January 25, 2022
It's another day and, not surprisingly, another erstwhile wirehouse brokerage firm asks a court for a temporary restraining order ("TRO") against one of its former employees. In today's iteration, we got J.P. Morgan Securities ("JPMS") alleging that Timothy Logsdon needs to be restrained from disclosing confidential information and soliciting the firm's clients. J.P. Morgan Securities LLC, Plaintiff, v. Timothy Chad Logsdon, Defendant (Opinion and Order, United States District Court for the Western District of Kentucky, 22-CV-14)
Lack of Evidence
At issue is an Employment Agreement between JPMS and Logsdon whereby the latter apparently had agreed to the terms of a non-solicitation provision -- regardless of such a provision, Logsdon argues that he had not, in fact, "solicited" any former clients but had merely engaged in permissible "communications." All of which seems to have prompted the Court to shrug and look for some convincing proof to the contrary from JPMS. In response to the Court's inquiring look, we got this:
During a hearing on the motion
(DN 20), J.P. Morgan conceded that it lacked evidence that Logsdon was violating the
non-disclosure provision. So the only dispute concerns Logsdon's agreement not to
solicit J.P. Morgan clients for a year after leaving the firm. . . .
Any Admissible Evidence?
Oh my, nothing like a lack of evidence to hamper one's case. Setting aside for the moment the non-disclosure aspect of its case, JPMS soldiers on in its effort to compel compliance with the non-solicitation provision. In presenting its case to the Court, JPMS presents an affidavit, which Logsdon says is little more than hogwash:
Additionally, Logsdon contends J.P. Morgan hasn't pointed to any admissible
evidence that these communications, however characterized, are ongoing and
harmful, as required to support an emergency injunction. Logsdon leans hard on the
text of Federal Rule of Evidence 1101 to argue that the second-hand reports contained
in the affidavit of Sherry Carrico, a J.P. Morgan regional director, carry no weight.
This is just hearsay, he contends, that would be inadmissible at trial. . . .
Already forced to concede a lacks of evidence proving Logsdon's alleged non-compliance with a non-disclosure provision, JPMS intends to buttress what's left of its petition for emergency relief via a purported affidavit of Regional Director Carrico. In response, Logsdon pejoratively characterizes Carrico's affidavit as hearsay that's rife with second-hand references, and, accordingly, should be deemed as inadmissible for purposes of granting JPMS' TRO.
How much probative value is in an affidavit in which the first party is merely relating what a second party said about a third party's conduct? Depending on the circumstances of who told what to whom and whether any independent proof exists, well, sure, there could be some value bubblin' up from that morass of hearsay. Given that JPMS is seeking an extraordinary remedy of an emergency TRO from a court, all that bubblin' stuff sure as hell needs to be persuasive. As the Court explained:
So the Court will consider J.P. Morgan's evidence, admissible or not, but assign
it only the weight it deserves. See Strategic Mktg. Servs, 2017 WL 2221709, at *2 n.1
(court may afford less weight to hearsay evidence). J.P. Morgan alleges that Logsdon
met with clients "upon joining BLVD," his new workplace, Carrico Decl. (DN 4) ¶ 7,
in November 2021, ¶ 2, and solicited "at least two clients" during "the last week of
December 2021," ¶ 4. Logsdon has opposed this motion with evidence of his own: four
clients who followed Logsdon denied that he ever solicited their business. See DN 17-
2 ¶ 4; DN 17-3 ¶ 5; DN 17-4 ¶ 3; DN 17-5 ¶¶ 2-3. And Logsdon submitted his own
affidavit attesting that he has not "solicited the business of any J.P. Morgan client."
Logsdon Decl. ¶ 13. While his lawyer was unwilling to commit that Logsdon was not
currently and would not in the future solicit J.P. Morgan clients, counsel represented
to the Court that he was not aware of any present or ongoing communications
between Logsdon and (current) J.P. Morgan clients.
Serious doubt, therefore, exists regarding whether any ongoing harm justifies
the extraordinary relief of a temporary restraining order. See Winter v. NRDC, 555
U.S. 7, 24 (2008). And the record before the Court fails to meet the usual
prerequisites: (1) a strong likelihood of success on the merits, (2) irreparable injury
without the injunction, (3) no substantial harm to others based on issuance of the
order, and (4) a public interest in the issuance of the order. Certified Restoration Dry
Cleaning Network, L.L.C. v. Tenke Corp., 511 F.3d 535, 542 (6th Cir. 2007). Although
on the current record J.P. Morgan's likelihood of success is questionable, the most
significant concern implicates the second prong. J.P. Morgan points to "at least ten"
other clients whom it says Logsdon solicited, but it has not put forth any evidence to
support its allegation of ongoing and harmful violation of the non-solicitation
agreement. Carrico Supp. Decl. (DN 19-1) ¶ 3. This does not mean that no such
evidence exists, of course. But if it does, the record doesn't make it apparent. Based
on the current and very preliminary record, therefore, the Court must deny J.P.
Morgan's motion for a temporary restraining order (DN 3) for lack of evidence of
ongoing or future solicitation of J.P. Morgan clients.
Bill Singer's Comment
Some industry outlets mis-reported this Opinion as somehow representing an unusual outcome. To the contrary, it is further evidence of the growing trend. In fact, federal courts have long imposed a fairly stringent threshold for granting a TRO, and, in more recent years, the trend has been to redirect cases from the district courts to FINRA arbitration, where, frankly, that's where they belong.
All of which explains the federal courts' sense that much of what is submitted to them in the guise of a petition seeking a TRO against a former industry employee is often nothing more than a fairly transparent effort to impede and delay the proper adjudication of mandatory intra-industry disputes before an arbitration forum. If the former employer wins the TRO, then there is no need for the firm to rush to an arbitration panel because the former employee is bleeding daily. If the former employer doesn't walk away with the TRO, the imposition of court-costs and delays is often seen as extracting some pain from the former employee. Either way, the resort to seeking a court-ordered TRO in the face of likely FINRA arbitral jurisdiction is part and parcel of the industry's gamesmanship when faced with employment-related disputes.
I really love District Court Judge Benjamin Beaton's concise, no-nonsense Opinion and Order. He wastes no words. He launches into no flowery prose. It's all to the point, incisive, decisive, and compelling.
Judge Beaton aptly deems a TRO as "extraordinary relief." After all, in granting a TRO, a court grants one party the right to restrain another party without benefit of presenting the full panoply of evidence at trial. The consequences of granting (or not granting) a TRO often have a significant impact upon the litigants and the ensuing posture of any trial or settlement. All of which explains why most courts inquire as to whether irreparable injury and/or substantial harm would arise in the absence of invoking such pre-trial relief.
In slogging through the competing equities for granting or not granting the TRO, Judge Beaton takes repeated note of JPMS' hand wringing about numerous clients who say this and that; however, the Court observes that the firm failed to "put forth any evidence to support its allegation of ongoing and harmful violation of the non-solicitation agreement." Frankly, if a substantial company the size of JPMS has so many communications from its clients that implicate a former employee's violation of a non-solicitation agreement, it's sort of curious as to why that aggrieved firm can't quite muster up the lifeblood upon which courts feast: Evidence.
In denying JPMS' motion for a TRO, the Court leaves the parties to raise the same request for a restraining order with a FINRA arbitration panel, where the dispute now appears headed. All is not yet lost for JPMS nor conclusively won for Logsdon as to a future TRO. Regardless, I applaud Judge Beaton for his intelligent analysis and compelling Opinion and Order.