Everything is good until it's not. Particularly when it comes to an employee's decision to move on to a competitor. Once we add "former" to an employee's status, all hell often breaks out. At times, it all starts off with we love ya, we don't want ya to leave, watta we gotta do to get you to stay. Then it becomes good riddance to ya -- you were never a team player anyway. Then someone pours gasoline on a floor. Then someone lights and then tosses a match. And before you know it, we've set the building and everyone in it on fire. Other times, calmer heads seem to prevail and commonsense seems to squeeze its way into the midst of a lot of anger. In a recent FINRA arbitration, we got a AllianceBerstein former employee who apparently found peace and happiness at Merrill Lynch, but not so much peace and happiness as to preclude his former employer from filing a FINRA arbitration seeking seven figures in damages and an injunction. And then -- will Wall Street miracles never cease? -- the combatants apparently sat down, tried to see it my way and your way, worked things out, and life goes on and everyone is happy, particularly the lawyers if they got paid.
Case In Point
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in April 2017, Claimant AllianceBernstein L.P. asserted breach of contract and
unfair competition in connection with its termination of the employment of
Respondent Ziegler. Claimant sought Claimant over $1,000,000 compensatory
damages and over $1,000,000 in punitive damages plus a permanent injunction
enforcing Respondent's confidentiality and non-solicitation covenants. In the
Matter of the FINRA Arbitration Between AllianceBernstein L.P., Claimant, vs. Robert
C. Ziegler, Respondent (FINRA Arbitration 17-01015, March 8, 2018).Stipulated AwardIn January 2018, the
parties settled with respect to Claimant's request for monetary damages and agreed
to submit the remaining issues regarding Claimant's request for an injunction
to the sole FINRA arbitrator via a proposed Stipulated Award, which the FINRA
Arbitration Decision presents in pertinent part as follows:
Through and including
February 17, 2019, Respondent is enjoined and restrained, directly or
indirectly, and whether alone or in concert with others, including any officer,
agent, employee, and/or representative of Merrill Lynch, Pierce, Fenner &
Smith, Inc. ("Merrill Lynch") from soliciting the business of, or initiating
any contact or communication with, any clients he serviced or whose names that
became known to him while in the employ of AllianceBernstein (the
Nothing herein shall
prohibit Respondent or Merrill Lynch from servicing or accepting business from
Clients who already have transferred their accounts or who request to transfer
an account from AllianceBernstein to Merrill Lynch, or from responding to
inquiries initiated by Clients following the entry of this Agreed Permanent
Injunction. Respondent reiterates his intention to fully comply with the terms
of this Stipulated Award.
Should Claimant believe
that Respondent and/or Merrill Lynch is in violation of the Agreed Permanent
Injunction, Claimant shall confer with Respondent and/or Merrill Lynch
regarding Claimant's concern before seeking relief from FINRA. Respondent
and/or Merrill Lynch shall have two (2) business days to respond to Claimant's
asserted concerns. If Claimant still has a reasonable belief that this Agreed
Permanent Injunction has been violated after receiving a response, or if no
response is forthcoming within the designated period, Claimant may then file a
new arbitration claim with FINRA Office of Dispute Resolution seeking relief
for an alleged violation of this Agreed Permanent Injunction.
This Agreed Permanent
Injunction shall expire on February 17, 2019.
Bill Singer's Comment
A well-crafted settlement. Y'all worked it out.
According to online FINRA BrokerCheck records as of March 14, 2018, Ziegler was first registered in 1998 with Banc of America Securities LLC, where he remained until August 2004. Ziegler was next registered with firm Sanford C. Bernstein & Co., from 2012 to February 2017, at which time he joined Merrill Lynch, Pierce, Fenner & Smith Incorporated. In contradistinction to his registration dates, BrokerCheck discloses that Ziegler was "employed" by Bank of America from August 2004 to December 2011, and, thereafter, was employed with Sanford C. Bernstein & Co., LLC (1/2012 to February 2017); and with both Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank Of America, N.A. (February 2017 to current). There are no disclosure events on Ziegler's BrokerCheck record.
Now, let's slowly walk through the Stipulated Award to make sure we catch the nuances.
First, the term of the settlement is about one year from March 8, 2018, through February 17, 2019. Some clients ask me how long such restrictions will be imposed and this case presents a one-year sun set on the undertakings. Note that Ziegler is enjoined/restrained from:
soliciting the business of, or
initiating any contact or communication with
any clients he serviced or whose names became known to him while in the employ of AllianceBernstein.
This is not merely a non-solicitation undertaking but also extends to the more expansive initiation of any contact/communication with the covered clients. Note that the prohibition againstinitiating contact/communication is not limited to the goal of "soliciting business" but is a plenary restraint on any contact/communication for whatever reason.There is nothing prohibiting Ziegler, however, from responding to any contact/communication from a covered client provided that he did not initiate same.
Having placed the above gag-order in play, the parties carved out some exceptions. Ziegler may service or accept business from covered clients provided that such clients had already transferred their accounts AllianceBernstein to Merrill Lynch. Similarly, Ziegler may service/accept business from those clients who request the transfer of an account from AllianceBernstein to Merrill Lynch. Further, Ziegler may respond to any inquiry from covered clients provided that the client initiated the inquiry.
Another interesting provision is along the lines of a notice-and-cure. Here we see that if Claimant believes that Ziegler or Merrill Lynch has violated the injunction, Claimant will "confer" with the other parties before "seeking relief from FINRA." Built into this notice requirement is a two-business-days grace period during which Ziegler/Merrill Lynch shall respond to any noted concerns. In the absence of a satisfactory response or in the event of no response, subject to a prerequisite of "reasonable belief," Claimant may then file a new FINRA arbitration seeking relief.
I don't know about you but this case and its settlement left me wondering as to why the parties weren't able to settle the matter short of arbitration. Perhaps the flesh was willing but the spirit lacking? In any event, maybe they're all happy.
The BrokeAndBroker.com Network includes a daily feed curated by our dashing and effervescent publisher Bill Singer, Esq. For those of you tired of Bill's pithy musings and brilliant insights, the Securities Industry Commentator http://www.rrbdlaw.com/blog.php provides brief descriptions of legal, regulatory, and compliance matters with direct links to the underlying full-text documents.