Posts tagged with "public policy"

Court Grants Motion for Transfer to California District Court in Non-Compete Agreement Dispute

United Rentals, Inc. v. Pruett, 296 F. Supp.2d 220

United Rentals, Inc. was a Delaware corporation with headquarters in Connecticut that employed Mr. Lawrence Pruett from May 2001 until August 2003 in its San Juan Capistrano, CA office.  He first worked as a salesperson and then the company promoted him to branch manager.  Mr. Pruett signed an Employment Agreement after verbally accepting the branch manager position wherein he agreed to restrictive covenants preventing employment with a competitor, soliciting the company’s customers, or from disclosing trade secrets.  The agreement contained a choice of law provision that stated Connecticut law would govern legal disputes arising from the agreement and that courts (federal or state) in Fairfield County had exclusive jurisdiction.

Mr. Pruett abruptly resigned in August 2003, began to work for one of United’s competitors, Brookstone Equipment Services, and allegedly solicited United’s customers.  United Rentals sued Mr. Pruett in federal court for violation of the non-compete agreement and requested that the United States District Court of Connecticut enforce the provisions of the agreement.  Mr. Pruett however submitted motions to dismiss and to transfer the case to a court in California, where he lived and worked.

Motion to Dismiss

The court denied Mr. Pruett’s motion to dismiss but granted his motion for transfer, handing the case over to the Central District of California.  The central issues of the case were the enforceability of the forum selection clause and the court’s ability to transfer the case to another district court.  Mr. Pruett argued that it was unenforceable because he “lacked notice of its existence, because the clause is unreasonable, and because it was the product of United’s overreaching”.

The court mentioned two United States Supreme Court cases, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), and Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) to establish the federal judicial system’s attitude toward forum selection clauses and their enforceability.  In Bremen, the court held that the clauses are valid and enforceable so long as there is no showing that it would be unreasonable or unjust.  This case reversed American courts’ “long-standing hostility to forum selection clauses”.  In Carnival, the court held that a forum selection clause was enforceable only if both parties were aware of its existence.

In the current case, the court denied the motion to dismiss and found that the clause was reasonable and that the written contract had indeed provided Mr. Pruett with adequate notice of its existence.

Motion for Transfer

The court did however grant Mr. Pruett’s motion for transfer under 28 U.S.C. 1404(a) which authorizes district courts to transfer civil action to other districts “for the convenience of parties and witness, [and] in the interest of justice”.  In reaching this decision, the court analyzed the convenience of the parties, the existence of the forum selection clause, and factors of systemic integrity and fairness.

Mr. Pruett bore the burden of proof to show that the transfer was in the best interest of justice and the court concluded that he meant his burden.  All the witnesses for the case lived in California, the actions that led to the suit took place in California, and the vast majority of documentary evidence (sales records, advertising information, customer lists, etc.) was in California.  With regard to justice, United Rentals asserted that a transfer to a district court in California would deprive it of uniform treatment of its employment contracts.

The court recognized that Connecticut and California law greatly differ on their treatment of non-compete agreements but concluded that California had a materially greater interest in the case “because the impact of this litigation will be felt entirely in California”.  Furthermore, the court noted that California had a right to apply its own laws in order to protect its residents from anti-competitive measures by out-of-state employers that are contrary to California’s established public policy.

This case demonstrates that the convenience of the parties and the interests of justice can at times outweigh a contractual forum selection clause.  The court analyzed these factors and concluded that the facts surrounding the case favored a transfer of venues to a district court in California.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  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.

Plaintiff’s Lawsuit Against Commissioner of Department of Motor Vehicles Barred by State’s Sovereign Immunity; Plaintiff Failed to Prove Any Exceptions Applied

In a criminal law matter, the Superior Court of Connecticut, Judicial District of Fairfield at Bridgeport dismissed a plaintiff’s action against the defendant Commissioner of the Department of Motor Vehicles (DMV), because she was barred under sovereign immunity doctrine from bringing suit.

Case Background

This case arose from an incident that occurred on or about July 11, 2006. The plaintiff was arrested for operating a motor vehicle while under the influence (OMVUI) of alcohol in violation of General Statutes § 14-227a, and she refused to submit to an alcohol chemical test. She pled guilty to this charge, and in light of two previous OMVUI convictions, her license was suspended for a year and she would be required to install an interlocking ignition device (IID) in her vehicle.

The plaintiff received a revised suspension notice from the DMV stating her license would instead be suspended for three years because of her refusal to submit to the chemical test. In addition, the plaintiff would not be able to make use of the IID. See General Statutes § 14-227b(i)(3)(C).

