Edelman Financial Services Loses Non-Solicit Non-Disparagement Case

March 22, 2019

In today's featured FINRA Arbitration we are presented with a case in which the parties are not public customers, they're not FINRA member firms, and, no, they're not even associated persons of FINRA member firms. How did these parties wind up before a FINRA Arbitration Panel? 

Case In Point

In a FINRA Arbitration Statement of Claim filed in September 2018, Claimant Edelman Financial Services, LLC sought preliminary and permanent injunctive relief, and the firm asserted the following causes of action:

breach of contract; tortious interference with contract as against Cary Street and with current and prospective business relations; unjust enrichment; conversion; and trespass to chattels. The causes of action relate to a Proprietary Information, Non-Solicitation, Non-Disparagement and Arbitration Agreement (the "Agreement") that Reibel allegedly entered into, in exchange for a $60,000.00 bonus. Claimant alleged that Reibel violated the Agreement when he resigned from his employment with Claimant, misused confidential information and solicited Claimant's clients, in concert with his new employer, Cary Street.

In the Matter of the Arbitration Between Edelman Financial Services, LLC, Claimant/Counter-Respondent, v. Cary Street Partners Investment Advisory and Raymond James Reibel II, Respondents/Counter-Claimants (FINRA Arbitration Decision  18-03329 / March 19, 2019)

Increasing Stress at Work (the Other Guy's)

At the close of the hearing, Claimant Edelman Financial requested $2,200,000.00 in compensatory damages and $1,003,214.00 in attorneys' fees and costs. In addition to those demands, Claimant sought, in part,  the following:

1. A permanent injunction against Reibel and Cary Street enjoining them directly or indirectly, and whether alone or in concert with others from: 
A. Revealing, divulging, using, or making known to any person, firm, or corporation any Proprietary Confidential Information of Claimant; 
B. Using Claimant's Proprietary Confidential Information to solicit from or perform any work for any party for which Reibel performed work as Claimant's employee, or known to Reibel to be or have been a client of Claimant;
C. Moving, transferring, removing, destroying, disposing of, erasing, modifying, altering, shredding, deleting, encrypting or otherwise affecting any and all documentary, hardcopy, and electronic data compilations, whether stored in computer memory, computer drives, disks, printed documents, cloud storage accounts, or others, of: 
a. Claimant's Proprietary Confidential Information; and 
b. Any and all documents, e-mails, lists, compilation memoranda, and records relating to, discussing, containing, or concerning Claimant's Proprietary Confidential Information; 

2. An Order compelling Reibel and Cary Street to return to Claimant all: 
A. Material preserved by operation of the previous paragraph; 
B. Physical property of Claimant that has not yet been returned, including all computers, client files, information, and/or documentation concerning former and/or current clients of Claimant's serviced by or known to Reibel in any capacity and/or any prospective client of Claimant's known to Reibel through his employment with Claimant; 
C. All other papers, documents, and instruments belonging to Claimant, including all copies, whether in hardcopy or electronic form; 

3. An Order prohibiting Reibel for a period of fifteen (15) months from the date of the Order from: 
A. Soliciting any client of Claimant's with whom Reibel dealt during his employment to terminate, reduce, or not renew its relationship with Claimant; and/or 
B. Soliciting, performing, diverting, or accepting any business of the same or similar nature to Claimant's business with or from any client of Claimant's with whom Reibel dealt while employed by Claimant; 

4. An Order directing Reibel and Cary Street to provide a complete accounting of all contacts, solicitations, and communications, since April 9, 2018, with any former, current, or prospective client of Claimant's previously serviced by, introduced to, and/or known by Reibel; 

5. An Order directing Reibel and Cary Street to provide a complete accounting of all business services rendered, invoiced, and/or billed by Cary Street since April 9, 2018, to any former, current, or prospective client of Claimant's previously serviced by, introduced to, and/or known by Reibel; . . .

In addressing Claimant's preliminary and permanent injunctive relief,, the FINRA Arbitration Panel stated on October 5, 2018, that:

[P]ursuant to the July 18, 2018 Consent Order on Motion for Preliminary Injunction entered by the Circuit Court of Fairfax County, the preliminary injunction is extended through the hearing on and resolution of Claimant's request for permanent injunctive relief. By Order dated October 10, 2018, the Panel denied Claimant's request for a permanent injunction against Respondents.

Reputationally Speaking

Respondent Cary Street Partners and Respondent Reibel generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim asserting breach of contract arising from their contention that:

[C]laimant itself allegedly breached the Agreement by ignoring its arbitration and confidentiality clause, and as a result, Respondents have been harmed, both financially and reputationally. 

At the close of the hearing, Respondents/Counter-Claimants requested $500,000.00 in compensatory damages and $289,517.27 in attorneys' fees and costs.


The FINRA Arbitration Panel denied Claimant Edelman Financial Services, LLC's claims.

The Panel found Claimant Edelman Financial Services liable and ordered it to pay to Respondents Cary Street Partners and Reibel $160,000 in compensatory damages plus interest. 

FINRA and/or the Panel imposed the following fees:

Claimant Edelman Financial: $20,700 in Hearing Session Fees; $250 in Contested Motion for Issuance of Subpoena Fee; $2,500 Injunctive Relief Surcharge; $1,900 Member Surcharge Fee; $3,750 Member Process Fee; $1,700 Initial Claim Filing Fee

Respondents: $1,425 Counterclaim Filing Fee

Bill Singer's Comment

So . . . you tell me . . .  how the hell did these parties wind up in a FINRA Arbitration?

