In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2011, Claimant SunTrust asserted causes of action for
The dispute arose in connection with Claimant's termination of Respondent Anderson. Claimant sought unspecified damages, attorneys' fees ultimately submitted as $65,551.64, and an injunction through August 26, 2012, prohibiting Respondent Anderson from:
In the Matter of the FINRA Arbitration Between SunTrust Bank and SunTrust Investment Services, Inc., Claimants, vs. Corey D. Anderson, Respondent(FINRA Arbitration 11-03554, June 5, 2012).
Claimant SunTrust Bank Is not a FINRA member. Accordingly, Respondent's submission to arbitration with Claimant SunTrust Bank is on a voluntary basis.
Respondent Anderson generally denied the allegations and asserted various affirmative defenses.
Around October 19, 2011, the FINRA Arbitration Panel entered an Order on Request for Permanent Injunction which stated, in pertinent part:
[T]he Panel granted the requested injunction as to "customers" but not as to "prospective customers," as "prospective customers" could conceivably include the entire world population, which would be unreasonable. The Panel unanimously felt Respondent should be held to the requirements of his executed Non-Solicitation Agreement, and that the evidence of solicitation, while thin, reflects solicitation of at least [one customer]; and since [the customer's] testimony confirmed that solicitation, Respondent's infraction appears clear. The Panel unanimously felt that simply contacting [the customer] or any other customer he previously served while employed by Claimants to merely notify them of his new employment would not have violated his employment agreement obligations not to solicit. Pursuant to NASD Notice to Members 02-07, Claimants are prohibited from interfering with any customer's individual choice as to who will service their account. Therefore, the Panel unanimously enjoins Respondent from soliciting SunTrust's customers as defined in his Non-Solicitation Agreement; and that injunction continues through August 26, 2012.
[T]he Respondent did not contest an injunction requiring the return of confidential information. The Panel unanimously found that Respondent's forwarding of the 6,000-name e-mail to his personal account to not be an egregious act; and his testimony and the joint forensic examination indicate that he did nothing to utilize the information contained in the e-mail. Therefore, the Panel unanimously grants the said Injunction "by Agreement," directs the Respondent to return all confidential or trade secret material to Claimants' counsel within three days from receipt of this order, and further directs Respondent to permanently delete any such information or data that may constitute electronically-stored information (and to return any hard copies of documents and not retain any copies, notes or extracts thereof), and further directs Claimants to keep such material available for the Panel to further examine at the hearing of this case on the merits in 2012. . .
The FINRA Arbitration Panel ordered Respondent Anderson to pay $32,775.75 in attorneys' fees within 30 days of the Award to Claimant SunTrust. Additionally, the Panel revised the Injunction from an ending date through August 26, 2012, to an earlier termination date of May 19, 2012.
Why did the Panel curtail the August term of the Injunction to an earlier May date? In part, it appears that the Panel was annoyed by Claimant's hardball tactics:
The testimony of SunTrust attorney Lori Sue Thomas left a deep impression on the members of the Panel. She filed an ex parte action in the Chancery Court of Hamilton County, seeking a Temporary Restraining Order, although Respondent's attorney had asked her to contact him first before taking such action. On page 14 of his Post-Hearing Brief, Claimants' attorney, Kevin C. Baltz, stated that upon hearing Respondent's repeated statements that he had no SunTrust information. Attorney Lori Sue Thomas (acting for SunTrust)
"…took the necessary and proper steps to ensure protection of confidential customer information. These steps were certainly reasonable and necessary under the circumstances."
The Panel disagreed.
The Panel agreed that a person whose primary motive was to recover and protect SunTrust's 6,000-name customer list would have simply phoned Respondent, specifically identified what she wanted and in what form it had been sent to Respondent and demanded an immediate answer on that specific request. While Respondent did have the 6,000-name customer list, the Panel believes he did not know that he had it when he responded to Ms. Thomas. The Panel believes that while Respondent's assurances to SunTrust to the contrary were false-he did not know at that time that they were false. SunTrust has agreed that the computer expert jointly-hired by the parties found that the offending 6,000-name email had not been opened on Respondent's computer and there is no reason to believe he ever saw it or had any intention of possessing or using those 6,000 names. The Panel believes that a simple phone call to Respondent would have brought about the instant recovery of this valuable customer list and ended the 6,000-name customer list issue.