The plaintiff filed motions with the court, asking it to enjoin the defendant from suspending her license beyond the initial one-year period. The plaintiff argued that the defendant exceeded his statutory authority and, as such, violated her constitutional rights. In its motion to dismiss, the defendant countered that the court did not have subject matter jurisdiction because of the state’s sovereign immunity. He pointed out that the plaintiff did not seek declaratory or injunctive relief “based on a substantial claim that the state or its officials have violated [her] constitutional rights or that the state or its officials have acted in excess of their statutory authority.”

Sovereign Immunity Doctrine 

Sovereign immunity doctrine holds that a State cannot be sued unless it authorizes or consents to suit. There are only three statutory exceptions to this rule: waiver, violation of a plaintiff’s constitutional right by a state official, and action in excess of a state official’s statutory authority which violates a plaintiff’s right. If the second exception is asserted, State action will survive strict scrutiny analysis only if it is narrowly tailored to serve a compelling state interest.

In this case, the Superior Court found “little dispute” that highway safety is a compelling state interest and that the increased suspension and IID refusal was “both reasonable and necessary to achieve the goal of protecting the public safety.” Therefore, the Court found that the plaintiff’s constitutional rights were not violated.

Regarding the third exception, the DMV Commissioner has very broad discretion “to oversee and control the operation of motor vehicles generally.” Public policy concerns underpinning our motor vehicle laws center on the protection of the lives and property of Connecticut’s citizens. The legislature has also recognized the heavy burden placed on those convicted of OMVUI “in a society dependent on automotive transportation.” The use of IIDs helps alleviate these burdens, but it is a privilege of limited application, which does not encompass suspensions based on refusing to submit to an alcohol chemical test.

In this case, the Superior Court found that the defendant “clearly” had statutory authority to impose the three-year suspension and refuse the plaintiff’s request to use an IID. Therefore, because the plaintiff failed to establish the applicability of either exception, the Superior Court held her action was barred by the State’s sovereign immunity.

Written by Lindsay E. Raber, Esq.

When faced with a charge of operating a motor vehicle while intoxicated (a.k.a. driving under the influence) or license suspension, an individual is best served by consulting with an experienced criminal law practitioner. Should you have any questions regarding criminal defense, 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.

School Liability in a Student Bullying Case: It’s Fact-Driven

It’s a new day, and [expectantly] the news brings us yet another bullying story. Brandon Myers was a 12-year-old student in the Blue Springs (Missouri) School District. He was born with a cleft palate, and for that he “faced constant bullying from his classmates. … [O]n one occasion at recess, several students threatened to ‘fill up the hole’ in Brandon’s face before shoving him to the ground. They then reportedly pushed grass and dirt in his nose and mouth.”[1] Brandon’s parents taught him to be the bigger person and ignore the teasing and bullying. They also “encouraged their son to tell a teacher about the bullying. When he did… he was [rebuked and] told to stop being a ‘tattletale.’”[2]

Between the “constant tormenting” and teachers who simply would not listen, Brandon was pushed to one conclusion: suicide by hanging was his only recourse. Brandon’s parents reached a settlement with the school district’s insurance company to the tune of $500,000. The agreement also included “making two administrators be retrained in bullying awareness” and the implementation of a bullying awareness day.[3]

School Liability in Bullying Cases

Connecticut law is presently unsettled with respect to whether school districts are liable for bullying in schools. Each case is typically very fact-driven: “whether a parent can prevail on [a negligence claim] is dependent on the unique facts and circumstances surrounding their child’s case.”[4] It also depends on whether the action on part of the school was governmental or ministerial.

Governmental acts are performed to benefit the public and involve discretion and supervision. For public policy reasons, the Connecticut legislature has elected to grant qualified immunity to school personnel who perform acts of this nature. Therefore, liability will not attach in a negligence action unless one of three exceptions applies: 1) the act involves malice or intent to injure; 2) there is a statutory cause of action against the municipal employee; or 3) the municipal employee’s failure to act directed at an identifiable person subject to an imminent harm.[5]

Establishing Negligence Against a School

On the other hand, ministerial acts do not allow the exercise of discretion or judgment. They are “usually secondary in nature and executed according to established policy, rule or practice,”[6] such as inspecting and keeping hallways clean or adult supervision at recess.[7] The failure to adequately perform a ministerial duty may result in liability of the school district. However, Connecticut courts are in disagreement as to whether or not “a school’s failure to take action against bullying when it knew or should have known about the misconduct constitutes a misperformance of a ministerial function.”[8]

The extent to which a school district details its anti-bullying policy appears to play a key role in the court’s decision, and “[a] parent will likely have a better chance to prevail on a negligence claim under a ‘ministerial action’ theory if the school fails to discharge a responsibility that was spelled out in the plan in such exquisite detail that it eliminated or marginalized a school employee’s judgment or discretion.”[9]

If you are the parent of a child who has been bullied or harassed at school, it is imperative that you consult with an experienced and knowledgeable school law practitioner. The lawyers at Maya Murphy, P.C., assist clients in Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, and Westport.

