Appellate Court Sustains Criminal Conviction in Schwab Restraining Order Dispute

December 9, 2019

A California Superior Court jury found investment advisor Michael Patrick Kelly guilty of false personation of another, unauthorized use of personal identifying information, and disobeying a court order.  Frankly, that's doesn't quite have the spell-binding ring of a well-crafted literary teaser. Once we dig down into what went on to prompt Kelly's conviction, we are presented with a jaw-dropping fact pattern. As such, let's visit the narrative provided under the heading "Facts" in The People, Plaintiff/Respondent, v. Michael Patrick Kelly, Defendant/Appellant (Opinion, Court of Appeal of the State of California, 2nd Appellate District, 2d Crim. No. B296697 / December 3, 2019) (the "Court of Appeal Opinion")

Kelly was a Thousand Oaks "independent investment advisor" who had a contract with Charles Schwab Co., Inc. (Schwab). He was not a Schwab employee. Schwab terminated the contract. Kelly filed an arbitration claim against Schwab with the Financial Institutions Regulatory Authority (FINRA). 

On March 12, 2013, Schwab filed a petition for workplace violence restraining order against Kelly. It said, "[Kelly] has engaged in a campaign of harassment, threats, and intimidation against Schwab and its employees that is escalating in nature . . . ." 

Arden Miller, the director of Schwab's legal department, testified his office is in Phoenix, Arizona. He called Kelly to advise him that Schwab was terminating the contract with Kelly's firm. He told Kelly the contract permitted Schwab to terminate that business relationship "at any time." During a subsequent phone conversation, he told Kelly not to talk to Schwab employees. Kelly had to contact Kevin Lewis of the Schwab legal department who was handling Kelly's FINRA claim. 

In March 2013, Kelly placed letters addressed to Miller on his car at his office and on his door at his home. His home is 31 miles away from the office. 

In the letters Kelly said, among other things, "I know exactly . . . what you do for Charles Schwab. And I know you have what I need. You have the smoking gun, Arden, and I need to get it." The letters ended by Kelly stating, "There are two ways this can go, Arden, you can call or e-mail me anonymous, outside the reach of your employer. . . . We can arrange for transfer of the evidence. Two, you can kick me to the side of the road, turn this over to the Schwab attorneys and hide." (Italics added.) 

Miller was "fearful" because of the threat that he should "hide." He contacted law enforcement. He believed the letters were "a credible threat of violence." He was concerned that Kelly, or someone working on his behalf, "traveled all the way from California to Arizona to stake out [his] home and car and leave threatening letters." He had not given Kelly his home address. He had not told Kelly what type of car he drove. Miller learned that in another case "[a] restraining order . . . issued against [Kelly] for threatening to ring the life out of someone." Miller was not involved in the decision to terminate Kelly's contract. He was concerned for those at Schwab who were involved in that "process." 

Lewis told Kelly to communicate with him, not with Schwab employees. Kelly ignored him and sent a "threatening email" to eight members of Schwab's senior management team. Lewis testified those emails were "unsolicited" and "harassing." Kelly's communications with Lewis contained "veiled threats." Lewis said Kelly had no "legitimate reason" to contact either Schwab's senior management or "other Schwab employees." Kelly had no accounts with Schwab, no current contractual relationship, and "no reason to contact the company." 

On April 26, 2013, the trial court issued a workplace violence restraining order against Kelly with an April 25, 2016, expiration date. It ordered Kelly to "stay at least 100 yards away from any of Schwab's offices." It prohibited him from "initiating" contact or "communicating with any current Schwab employee, except for peaceable conduct required to conduct a deposition or appear at other legal proceedings involving Schwab employees as allowed in the appropriate forum." 

Kelly had an arbitration case against Schwab. In 2014, Kelly knew that the workplace violence injunction was in effect, which prohibited him from contacting Schwab employees. He decided to contact Schwab without using his own name. He used the name "Craig Cross." Cross was "a powerful advisor with a firm of approximately four billion under management." Cross did not use Schwab as a "broker, dealer, and custodian." He "used Fidelity." 

