Fidelity Brokerage Services and a former Financial Consultant wound up in federal court and eventually resolved their lawsuit in a FINRA arbitration. The lawyers made out well. FINRA certainly earned a nice buck providing its arbitration forum. The arbitrators also earned a lovely fee.
As BrokeAndBroker.com Blog's publisher Bill Singer, Esq. observes, Wall Street doesn't place much value on its human capital. Fidelity calls the men and women who service customers "Financial Consultants," but the brokerage firm is fairly dismissive of those employees' role. The high-production value advertising wants us to believe that we're dining at a four-star restaurant on the menu of a world-class chef. In reality, maybe it is nothing more than some minimum-wage kid heating frozen food in a microwave and overcharging us for crap.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2017, Claimant Fidelity Brokerage Services LLC asserted misappropriation of trade secrets and unfair competition in connection with Respondent Nordstrom's employment with Claimant and his subsequent formation of Respondent Innovation Wealth Management ("IWM") In the Matter of the FINRA Arbitration Between Fidelity Brokerage Services LLC, Claimant, vs. Innovation Wealth Management and John Paul Nordstrom, Respondents (Stipulated Award, FINRA Arbitration 17-00710, October 5, 2017).
Respondent Nordstrom and Respondent IWM generally denied the allegations and asserted various affirmative defenses.
In addition to seeking compensatory damages, restitution, disgorgement of profits attendant to any wrongful conduct, punitive damages, fees, and costs, Claimant Fidelity sought to enjoin Respondents from:
using, disclosing, transmitting and continuing to possess for any purpose, including solicitation of customers or disparagement of Fidelity to customers, the information contained in the records of Fidelity, including, but not limited to, the names, addresses, telephone numbers, email addresses and confidential financial information of the customers Nordstrom learned of through his employment with Fidelity until further;
SIDE BAR: The above paragraph in the FINRA Arbitration Stipulated Award ends abruptly with "until further;" No . . . that's not my typo. It appears that in publishing the Stipulated Award, the arbitrators left out the concluding word or phrase (or such was the copy provided to them by the stipulating parties) that would constitute the endpoint for "until further."
Additionally, Claimant sought an Order against Respondents and anyone acting in concert with them:
to return to Fidelity any and all records, documents and/or information pertaining to Fidelity customers, whether in electronic, handwritten or any other form within five (5) days of entry of this order, including any and all copies. This requirement includes all records or documents, in any form, created by Respondents, or anyone acting in concert with them, including documents created from memory, based on documents or information that was received or removed from Fidelity by Nordstrom; . . .
On June 2, 2017, the parties filed a Stipulated Injunction Order with FINRA, which became the basis for the Stipulated Award as entered by the FINRA Arbitration Panel:
1. Respondents hereby agree that, for one (1) year from May 22, 2017 they are enjoined and restrained, either directly or indirectly, and whether acting alone or in concert with others or through any entity with which they are affiliated, from using, disclosing, or transmitting for any purpose, the information contained in the records of Fidelity obtained from or as a result of Nordstrom's employment with Fidelity including, but not limited to, the names, addresses, telephone numbers, e-mail addresses, and confidential financial information of Fidelity customers who Nordstrom served or whose name became known to Nordstrom through his employment with Fidelity, including Fidelity customer information retained in Nordstrom's memory. This paragraph does not apply to Fidelity customers who have already transferred assets to Respondents.
2. Respondents are permanently enjoined and restrained from disparaging Fidelity to customers who Nordstrom serviced or whose name became known to Nordstrom by virtue of his employment at Fidelity.
3. Respondents have already submitted a declaration in the United States District Court for the Eastern District of California in Case No. 2:17-CV-00594-JAM-KJN, that they have no documents or records, whether held in electronic or hard copy form, pertaining to or concerning Fidelity customers. This includes any documents created by Respondents based upon information concerning Fidelity customers, including their names, held in the memory of Nordstrom or re-created from publicly-available sources based on Nordstrom's memory pertaining to Fidelity customer names or information. Respondents may retain information pertaining to Fidelity customers who have already transferred assets to Nordstrom or IWM.
4. Respondents shall immediately remove any reference to Fidelity, including but not limited to informal references, such as Fidelity Investments, that implies or suggests Respondents have an ongoing affiliation with Fidelity from any medium, including but not limited to, the social media site LinkedIn.
5. Nothing in this injunction prevents Fidelity from seeking to enforce Nordstrom's non-disclosure obligations in his Employee Agreements, should a future breach occur.
