, Inc. Sheedy alleged that her compensation package included a “one-time incentive signing bonus” of $1 million; however, Lehman’s offer letter characterized the $1 million payment a loan to be forgiven in five equal installments of $200,000 on the first through fifth anniversary of her employment start date.

The offer letter further stated that if Sheedy separated from Lehman Brothers, Inc. for “any reason” prior to full forgiveness of the loan, she would be required to repay the remaining principal balance, plus interest accrued through her separation date.  In 2008, Lehman Brothers, Inc. was forced to file for bankruptcy protection and ceased doing business in Massachusetts.

As a result, Sheedy was separated from Lehman Brothers, Inc. in September 2008, approximately two months prior to the second anniversary of her employment start date. During the marshaling of assets for the bankruptcy estate, Lehman Brothers, Inc. assigned Sheedy’s promissory note for the loan to LBHI.

The Arbitration Award

LBHI initiated FINRA arbitration proceedings against Sheedy, claiming the principal balance due of $800,000, plus interest and fees.  A single FINRA arbitrator was appointed to hear the case.  In June 2011, the arbitrator entered an award ordering Sheedy to repay LBHI the outstanding balance of $800,000, plus interest and attorneys’ fees.

After the arbitration award, Sheedy filed an action in Massachusetts state court to vacate the FINRA arbitration award pursuant to the state Uniform Arbitration Act for Commercial Disputes. Mass. Gen. Laws ch. 251, §§ 1-19.   LBHI timely removed the case from state to federal court.

Sheedy sought vacatur on two grounds: (1) that the arbitrator exceeded her authority because the award requires her to “forfeit earned compensation” in violation of the Massachusetts Weekly Wage Act (“Wage Act”), Mass. Gen. Laws ch. 149, § 148; and (2) that the award violated the Massachusetts public policy prohibiting the unlawful restraint of trade and competition.

Sheedy’s Arguments

Both the Massachusetts Uniform Arbitration Act for Commercial Disputes and the Federal Arbitration Act (“FAA”) provide statutory grounds for vacating an arbitration award where an arbitrator exceeds his authority.  Compare Mass. Gen. Laws ch. 251, §§ 12(a)(3) with 9 U.S.C. § 10(a)(3).   Sheedy argued that the FINRA arbitrator exceeded her authority by issuing an award that required Sheedy to forfeit earned compensation in violation of the Wage Act.

The Wage Act defines the requirements for payment of employee wages and commissions, and prohibits the use of “special contract…or other means” to create exemptions from these requirements.  Citing Massachusetts case law, Sheedy argued that the provisions of the Wage Act cover any payment that an employer is obligated to pay an employee; therefore, once she signed Lehman’s offer letter and Lehman was bound to make the $1 million payment to her, that payment became a non-discretionary deed subject to the Wage Act.

The court disagreed with this characterization of the payment.  The court determined that the accepted offer clearly made forgiveness of the full amount of the loan contingent upon completing five years of employment at Lehman Brothers, Inc.; therefore, the portion of the payment which remained outstanding at the time of Sheedy’s termination was never “earned” within the meaning of the Wage Act.  The court denied vacatur on the grounds that the arbitrator exceeded her authority because the award was not in violation of the Wage Act.

The Court’s Decision

An arbitration award may also be challenged by reference to a “well-defined and dominant” public policy. United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 28, 43 (1987).  Arbitrators may not award relief that offends public policy or requires a result contrary to statutory provisions.  Plymouth–Carver Reg’l Sch. Dist. v. J. Farmer & Co., 553 N.E.2d 1284 (1985).  Sheedy argued that the FINRA arbitration award should be vacated because forfeiture of the payment is an unlawful penalty to punish her if she chose to leave Lehman and freely compete in the market place.

The court determined that the structure of the forgivable loan in the offer letter was not equivalent to a non-compete agreement that restricted an employee’s ability to work in the same field within a given geographic area.  Therefore, the arbitration award did not violate the state public policy against unlawful restraint of trade and competition and the court denied vacatur on these grounds.

The court allowed LBHI’s motion to dismiss Sheedy’s complaint, confirm the arbitration decision and award collection expenses.  The court gave LBHI fourteen days from the date of its order to submit a request for attorneys’ fees and a proposed form of judgment.

Should you have any questions relating to FINRA, arbitration or employment 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.

State Court Cannot Vacate a FINRA Arbitration Award FINRA to Expunge Negative Information from a Broker’s Complaint History

Thomas F. Nee, Jr. v. Financial Industry Regulatory Authority, Inc., 29 Mass.L.Rptr. 437 (2012).