Kelly contacted James New at Schwab, pretending to be Cross. He told New that "confidentiality" was important. During a phone conversation with New, Kelly obtained the name of another Schwab employee - Jonathan Beatty. Kelly sent emails to Beatty pretending to be Cross. He created a "Gmail address" using Cross's name. 

Beatty, a Schwab senior vice president, met with Kelly at a restaurant. Kelly, pretending to be Cross, said he was considering leaving his firm Halbert Hargrove and starting a new firm. He would take his clients from his current firm and have Schwab be their custodian and transfer assets to Schwab. Kelly wanted to obtain information about advisors who had contracts with Schwab who had compliance issues. Believing Kelly was Cross, Schwab provided confidential information to Kelly about the names of advisors with compliance issues. 

Kelly met Beatty again at a restaurant in Long Beach in October 2014. Beatty asked, "What's this all about?" Kelly said, "It's not what this is all about. It's a matter of how much money your company's gonna pay to keep this information secret." Beatty said, "We're not gonna have that conversation" and walked away. Beatty testified this was "an attempt to try to extort money [from Schwab]." 

Cross did not give Kelly permission to use his name, his job title, or his company's name, Halbert Hargrove, "for any purpose." He did not know Kelly. Cross did not contact New or Beatty. In 2017, he discovered that his name was being used without his permission when he received a call from the police. 

Kelly testified he believed Schwab would provide information to Cross that it would not provide to him. He used Cross's name because he "met the profile" to "get inside" Schwab. 

Kelly testified he "did everything [he] could to put a moat around Mr. Cross." "I didn't want to hurt him." He stressed "confidentiality" so the Schwab employees he contacted "wouldn't reach out to [the real Cross]." He believed Schwab had different standards for firms based on the amount of money the firms had under management. As part of arbitration, he deposed two people from Schwab. He did not believe they provided him with the information he was seeking. Kelly testified his goal was "to determine how [Schwab] terminated advisors." He believed his firm's small amount of money under account management was related to why Schwab terminated the contract. 

Kelly pretended to be Cross to contact Michelle Thetford at Schwab and to investigate Schwab's "compliance policies and protocols." He used the information he obtained from Schwab for his litigation. He did not threaten Beatty or Thetford. In his October meeting with Beatty, he told him he had information "direct from three large advisors of compliance issues that Schwab never reported to the [Securities and Exchange Commission (SEC)] and that Schwab bullies small advisors and then doesn't disclose [violations by] the big advisors." 

The police contacted Kelly and asked whether he had been using Cross's name in his contacts with Schwab. Kelly denied that he used Cross's name. He testified that he had lied to the police by making that denial. . .

Superior Court Conviction

Given everything presented above, it's not surprising that a jury convicted Kelly, who was sentenced to 180 days in Ventura County jail and 36 months probation. Following the Superior Court's verdict, Kelly moved for a new trial claiming that the trial court's April 26, 2013, workplace-violence restraining order was unconstitutionally over-broad. The Superior Court denied Kelly's motion. 

Constitutionality of 2013 Restraining Order

On appeal to the California Court of Appeal, Kelly again raises the constitutionality of the Superior Court's 2013 restraining order. In denying that basis for appeal, the Court of Appeal explains in part that:

Kelly does not challenge that his threats against some Schwab employees authorized a restraining order against him. He claims, "In this case, the threat of violence was limited to two employees of a company that employed 1,300 people." He concedes that "an order preventing [him] from contacting any Schwab employee guaranteed that no Schwab employee would be subject to violence or a threat of violence," but he argues the order was "much broader in scope" than necessary and unconstitutional. (Italics added.) 

Threats of violence fall outside the scope of the constitutionally protected rights of free speech and association. (People ex rel. Gallo v. Acuna (1997) 14 Cal.4th 1090, 1112.) Consequently, "if the elements of [Code of Civil Procedure] section 527.5 are met," the type of speech that is properly enjoined under that statute "is not constitutionally protected and an injunction is appropriate." (City of San Jose v. Garbett (2010) 190 Cal.App.4th 526, 537.)