Agreeing To Nothing of Value
As a lawyer, I generally dismiss the verbiage in paragraph #2 by explaining to a client that you can't kill someone without consequence (or defame them) regardless of whether you do or do not sign a private agreement to that effect; so, if it makes our adversary happy and we can put this settlement to bed with this drivel included, just sign it. Also, if they insist, you will also agree that you will not get any younger and that Sunday will continue to follow Saturday on the calendar.
A Federal Case
Paragraph #3 isn't so much a term of settlement as a restatement of the declaration in federal court by Respondents that they didn't have any documents or records pertaining to Fidelity customers subject to the carve-out for "already transferred assets." Imagine a bank robber declaring that he would not keep any money other than what he had already removed from the vault.
Paragraph #4 is an eye-roller. Respondents agreed to remove any references to Fidelity that indicate some ongoing affiliation. Hard to imagine why a former employee who started his own firm would want to suggest an ongoing relationship with a former employer after being sued by that former employer. Then again, Ivana Trump did suggest that she's still the First Lady and in touch with her former husband.
United States District Court
Being the curious fellow that I am and being ever attentive to my readers' insatiable curiosity, I found the federal case ever-so-slightly-referenced in the FINRA arbitration. As alleged in Fidelity Brokerage Services, LLC, Plaintiff, v. John Nordstrom and Innovation WEalth Management, Defendants (Complaint, United States District Court for the Eastern District of California, March 20, 2017). Consider the additional background provided in Plaintiff's pleading:
An interesting assertion in Fidelity's federal Complaint is that:6. On February 16, 2017, Nordstrom abruptly resigned from Fidelity and immediately joined IWM, which is affiliated with LPL Financial, LLC ("LPL").7. After Nordstrom resigned, Fidelity reminded him of his legal and contractual obligations to Fidelity. Despite those obligations, Nordstrom took Fidelity's confidential and trade secret customer information and began using and continues to use that information to unlawfully target Fidelity customers to solicit them to transfer their accounts to IWM and to disparage Fidelity.8. Fidelity has done all it reasonably could do to avoid court intervention in this matter. When Fidelity first heard reports that Nordstrom may have misappropriated Fidelity customer information and used it to solicit Fidelity customers in violation of federal and California law, it immediately sent a cease and desist letter to Nordstrom asking that all Fidelity customer information be returned and that Nordstrom cease any solicitation of Fidelity customers. Instead of complying with the cease and desist letter and stopping their wrongful conduct, Fidelity has recently received reports from multiple customers demonstrably showing that Defendants continue to possess Fidelity's confidential trade secret information and continue to use Fidelity's confidential trade secret information to solicit Fidelity customers and disparage Fidelity to Fidelity's customers.9. Fidelity has learned that Nordstrom solicited multiple Fidelity customers by calling and asking them to discuss moving their accounts to Nordstrom at his new firm, IWM. During the messages and/or telephone calls, Nordstrom disparaged Fidelity's practices and offered to discuss how he could provide superior services compared to Fidelity.
17. Fidelity is unique in the retail brokerage field because Fidelity does not have its Account Executives, including its Financial Consultants, make "cold calls" to persons who have no relationship with Fidelity, or who were not referred to Fidelity. Fidelity requires its Financial Consultants to develop service relationships based upon leads that Fidelity provides. Fidelity provides leads to its Financial Consultants from two primary sources.18. First, Fidelity forwards information to its representatives from prospective customers who initiate contact with Fidelity either by telephone, over the internet, or in person. Fidelity and its affiliates devote tens of millions of dollars per year toward attracting customers to Fidelity's various businesses by a variety of means. Fidelity arranges to publish and broadcast national and local advertisements which invite potential customers to contact Fidelity; Fidelity maintains an interactive internet page that allows interested persons to establish relationships with Fidelity; Fidelity maintains multiple call centers that prospective customers can use to initiate contact with Fidelity; and Fidelity maintains prominent retail locations that prospective customers can visit. A large portion of Fidelity's business is derived from this initial customer contact that is generated by significant investments of time, labor, and capital by Fidelity.19. Second, Fidelity forwards information to its representatives regarding customers, with whom Fidelity already has a relationship, when those customers experience "triggering events," such as Fidelity 401(k) distributable events, which may lead to interest in Fidelity's retail financial services. In addition, representatives may be assigned to service customers previously serviced by other representatives in certain circumstances, such as if the former representative moves, leaves Fidelity, or is promoted to another position. A significant portion of Fidelity's business is derived from servicing the needs of Fidelity's existing customers.