If you have any questions regarding school liability or any other education law matter, please do not hesitate to contact Attorney Joseph C. Maya. He may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut (located in Fairfield County), by telephone at (203) 221-3100, or by email at JMaya@mayalaw.com.

 


[1] “Blue Springs School District’s insurance company settled bullying lawsuit for $500,000,” by Melissa Yaeger. October 15, 2012: http://www.kshb.com/dpp/news/local_news/investigations/blue-springs-school-districts-insurance-company-settled-bullying-lawsuit-for-500000?hpt=ju_bn5

[2] Id.

[3] Id.

[4] “Advocating on Your Child’s Behalf: A Parent’s Guide to Connecticut School Law,” by Joseph C. Maya, Esq. pp. 104-05.

[5] Esposito v. Town of Bethany, No. CV065002923, 2010 WL 2196910, at *4 (Conn. Super. Ct. May 3, 2010).

[6] Id. at *3.

[7] See Footnote 4 at pp.105.

[8] Compare Dornfried v. Berlin Board of Education, No. CV064011497S, 2008 WL 5220639, at *1 (Conn. Super. Ct. Sept. 26, 2008) with Esposito, supra, at *8.

[9] See Footnote 4 at pp.106.

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.

The “Manifest Disregard of the Law” Standard for Judicial Review of a FINRA Arbitration Award Excludes Questions of Fact

Patrick R. Murray v. Citigroup Global Markets, Inc., 2011 WL 5523680 (N.D. Ohio Nov. 14, 2011)
Case Background

In a case before the United States District Court for the Northern District of Ohio, Patrick R. Murray (“Murray”) filed motions to vacate, modify, or correct portions of a Financial Industry Regulatory (“FINRA”) arbitration award.  Citigroup Global Markets, Inc., (“CGMI”) filed a cross-motion to confirm the arbitration award and to award costs and fees incurred while seeking confirmation.   The court denied Murray’s motions to vacate, modify or correct the arbitration award and granted CGMI’s motion to confirm the arbitration award.  CGMI’s request for costs and fees was denied.

In July 2000, Murray was hired as a financial advisor in a local Smith Barney office, which was later acquired by CGMI.  As required by FINRA rules, Murray executed a Uniform Application for Securities Industry Registration or Transfer (“Form U–4”).  He also executed a promissory note for a $1,508,401 forgivable loan, and an addendum to the promissory note that extended the length of the repayment period from seven years to nine years.

The instruments provided that the loan was to be repaid in nine equal annual installments commencing on the first anniversary date of its execution and that, if Murray terminated his employment prior to full repayment, the outstanding balance would be immediately payable with interest accruing from the date of termination.  In April 2009, Murray resigned after having made eight annual payments on the loan.

The Arbitration

In May 2009, Murray sued CGMI in state court alleging that CGMI fraudulently induced him to sign the addendum to the promissory note and illegally confiscated his assets related to a capital accumulation plan account.  CGMI removed the case to federal court, where it filed a motion to compel arbitration. The court found that the arbitration clauses in the Form U-4, the promissory note, the addendum to the promissory note and a separate signed acknowledgment of the CGMI employee handbook were valid and enforceable; therefore, it granted CGMI’s motion to compel arbitration.

FINRA appointed a panel of three neutral arbitrators to hear the matter.  In April 2011, the FINRA panel awarded CGMI compensatory damages of $40,153.00 representing the unpaid balance on the promissory note and awarded Murray compensatory damages of $25,705.95.

Murray filed the instant motion to vacate, modify or correct portions of the arbitration award in federal court and CGMI filed its response and cross-motion to confirm the arbitration award.  Murray challenged the arbitration award on the following grounds: (1) the award was irrational; (2) the award did not draw its essence from the contract between the parties; (3) the award violated public policy; and (4) the award manifestly disregarded the law.

Vacating an Arbitration Award

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, defines four limited statutory grounds on which a court may vacate an arbitration award, including instances of fraud or corruption, evident partiality, misbehavior or misconduct and acts exceeding the arbitration panel’s authority.  9 U.S.C. § 10(a).  The court found that none of Murray’s first three grounds for vacatur satisfied these statutory requirements.