Page 7 of the Court of Appeal Opinion

In affirming the broad scope of the restraining order to cover all Schwab employees, the Court of Appeal found in part that:

The trial court properly extended protection to Schwab's current employees. It could reasonably infer Kelly had a pattern of targeting a wide range of individuals. It found that in a prior case there was a "similar civil harassment proceeding" brought against Kelly. Lewis testified that in that case Kelly had "threatened to take physical violence" against an attorney because Kelly had "lost a motion." Lewis declared that a FINRA arbitration proceeding involving Kelly and Schwab had to be cancelled. He said, "[I]t is my belief that FINRA refused to hear the case due to safety concerns based on Mr. Kelly's behavior towards FINRA and the arbitration panel." (Italics added.) 

The trial court found Kelly was not "truthful" in his opposition to the restraining order. Because of that, it did not "have a good feeling about what might happen in the future." Kelly placed "threatening letters" on Miller's car at his Schwab office and on his door at his home. Lewis testified this was "very worrisome" because Kelly took "the time to track down where one of [their] employees lives, and to find their car and place information on them that is threatening." The range of his threats was not confined to Schwab offices in California. Miller lived in Arizona and his Schwab office was in Phoenix. The court found Kelly was not able to "restrict [himself] from crossing certain [borders] that most people are able to do." Kelly "engaged in a course of conduct [that] . . . Schwab should not have to deal with."

Pages 9 - 10 of the Court of Appeal Opinion

Kelly's Impersonation of Craig Cross

Although Kelly concedes to having impersonated Craig Cross, he argues that he never had any intent to harm Cross because the impersonation was motivated by a desire to show that Schwab had engaged in a biased pattern of terminating contracts with small firms. Accordingly, Kelly argues on appeal that his conduct did not rise to the level of the crime of false personation of another person. In rejecting this basis for appeal, the Court of Appeal notes in part that:

Kelly claims his conduct was "innocuous" and falls within this exclusion. But the jury could find that was not the case. It could reasonably infer that Kelly deceived Beatty by using a false name and obtained confidential information from Schwab. Beatty testified Kelly made "an attempt to try to extort money [from Schwab]." Kelly testified he felt he had legitimate reasons 14 to communicate with Schwab employees. But the credibility of his testimony was a matter for the jury to decide, and ultimately reject. It could reject his claim that he engaged in legitimate discovery because of his pattern of conduct against Schwab before and after the restraining order. Kelly admitted he lied to the police regarding whether he used Cross's name. That showed his consciousness of guilt. Jurors could reasonably infer his impersonation provided Kelly the benefit of continuing his unlawful penetration and attack on Schwab using the unlawful means of violating a court order. His conduct did not fall outside the purview of section 529. . .

Pages 12 - 13 of the Court of Appeal Opinion

Kelly's Use of Cross's Identity

In appealing his conviction for using Cross's identity for an unlawful purpose, Kelly makes what comes off as a strained point: His act of making the first telephone call to Schwab was the actual conduct in violation of the restraining order, and that once said misconduct had transpired, his impersonation of Cross was somehow beside the point or merely in furtherance of what was already a violation of the order . . . or something to that effect. Clearly, the Court of Appeal was as puzzled by Kelly's legal theory as I am:

[K]elly also incorrectly assumes the initial call is the only violation of the restraining order. Kelly's testimony shows that on multiple occasions he initiated contact with Schwab employees by claiming to be Cross. He violated the restraining order each time he started conversations or emailed information to employees who would not have talked with him, or provided information, had they known his true identity. 

Kelly used identity theft to penetrate Schwab. He testified he used Cross's name and title to "get inside" Schwab. His contacts with New, Beatty and Thetford were achieved because they thought Kelly was Cross. He sent emails to Beatty pretending to be Cross. He created a Gmail address using Cross's name. The restraining order prohibited this conduct.

Page 15 of the Court of Appeal Opinion

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