My compliments to this FINRA Arbitration Panel for issuing a comprehensive Decision, which contains a very concise explanation of why the Panel entered an injunction pending the FINRA Arbitration Panel's ultimate decision and a compelling rationale for the final award (including the reduced term on the Injunction).
As of October 2011, some eight months before the final ruling on this case, the Panel felt it prudent to offer some protection to Claimant SunTrust; however, to its credit, the Panel would not bite down on the bait of drafting an overly expansive injunction to include all "potential" customers. Moreover, I am impressed that this Panel reminded the industry that the mere communication from a registered person to a customer or prospect is not necessarily a "solicitation." Finally, the Panel seems to have given Respondent some fudge points for not denying that he had possession of some 6,000 customer names and for his willingness to return that data.
The FINRA Arbitration Panel seems to have been quite upset with what it viewed as a precipitous move by Claimant to obtain a Temporary Restraining Order against Respondent prior to undertaking a good-faith effort to amicably resolve the issue of the confidential customer information. Although Claimant argued that resort to a TRO was reasonable and necessary, the Panel seemed to view it as unwarranted hardball - noting that Respondent's attorney had not been contacted prior to such an application to the Court. Further, the arbitrators seem to have concluded that Respondent Anderson had been unaware that he had possession of the disputed 6,000 names - implying that he obtained that disputed information in an incidental manner - moreover, the Panel apparently determined that Respondent was disposed to voluntarily surrendering such data.
In fairness to Claimant's counsel, you really have to be in the trenches dealing with your adversary to know whether there was a reasonable expectation of accommodation. Sometimes these arbitrations are pitched battles with no quarter shown and the prudent thing is to go to court rather than waste more time. A failure to timely enlist the court's aid could put confidential materials at risk. Notwithstanding, most judges and statutes still impose some obligation to attempt a mutually agreeable resolution among the parties of these types of disputes before plopping them down in civil court.
On the other hand, Respondent Anderson was not completely let off the hook by the Panel. His actions were scrutinized and also found wanting:
The Panel believes that Respondent's solicitation of a customer with whom Respondent had worked for several years and whom Respondent should have known had served on a Board for SunTrust, was an unequivocal violation of his agreement - and it is incredible that an experienced "high net worth specialist" registered representative such as Respondent would have committed such an obvious offense.
Whatever competitive benefit SunTrust could have derived from the original one-year injunction should largely have been achieved in the almost seven months since the October 19, 2011 FINRA hearing and in the almost eight months since the September 14, 2011 Temporary Restraining Order handed down by the Chancery Court of Hamilton County, TN.
Respondent has done wrong; but SunTrust's record in this matter is not exemplary. . .
In essence, we have a Claimant and a Respondent who both came to FINRA arbitration with somewhat dirty hands. Respondent's conduct was improper and he was sanctioned with the cost of Claimant's legal fees and the imposition of an injunction against his solicitation of SunTrust's customers, albeit for a reduced period of time than originally set prior to the conclusion of the arbitration hearings.
SIDE BAR: In a recent "Street Sweeper" column: "Merrill Lynch Wins Solicitation Injunction Against Former Employee" (December 21, 2011), a FINRA Arbitration Panel partially granted Claimant Merill Lynch's request for a permanent injunction by enjoining a former employee from soliciting former Merrill Lynch clients until October 21, 2012; however, the Panel added that nothing in its injunction should be deemed to prevent that individual from advertising or mailing tombstone ads which are not targeted to individual clients of Merrill Lynch which he serviced.
Also see, "Former Morgan Stanley Smith Barney Brokers Lose $4 Million Protocol Arbitration" (" Street Sweeper" June 13, 2011)
On the other hand, Claimant's litigation approach didn't help its case. It doesn't seem that the Panel was citing any misconduct by SunTrust within the context of Respondent's employment; rather, the arbitrators seem troubled by the juggernaut of legal tactics employed by the firm and deployed against Respondent. These arbitrators concurred that Respondent violated the terms of his Non-Solicitation Agreement and inadvertently managed to transfer 6,000 confidential customer names - all of which earned Anderson a good tongue lashing, a hefty bill for his adversary's legal fees, and an injunction. On the other hand, SunTrust seemed to go thermonuclear when a more modulated response was deemed appropriate by these arbitrators. Nonetheless, SunTrust's legal team achieved its basic goals of legal fees and an injunction, so perhaps the arbitrators' ire isn't all that much of a concern. As they say, a victory is a victory, no matter the margin of points.
In the end, however, this case offers a reminder to all lawyers: Know your audience.