Several federal circuits, including the Sixth Circuit, have held that an arbitration award can be vacated “if it displays ‘manifest disregard of the law.’ ” Jacada, Ltd. v. Int’l Mktg. Strategies, Inc., 401 F.3d 701, 712 (6th Cir. 2005), overruled on other grounds, (citing Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Jaros, 70 F.3d 718, 421 (6th Cir. 1995)).

The Court’s Decision

However, the court found that Murray’s assertions of manifest disregard of the law were based on questions of fact rather than questions of law.  A federal court does not have the authority to re-litigate facts when reviewing an arbitration award to determine whether the arbitrators manifestly disregarded the law.   See Bd. Of County Commis of Lawrence County, Ohio v. L. Robert Kimball & Assocs., 860 F.2d 683, 688 (6th Cir.1988).  Therefore, the court denied Murray’s motion to vacate the arbitration award.

The court additionally determined that, although Murray was incorrect on the merits of his case, he did not engage in the degree of bad faith or vexatious behavior that would compel the court to award CGMI fees and costs for the instant litigation.  Therefore, the court confirmed the arbitration award in its entirety without awarding CGMI additional fees and costs.

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.

Excessive Geographical Restriction Invalidates Connecticut Non-Compete Between Dance Studio and Instructor

RKR Dance Studios, Inc. v. Makowski, 2008 Conn. Super. LEXIS 2295
Case Background

This case involved the legal analysis used to determine if a non-compete agreement between a dance studio and one of its instructors is enforceable in the State of Connecticut.  Jessica Makowski worked as an at-will instructor for RKR Dance Studios from November 29, 2001, to September 28, 2007, at one of its franchised dance studios.  Maximize Your Impact, LLC became the franchisor for RKR in January 2004 and thus became the employer of Ms. Makowski.

She signed a non-compete agreement with Maximize on May 5, 2006, that contained provisions specifying a two-year duration and geographical limitation of a fifteen-mile radius from Maximize’s dance studio and a ten mile radius from any Fred Astaire Dance Studio, whether they be corporate-owned, franchised, or otherwise established.  Ms. Makowski voluntarily left Maximize on September 28, 2007 and shortly thereafter began employment with Steps in Time, a dance studio located within ten miles of another Fred Astaire Dance Studio.  Maximize sued Ms. Makowski to enforce the provisions of the non-compete agreement.

Ms. Makowski contended that she did not violate the agreement because there was inadequate consideration and unreasonable limitations, characteristics that would make the non-compete agreement unenforceable.  The court, while finding that there was adequate consideration, ultimately found in favor of Ms. Makowski, held the non-compete covenant to be unreasonable, and denied Maximize’s request for the court to enforce the agreement.

Considering Continued Employment 

The major issue with regard to consideration in this case revolved around the question “is continued employment adequate consideration for a non-compete agreement?”.  The court cited previous cases, both state (Roessler v. Burwell (119 Conn. 289)) and federal (MacDermid, Inc. v. Selle (535 F. Supp.2d 308)), where the courts concluded that continued employment was adequate consideration for at-will employees for restrictive covenants with their employers.

The court highlights the exchange between the parties, such that the employee receives wages and the employer receives his or her services and the protection created by the non-compete agreement.  The payment and receipt of wages was adequate consideration to legitimize a non-compete agreement and render vague terms sufficient for enforcement.  The court did discuss several dissenting cases but noted that the facts of those cases were critically different from the legal dispute between Ms. Makowski and Maximize.

The court emphasized that the pivotal fact with regard to continued employment as adequate consideration is whether it involves at-will employment.  If there is at-will employment, as was the case with Ms. Makowski, then continued employment is sufficient consideration to render the non-compete agreement enforceable.

Unreasonable Restrictions

The agreement was ultimately found to be unenforceable however due to containing unreasonable restrictions.  The court highlighted the public policy of non-compete agreement enforcement and the balance that must be struck between: 1) the employer’s need to protect legitimate business interests, 2) the employee’s need to earn a living, and 3) the public’s need to secure the employee’s presence in the labor pool.  Fair protection must be afforded to employer and employee alike, a principle that is absent in the agreement between Ms. Makowski and Maximize.

The court specifically stated that the geographical limitation was extremely unreasonable and placed a great hardship on Ms. Makowski’s efforts to earn a living and pursue her career.  Evidence pertaining to job prospects in Massachusetts, Rhode Island, Connecticut, and New York revealed that the closest permissible studio to employ Ms. Makowski was located in Natick, MA, a staggering one and a half hour drive from her house.  The court felt that a three hour daily, roundtrip commute was an excessive burden for Ms. Makowski to bear and concluded that this provision was indeed unreasonable and invalidated the agreement as a whole.

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.

