Former Schwab Stockbroker Obliterates Firm In Wrongful Solicitation Case

September 14, 2016

You know that movie where the bully comes after the apparent weakling, who, as it turns out, is a 400th Degree Black Belt in Kung Pao Fu You karate, and after backing up several miles in the face of the bully's onslaught, the skinny hero finally stops backing up, turns around, and, amazingly, delivers a beat down? If you haven't seen the film, it should be available by streaming or DVD in a few more days (does anyone still buy DVDs?). Speaking of unexpected whoopins, Charles Schwab picked on the wrong former employee in a recent federal case and FINRA arbitration. 

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in November 2014 and as amended thereafter, Claimant Charles Schwab & Co., Inc. asserted breach of contract; misappropriation of trade secrets; tortious interference with contract, business relationships, and business expectancy. As set forth in the FINRA Arbitration Decision:

Claimant alleged that Kitzel, while still employed at Schwab, improperly printed and retained or memorized a client list or other Schwab client information, which she used for two separate mass mailings to solicit Schwab clients to join her at her new employer, J.P. Morgan. Claimant also alleged that J.P. Morgan authorized, approved, and encouraged those announcements despite knowing they were a clear violation of Kitzel's agreements with Schwab.

In addition to seeking an injunction, Schwab ultimately sought $409,606.51 in attorneys's fees and costs. In the Matter of the FINRA Arbitration Between Charles Schwab & Co., Inc.,Claimant, vs. Carolyn Kitzel and J.P. Morgan Securities, LLC, Respondents (FINRA Arbitration 14-03372, August 30, 2016).

SIDE BAR: Improperly memorized?  I mean, seriously, you're going with that? Improper memorization? Ummm . . . not to be too snarky here but just how the hell does someone "improperly" memorize something and, more to the point, just what the hell are you supposed to do when you have purportedly improperly memorized something -- you want the subject to undergo electroshock or a lobotomy? You suggesting the remedy from the film "Total Recall?"

Moreover, just what the hell do you think a retail registered rep does if not develop and maintain client relationships which, you know, just puttin' it out there for the sake of it, but, last I heard, a lot of retail reps have a pretty decent memory of the names, emails addresses, and telephone numbers of their key accounts. 

Oh, and while I'm pointing out such things, you do know that there's this whole world of the Internet where you can simply enter the name of a human being -- likely one of those names that most of us would recall if we were in sales and that "name" was a customer -- and you can get that human being's home address, work address, email addresses, telephone numbers, social media pages, spouse's name, kid's names, histories of divorce and bankruptcies, and, well, the list of public information derived from a search of a name is breathtaking and not exactly what most of us would deem confidential or a trade secret. 

Respondents generally denied the allegations and asserted various affirmative defenses. By the hearing, Respondent Kitzel sought $181,626.06 in attorneys's fees and costs; and J.P. Morgan sought $165,356.34 in attorneys's fees and costs.

SIDE BAR: According to online FINRA BrokerCheck records as of September 14, 2016, Kitzel was first registered in 1998 with Morgan Stanley DW Inc. and joined Citicorp Investment Services in 2004. She was registered with Charles Schwab & Co, Inc. from February 2007 until July 2014; and, thereafter, she registered with J.P. Morgan Securiteis, LLP, where she remained until September 2015.

Federal Court Orders

In March 2015, a Temporary Restraining Order in favor of Charles Schwab was entered in the United States District Court for the Northern District of Illinois ("NDILL"). In April 2015, Charles Schwab and Kitzel agreed to the terms for a Permanent Injunction, which was entered in NDILL.

SIDE BAR:  Wow!!! Not only did Charles Schwab go after Kitzel in a FINRA Arbitration but, lo and behold, the firm also sued her in federal court. Odd, isn't it? Whatever happened to all that stuff about how FINRA's rules "mandate" intra-industry arbitration? It's nice how the big boys sort of get to advance their own interpretations and twist on just what the self-regulatory organization's rules mean and, similarly, how nice that the self regulator doesn't seem to get all worked up over its larger members not exactly arbitrating all disputes. Yeah, I know, the reason that Schwab went into federal court was to obtain a TRO and, thereafter, hopefully convince a judge to issue a PI. 