In a case before Massachusetts state court, Thomas F. Nee, Jr., (“Nee”) filed a complaint against the Financial Industry Regulatory Authority (“FINRA”) seeking an order that all references to a claim lodged against him by customers of the brokerage firm where he worked, and the FINRA arbitration award in favor of these customers be expunged from the FINRA Central Registration Depository (“CRD”) database.  FINRA filed a motion to dismiss Nee’s complaint on failure to state a claim upon which the court can grant relief.  The court allowed FINRA’s motion.

Case Background

The underlying dispute in this case arose in 2003 when customers of the brokerage firm that employed Nee asserted claims against him, two other employees and the brokerage firm.  The customers alleged that their investments had been mismanaged and sought compensatory damages.  Nee and the other respondents contested the customers’ claims, requested that these claims be dismissed, and also requested that the claims be expunged from their regulatory records. The National Association of Securities Dealers (“NASD”), the predecessor of FINRA, convened an evidentiary hearing before a panel of three arbitrators.

In January 2005, the panel issued its decision, holding that Nee, one of his colleagues and the brokerage firm were jointly and severally liable to the claimants for compensatory damages in the amount of $187,628.  With respect to Nee’s other colleague, the arbitration panel recommended expungement of all references to the claim and the arbitration from his CRD, but noted that he must obtain confirmation of the expungement from a court of competent jurisdiction.  Nee took no action to challenge the arbitration award until he filed the instant complaint in July 2011.

Nee’s Formal Complaint

In his complaint, Nee asked the court to order FINRA to expunge any reference to the customers’ claim and the arbitration award from his CRD.  He complained that the arbitration award did not explain the reasons for the panel’s decision and that the arbitration panel erred in finding him liable to the claimants because, among other things, he had no direct dealings with them.

Expunging Negative Information From the CRD

FINRA Rule 2080 addresses expungement of negative information from the CRD, which is the FINRA database used by brokerage firms, investors, and regulators to assess the complaint history concerning a broker or investment advisor.  According to this rule, “persons seeking to expunge information from the CRD system arising from disputes with customers must obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.” The court disagreed that FINRA Rule 2080 gave it jurisdiction over FINRA and the authority to vacate the 2005 arbitration award.  Construing the rule as such would conflict with the statutory requirement that arbitration awards be confirmed unless a prompt motion to vacate is filed with the court.

Previous Massachusetts state court decisions granting expungement orders to brokers were based on actions filed under the section of Massachusetts general laws, G.L. c. 251, § 11 to confirm an arbitration award recommending expungement.  The Massachusetts statute is analogous to the Federal Arbitration Act (“FAA”) provision, 9 U.S.C. §  9; therefore, precedents in federal district court and other states have reached the same conclusion.

Vacating FINRA Arbitration Decisions

FINRA Rule 2080 does not provide claimants with a substantive right to override the finality of arbitration decisions.  Matters fully litigated in arbitration are subject to the same res judicata effect as if they had been litigated in a court of competent jurisdiction or before an administrative agency.  When arbitration affords opportunity for presentation of evidence and argument substantially similar in form and scope to judicial proceedings, the arbitration award should have the same effect as a court judgment.  Bailey v. Metropolitan Property & Liab. Ins. Co., 24 Mass.App.Ct. at 36–37, quoting from Restatement (Second) of Judgments § 84 comment c.

Nee asked the arbitration panel to find that he was not liable to the claimants and to order expungement, but the panel ruled against him on both requests. His current complaint asks the court to reconsider the expungement issue that was expressly resolved by the panel. Because that matter was “deemed arbitrable and [was] in fact arbitrated,” it cannot be collaterally attacked in a new complaint. TLC Construction Corp. v. A. Anthony Tappe & Associates, Inc., 48 Mass.App.Ct. 1, 4 (1999).

Massachusetts state law establishes a short 30-day window for filing a petition to vacate an arbitration award in order to accord such awards finality in a timely fashion,  G.L. c. 251, § 12(b).  Nee filed his complaint over six years after the arbitration award that denied his request for expungement.  Therefore, the complaint was not properly before the court.

The Decision

The court allowed FINRA’s motion to dismiss Nee’s complaint seeking an expungement order on the basis that the court has no authority to overrule the arbitration panel award denying expungement and that a motion to vacate the award was not filed in a timely fashion.


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.

Over 200 Massachusetts Children Abused While in State Custody

State officials found evidence supporting 249 allegations of physical and sexual abuse or poor care involving children in state-monitored settings last year.

The numbers were included in the Office of the Child Advocate’s 2013 report obtained by the Boston Herald (http://bit.ly/18XtUup ).

Thirty percent of the allegations were in foster care; 29 percent were in treatment programs; 19 percent in day cares; 18 percent from schools; and 4 percent from “others.”

State child welfare officials say the total number of abuse and neglect reports in out-of-home settings has remained steady in recent years.

But Sara Bartosz, an attorney for the advocacy group Children’s Rights, points out that the number of children in foster care is down.

A Department of Children and Families spokeswoman says the state works hard to protect all children.

From Boston Herald.