Colorado Court Confirms FINRA Arbitration Award Denying Relief for Service Member’s USERRA Claims

Michael H. Ohlfs v. Charles Schwab & Co., Inc., 2012 WL 202776 (D. Colo. Jan. 24, 2012)

In a case before the Colorado federal district court, Michael Ohlfs (“Ohlfs”), an investment professional employed by Charles Schwab & Co., Inc., (“Charles Schwab”), filed a motion to vacate a Financial Industry Regulatory Authority (“FINRA”) arbitration award decided in favor of Charles Schwab in August 2011.  Charles Schwab petitioned the court to confirm the arbitration award and enter judgment pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9.  The court dismissed Ohlfs claims with prejudice and entered judgment for Charles Schwab.

Case Background

The underlying dispute in this case arose when Ohlfs returned from post 9/11 active duty military service to a Grade 56 Investment Representative position with Charles Schwab, which was lower than the Grade 57 Senior Investment Specialist he held prior to his military service.  The Uniformed Services Employment and Reemployment Rights Act, 38 U.S.C. § 4301, et seq., (“USERRA”) prohibits employment discrimination against military personnel deployed for active duty.  Ohlfs initially filed his USERRA claims in federal district court; however, the court ordered the parties to FINRA arbitration pursuant to the agreement that Ohlfs executed when he registered as a securities broker.

FINRA appointed an arbitration panel of three arbitrators to hear the matter after Ohlfs executed a FINRA Arbitration Submission Agreement, which included an agreement to be bound by the award.  Ohlfs’s claims against Charles Schwab included allegations that his re-employment in 2003 and 2004 were both in violation of USERRA § 4312, that he was discriminated against by failure to promote in violation of USERRA § 4311, and that he was discriminated against for filing a Department of Labor complaint. After ten days of hearings, the FINRA arbitration panel denied all Ohlfs’s statutory claims and all relief requested with prejudice.

Ohlfs filed a motion in federal court to vacate the FINRA arbitration award on several grounds, including unfair treatment by the FINRA arbitration panel, violation of the well-established USERRA public policy, and manifest disregard of the law.

The Allegations

To support his allegation of evident partiality by the arbitration panel, Ohlfs cited nine deficiencies in the arbitration process. The court determined that these allegations, viewed both separately and cumulatively, were insufficient to satisfy Ohlfs’s burden of demonstrating that the panel was unfair to him or partial to Charles Schwab.

One of the key allegations was that two arbitrators were biased toward Charles Schwab because of their connections to the company.  Two members of the arbitration disclosed their connections to Charles Schwab prior to hearing and deciding Ohlfs’s claims.  Because he had knowledge of facts suggesting arbitrator bias or partiality but failed to object to their participation until after the entry of the award, the court determined that Ohlfs waived his right to claim arbitrator bias on these grounds.

Another key allegation was that the arbitration panel refused to consider, or otherwise disregarded evidence, that Ohlfs presented regarding having gone from a Grade 57 Senior Investment Specialist to a Grade 56 Investment Representative following his post–9/11 military service.  Without supporting transcripts from the arbitration hearing, the court determined it had no basis on which to find unfairness or partiality.

Vacating an Arbitration Award on Statutory Grounds

Federal courts may vacate an arbitration award under four narrowly defined statutory grounds, 9 U.S.C. § 10(a), including “evident partiality” on the part of the arbitrators.  An arbitration award may also be vacated for a limited number of judicially created reasons, such as violations of public policy, manifest disregard of the law, and denial of a fundamentally fair hearing. Sheldon v. Vermonty, 269 F.3d 1202, 1206 (10th Cir. 2001).   Errors in the arbitration panel’s findings of fact, interpretation of the law, or application of the law do not justify vacating an award unless such errors correlate to a manifest disregard for the law. See Hollern v. Wachovia Sec., Inc., 458 F.3d 1169, 1172 (10th Cir. 2006).

Vacating an Arbitration Award on Non-Statutory Grounds 

Courts have limited authority to vacate an arbitration award for non-statutory reasons.  An arbitration award may be set aside on public policy grounds if: (1) the award creates an explicit conflict with other laws and legal precedents as opposed to general considerations of supposed public interests; and (2) the violation of such public policy is clearly shown. United Paperworkers Int’l Union, AFL–CIO v. Misco, Inc., 484 U.S. 29, 43 (1987).

Ohlfs argued that the FINRA arbitration award in favor of his employer clearly violated USERRA’s well-defined public policy of protecting members of the armed forces from employment discrimination because the award absolved the employer of any wrongdoing without determining the merits of Ohlfs’s claims.  The court determined that this argument was an attempt to attack the arbitration award on the basis of the arbitration panel’s failure to issue a reasoned decision.  FINRA Rule 1304(g) provides for an “explained decision” that sets forth the general reasons for the arbitration award.