The FINRA Arbitration Panel denied Claimant Charles Schwab's claims and request for a permanent injunction against J.P. Morgan Securities.

The Panel found Claimant Charles Schwab liable and ordered it to pay to:


    • $159,628.94 in attorneys fees;
    • $5,371.06 in costs

J.P. Morgan Securities, LLC:

    • $107,640.06 in attorneys' fees; and
    • $14,359.94 in costs
Bill Singer's Comment

Not only did federal Plaintiff / arbitration Claimant Schwab ultimately lose its case against its former employee Kitzel and her new employer J.P. Morgan but, even more dramatically, Schwab got whacked with nearly $290,000 in fees and costs. Talk about someone at Schwab miscalculating!

In yet another example of the tireless and unending service by Blog for its loyal readers, publisher Bill Singer delved into the hidden mysteries of this arbitration and unearthed some details not fully disclosed in the FINRA Arbitration Decision.

On Two Tracks

To underscore and make clear, in November 2014, Charles Schwab & Co., Inc. sued Carolyn Kitzel in Charles Schwab & Co., Inc., Plaintiff, v. Carolyn Kitzel, Defendant (Complaint, NDILL, 14-CV-08843 / November 5, 2014) and In the Matter of the FINRA Arbitration Between Charles Schwab & Co., Inc., Claimant, vs. Carolyn Kitzel and J.P. Morgan Securities, LLC, Respondents (FINRA Arbitration 14-03372, August 30, 2016), which means that the FINRA member firm was running on two tracks of litigation at the same time: federal court and FINRA arbitration.

Suspiciously Accessing

As asserted in Plaintiff Schwab's federal Complaint, Kitzel was a former "seasoned and successful Schwab Financial Consultant with more than seven years experience" who had resigned on May 23, 2014, when she gave four week's notice.  The  federal Complaint asserts that Kitzel had "serviced more than three hundred and thirty (330) client households with approximately $545 million in assets custodied at Schwab." In fleshing out its case against Kitzel, Schwab's federal Complaint asserted that:

42. In the months leading up to her departure from Schwab, Kitzel engaged in a concerted effort to memorize, print, and retain Schwab's valued client information, with full knowledge that it was in violation of her Agreements, for the sole purpose of using the information to compete against Schwab after her departure.

43. To start, Kitzel accessed and printed copies of the 2013 Agreement five times in the months preceding her resignation, on February 27, February 28, April 7, April 29, and May 12, 2014. She was fully aware of the 2013 Agreement's nonsolicitation, confidentiality, and return of property requirements.

44. On February 14 and 26, 2014, Kitzel printed her practice list. That list contained contact information for more than three hundred and sixty (360) Schwab clients.

45. In addition to printing her entire practice list, Kitzel also began suspiciously accessing information regarding specific clients.

Member of the Wedding

While in federal court, Schwab sought a Temporary Restraining Order against Kitzel, who, in turn, responded in opposition. Charles Schwab & Co., Inc., Plaintiff, v. Carolyn Kitzel, Defendant (Kitzel Response to TRO Motion, NDILL, 14-CV-08843 / March 12, 2015). Kitzel 
argued that:

While Kitzel did call a Schwab and JPMorgan joint customer, that customer is a person she invited to her fifty-person wedding who had previously contacted Kitzel, and who she had delayed contacting because she was busy working on her defense in the lawsuit filed by Schwab. (Ex. A at ¶4). Kitzel did not solicit this person for business, but out of courtesy called the person to respond to that person's initial request to talk so that the person did not think Kitzel was ignoring them or simply being rude. (Ex. A at ¶5-6).

Page 4 of Kitzel Motion

Yes, my dear readers, this is the stuff of intra-industry lawsuits; and don't blame lawyers for this stupidity because more often than not, these lawsuits are the byproduct of morons in management trying to send the so-called message. In the end, such failed litigation harms the recruiting and retention efforts of FINRA member firms such as Charles Schwab & Co. Even more than a mere loss, Schwab v. Kitzel ends with must be viewed as a repudiation by the FINRA Arbitration Panel of Schwab's hardball tactics. There are slaps on the wrist and slaps in the face but then there's a plain, old, ass kickin'. My takeaway from this case is that Schwab walked away grabbing both of its achin' cheeks.