Consider this disclosure in the FINRA Arbitration Decision:

Nature of the Dispute: Non-Member vs. Non-Members
Non-Members vs. Non-Member

What???? Okay . . . so, lemme see if I got this. 
  • No customer of any FINRA member firm;
  • No associated person of any FINRA member firm; and
  • No FINRA member firm. 
We got what exactly that serves as the basis for imposing jurisdiction with a FINRA Arbitration Panel? 

And, no, Mr. Smartypants, the fact that Respondent "Raymond James" Reibel II has the first two names of a FINRA member firm does not imbue FINRA with arbitration jurisdiction. Nice try but that's not gonna transform Reiber into a customer, associated person, or a member firm --  or, for that matter, a football stadium in Tampa, FL. 

So . . . before I tell you how we all wound up before a FINRA Arbitration Panel, take your best guess before reading further, where I've provided the answer.

Turns out, this is how FINRA bootstrapped the parties into paying for their Arbitration:

Cary Street is an Investment Adviser firm and Reibel is an Investment Adviser. Respondents are not members or associated persons of FINRA. Respondents voluntarily submitted the present matter in controversy to arbitration in accordance with the FINRA By-Laws, Rules, and Code of Arbitration Procedure ("Code") by filing an executed post-dispute submission agreement for cases involving Investment Advisers who are not FINRA-regulated firms. Respondents are bound by the determination of the Panel on all issues submitted. 


FINRA Office of Dispute Resolution has received inquiries from lawyers who represent investors and those who represent investment advisers (IAs) which are not FINRA members about the availability of FINRA's arbitration and mediation forum to resolve their disputes.  Currently, such disputes are resolved in court or in non-FINRA dispute resolution forums.  In response to these inquiries, FINRA offers the following guidance:

With respect to arbitration, FINRA will accept these disputes on a voluntary, case-by-case basis if the parties meet the following conditions:
  • The IA and investor submit a post-dispute agreement to arbitrate.
  • The IA or other parties agree to pay all member surcharge and processing fees and such fees are paid prior to service of the statement of claim.
  • The investor files a special written submission agreement to submit the dispute to FINRA Office of Dispute Resolution that is:
    • Signed by all parties to the arbitration (including all investor parties and all IA parties).
    • Signed after the events occurred that gave rise to the underlying dispute.
The special submission agreement requires the parties to acknowledge that:
  • FINRA cannot enforce awards entered against non-member IAs and/or their employees (because FINRA is not a Self-Regulatory Organization for IAs).
    • Prevailing parties may enforce awards entered against non-member IAs and/or their employees in a court of competent jurisdiction pursuant to applicable state or federal law.
  • FINRA may bar the IA from the forum in future cases if an IA fails to pay any award, settlement agreement, or FINRA fees.
  • FINRA cannot process expungement requests relating to information maintained in the Investment Adviser Registration Depository (IARD).  
    • Therefore, the parties may not make expungement requests related to information maintained in the IARD in this matter. 
  • FINRA and its arbitrators and mediators will be held harmless from liability arising in connection with the resolution of the parties' dispute.
  • Disputes involving IAs will be administered in accordance with the SEC approved FINRA Codes of Arbitration Procedure.
  • The final award will be made publicly available.
FINRA will also accept industry disputes between non-member IAs and their employees on a voluntary, case-by-case basis if the parties meet the above conditions.

With respect to mediation, FINRA will offer mediation services for any IA disputes on a voluntary basis.  Mediation can be faster and less expensive than arbitration or litigation.  If the parties agree to mediate, they will not give up any right to arbitrate or litigate if they cannot reach a satisfactory settlement. FINRA's mediation program has achieved an 80% success rate - parties who mediate in our forum resolve four out of every five cases.

Parties and counsel may direct any questions regarding IA cases to Todd Saltzman, Vice President of Case Administration, Neutral Management and Operations at (212) 858-4273 or by email.

Note:  FINRA requires IAs to arbitrate investor and industry disputes when the IA is dually registered with FINRA and the dispute arises in connection with the IA's business activities as a FINRA member or associated person (see FINRA Rules 12200 and 13200).

Okay, sure, so we got two RIAs and an Investment Advisor Representative who all agreed to arbitrate before FINRA. Why? I'm not quite sure but that's a matter for them to figure out -- the choice turned out to be a superb one for the two Respondents but not so much for the Claimant.

One thing that I still don't get is how FINRA assessed fees upon the two RIAs and the IAR when those fees are apparently described as fees to be assessed only upon FINRA member firms and/or FINRA member firm associated persons. Even if the RIA/IAR parties agreed to arbitrate before FINRA, I'm not sure that it's okay for the FINRA Arbitration Decision assess Member and Associated Person fees upon the parties: 

Member Fees 
Member fees are assessed to each member firm that is a party in these proceedings or to the member firm(s) that employed the associated person(s) at the time of the event(s) giving rise to the dispute. The parties' executed post-dispute submission agreement provided that as a party, Claimant is assessed the following: Member Surcharge Fee =$1,900.00 Member Process Fee =$3,750.00 

Injunctive Relief Fees 
Injunctive relief fees are assessed to each member or associated person who files for a temporary injunction in court. Accordingly, Claimant is assessed the following: Injunctive Relief Surcharge =$2,500.00

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Edelman Financial Services Loses Non-Solicit Non-Disparagement Case (BrokeAndBroker.com Blog)

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