However, such a decision is provided only in the event that the parties jointly request such a decision twenty days prior to the first scheduled hearing.  FINRA Rule 13514(d).  An explained decision was not required in this case under FINRA’s rules because the parties did not jointly request such a decision.  Therefore, Ohlfs failed to carry his burden of proof on the matter.

Vacating an Arbitration Award Based on Disregard of the Law

In order to vacate an arbitration award based on the arbitrators’ manifest disregard of the law, “the record [must] show the arbitrator[s] knew the law and explicitly disregarded it.” Dominion Video Satellite, Inc. v. Echostar Satellite, L.L.C., 430 F.3d 1269, 1275 (10th Cir. 2005).  The court determined that, in the absence of an explanation for the award, Ohlfs cannot demonstrate that the panel manifestly disregarded the law under USERRA based on the fact that it found for Charles Schwab on his claims. The award itself provided no basis to find an “explicit” disregard of the law. Charles Schwab presented substantial evidence in its defense during the arbitration, and the court cannot second guess the panel’s factual findings.

The court denied Ohlfs’s motion for vacatur and entered judgment in favor of Charles Schwab as set forth in the FINRA arbitration award dated August 9, 2011.

 

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.r

California Court Does Not Compel FINRA Arbitration of Statutory Discrimination Claims

John Simmons v. Morgan Stanley Smith Barney, LLC, et al, 2012 WL 1900110 (S.D. Cal. May 24, 2012)
Case Background

In January 2008, John Simmons (“Simmons”) was offered employment by Morgan Stanley Smith Barney, LLC (“Morgan Stanley”) as the Executive Director and District Manager in the Global Wealth Management Department.  The offer letter stated that Simmons would be entitled to a $1 million forgivable loan, relocation benefits and a stock award.  Simmons accepted the employment offer by signing the Morgan Stanley offer letter. In February 2008, Simmons and Morgan Stanley entered into a bonus agreement and a promissory note that each contained a clause agreeing to arbitrate disputes related to these instruments in accordance with the Financial Industry Regulatory Authority (“FINRA”) rules.

In March 2008, Simmons signed a Uniform Application for Securities Industry Registration or Transfer (“Form U-4”) which also contained an arbitration clause citing FINRA rules.  In May 2009, Simmons and Morgan Stanley entered into a second bonus agreement and a second promissory note, each of which contained the same arbitration clauses as the previous instruments.  In March 2011, Simmons’s employment with Morgan Stanley was terminated. In September 2011, Morgan Stanley initiated a Statement of Claim with FINRA seeking to arbitrate its claim against Simmons for violation of the bonus agreements and promissory notes.

Simmons’ Allegations

In December 2011, Simmons initiated an action in California state court asserting statutory claims for discrimination pursuant to Cal. Govt.Code section 12940(a) and for violation of 42 U.S.C. § 2000e (“Title VII”).  Simmons claimed that Morgan Stanley employees made disparaging remarks to him regarding his religious beliefs because he was a member of the Church of Jesus Christ of Latter Day Saints.

Simmons also alleged that, despite his high level of performance, he was not paid in accordance with the terms of his employment agreement.  Finally, the complaint also alleged that, in February 2011, shortly before his termination, Simmons informed his supervisor that he was aware of the fact that he was paid less than other co-workers who performed similar duties but who did not share his religious beliefs.

Simmons’s complaint stated that these discrimination claims were “inextricably related” to Morgan Stanley’s allegations that he violated the two promissory notes because he was “illegally terminated before he was able to fully perform his obligations thereunder.” In addition to the two statutory discrimination claims, Simmons’s complaint also asserted non-statutory claims of wrongful termination in violation of public policy, fraud, and breach of contract.

Enforcing an Arbitration Agreement

Morgan Stanley removed the matter to the United States District Court for the Southern District of California and filed motions to compel arbitration and stay litigation.  Simmons filed a motion for a preliminary injunction asserting that he should not be compelled to arbitrate the claims that Morgan Stanley filed with FINRA in September 2011. Simmons presented five distinct legal arguments for why he should not be compelled to arbitrate with Morgan Stanley.  The federal court dedicated the most discussion to Simmons’s argument that the arbitration agreements which he allegedly entered into did not encompass his statutory discrimination claims.

The Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1-16, embodies both a fundamental principle that arbitration is based in contract and a federal policy favoring arbitration.  A written arbitration agreement “shall be valid, irrevocable and enforceable,” unless the arbitration agreement can be invalidated by a generally applicable contract defense, such as fraud, duress and unconscionability.  9 U.S.C. §2.

Therefore, federal courts deciding motions to compel or stay arbitration examine (1) whether a valid arbitration agreement exists; and (2) whether the agreement encompasses the dispute at issue.  Cox v. Ocean View Hotel Corp., 533 F.3d 1114, 1119 (9th Cir. 2008).  Courts apply state contract law to determine whether an arbitration agreement exists and whether such agreement is enforceable.  Only if both findings are affirmative can a federal court enforce an arbitration agreement in accordance with its terms.

Statutory Remedies

Causes of action premised on statutory rights are just as subject to contractual arbitration agreements as non-statutory common law claims.  However, Congress may pass federal legislation that removes certain claims from the purview of the FAA.  Precedent within the Ninth Circuit is that “a Title VII plaintiff may only be forced to forego her statutory remedies and arbitrate her claims if she has knowingly agreed to submit such disputes to arbitration.” Renteria v. Prudential Ins. Co. of Am., 113 F.3d 1104, 1105-06 (9th Cir. 1997)(citing Prudential Ins. Co. of America v. Lai, 42 F.3d 1299, 1305 (9th Cir.1994)).

Both the public policy of protecting victims of sexual discrimination and the Congressional intent motivating Title VII legislation required that there be a knowing waiver of statutory remedies for civil rights violations, including employment discrimination based on gender.  Id. at 1108.  An earlier case within the Ninth Circuit held that parallel state anti-discrimination laws were made part of the Title VII enforcement scheme.  Lai, 42 F.3d at 1301 n.1.  Because the agreements to arbitrate in the February 2008 and May 2009 promissory notes and bonus agreements did not explicitly state that Simmons waived his right to a jury trial on claims of statutory employment discrimination, the court  refused to find that Simmons knowingly waived his statutory remedies on these claims.

Therefore, the court concluded that these arbitration provisions did not encompass Simmons’s first claim for violation of Cal. Govt. Code section 12940(a) and his second claim for Title VII violation.  However, the court determined that Simmons’s remaining non-statutory claims were encompassed by the existing arbitration agreements.

Arbitration Provisions

An arbitration provision may be challenged “upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2.   Under California law, a contract clause is unenforceable only if it is both procedurally and substantively unconscionable. Davis v. O’Melveny & Myers, 485 F.3d 1066, 1072 (9th Cir.2007)   Procedural unconscionability analysis focuses on the oppression or surprise of a contract clause.  The court found that the arbitration provisions at issue contain a minimal element of procedural unconscionability because they were standard FINRA agreements and clearly visible.  Substantive unconscionability considers the effect of the contract clause, specifically whether the clause is so one-sided as to shock the conscience.  Id. at 1075.

The court found that the arbitration provisions were substantively unconscionable because the rules of FINRA may require Simmons to pay hearing session fees in excess of what he would pay in court.  However, the single substantively unconscionable provision can be severed from the arbitration agreements; therefore, the court held that the arbitration agreements in the February 2008 and May 2009 promissory note and bonus agreements were enforceable once the unconscionable provision was severed.

The Court’s Decision

The court granted Morgan Stanley’s motion to compel arbitration on Simmons’s non-statutory claims pursuant to the arbitration provisions set out in the February 2008 and May 2009 promissory note and bonus agreements.  Likewise, pursuant to 9 U.S.C. § 3, the court granted Morgan Stanley’s motion to stay litigation on these claims pending arbitration.  Because the court found that valid arbitration provisions exist, it denied Simmons’s motion for a preliminary injunction.

With respect to Simmons’s first two claims of employment discrimination under California and federal statutes, the court denied Morgan Stanley’s motions to compel arbitration and stay litigation.  Simmons was permitted to litigate these claims in federal district court.

 

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.

Retention of Confidential Information is a Clear Breach of Non-Compete According to Connecticut Court

TyMetrix, Inc. v. Szymonik, 2006 Conn. Super. LEXIS 3865
Case Background

Mr. Peter Szymonik worked for TyMetrix, Inc. from July 2002 to March 10, 2005 as the Director of Client Services and then as Vice President of Technical Operations beginning in January 2004.  TyMetrix was a technology company that provided web-based systems for its clients in order to implement electronic invoicing, performance management metrics, matter & document management, budgeting, forecasting, and generating other business reports.  The company’s typical clients included the legal departments of Fortune 500 companies, law firms, and insurance companies.  The company operated within the United States but at the time had potential clients in the United Kingdom and Australia.  Mr. Szymonik signed an employment agreement in July 2002 and the document contained several post-employment restrictive covenants.

The non-compete agreement prohibited him from: 1) retaining, using, or disclosing any confidential information, 2) working for a competing enterprise for two years following termination, 3) soliciting TyMetrix’s clients (current or prospective) during those two years, and 4) soliciting or hiring any TyMetrix employee during those two years.

Breach of Employment Agreement

TyMetrix terminated Mr. Szymonik on March 10, 2005 and he proceeded to form a new company, SpectoWise, Inc., on July 5, 2005 where he served as its president.  In his capacity as the president of the new company, he solicited several TyMetrix clients and employees to join his firm and even hired at least one former TyMetrix employee.  TyMetrix also asserted that Mr. Szymonik retained copies of some of the company’s confidential information.

He claimed that he was only retaining the information to assist in litigation with TyMetrix and had not used its content in connection with the business operations of his new company or for any other personal gain.  TyMetrix sued Mr. Szymonik in Connecticut state court and asked the court to grant injunctive relief by enforcing the provisions of the July 2002 non-compete agreement.

The Court’s Decision

The court found in favor of TyMetrix, concluded that Mr. Szymonik had indeed breached a valid non-compete agreement, and ordered the covenant enforced.  Mr. Szymonik presented several defenses that the court ultimately rejected in its legal analysis.  He asserted that his new company, SpectoWise, offered very different services from TyMetrix and further argued that the non-compete was unenforceable because the company wrongfully terminated his employment.  As for the claim that the companies were vastly different, the court analyzed SpectoWise’s marketing material and discerned that it was abundantly clear the companies essentially offered the same services to their clients.

Furthermore, the court held that Mr. Szymonik’s termination was not in bad faith and did not go against public policy.  He failed to present any evidence to demonstrate that TyMetrix had violated any “expressed statutory or constitutional provision or judicially derived public policy” when it terminated his employment.  The court also held that Mr. Szymonik’s retention of TyMetrix documents was unlawful on its face and was a clear breach of the non-compete agreement.  It was irrelevant why Mr. Szymonik retained the documents because the mere fact that he still possessed the confidential information was a violation of the employment agreement.

The court’s legal analysis of the dispute indicated that there was in fact a breach of the non-compete agreement and that TyMetrix was likely to succeed on the merits of its claim.  These two factors led the court to find in favor of the employer (TyMetrix) and ordered the enforcement of the restrictive covenant that the parties had executed in July 2002.

 

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  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.

Balancing Policy Concerns When Determining Enforceability of Non-Compete Agreement

Booth Waltz Enterprises, Inc. v. Pierson, 2009 Conn. Super. LEXIS 1912
Case Background

Speedway Distributors, Inc. employed Mr. David Pierson as a sales representative beginning in 1998 and had him sign a non-compete agreement as a condition precedent to his employment.  The agreement, executed on January 26, 1998, prohibited Mr. Pierson from soliciting Speedway customers or divulging their contact information to other parties for a period of one year following his termination.  Speedway’s primary business operation was distributing aftermarket chemical products in Connecticut, Rhode Island, and western Massachusetts.

On October 20, 1998 Booth Waltz Enterprises, Inc. acquired certain Speedway assets, most notably its customer lists/information and its sales representatives’ non-compete agreements.  Booth Waltz offered Mr. Pierson a job under the new corporate management scheme and asked him to sign a new non-solicitation agreement but he voluntarily terminated his employment.

Following his termination, Mr. Pierson started his own business, Hometown Distributors, which engaged in the same business operations and geographical area as his former employer.  Booth Waltz alleged that Mr. Pierson was soliciting its customers in violation of the non-compete it acquired from Speedway and sued for the enforcement of the restrictive covenant.

The Court’s Decision

The court found in favor of Booth Waltz, holding that the “defendant [Mr. Pierson] has engaged in conduct which is in breach of the restrictive covenant.  This conduct would dictate that the plaintiff [Booth Waltz] is entitled to enforce the agreement”.  Mr. Pierson contended that the provisions of the non-compete agreement were unreasonable, rending the agreement unenforceable, but the court rejected these assertions.  In handing down its decision, the court had to balance the necessity to protect the employer’s business interests and the employee’s right to earn a living.

The duration of one year was reasonable and was supported by the public policy principle that Booth Waltz had a right to protect the long-term relationships that Speedway maintained with its customers.  Additionally, the court concluded that the geographical limitation (Connecticut, Rhode Island, and western Massachusetts) was reasonable because it only restricted specific customers appearing on Speedway’s customer list, and not the region as a whole.

The court also addressed and stated that its holding did not interfere with public interest since it did not unreasonably deprive the public of a good/service for the sake of protecting a business’s recognized interest.  This case is a good example of how a court must balance multiple interests and policy concerns when deciding a case disputing a non-compete agreement between an employer and one of its former employees.

 

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.