Federal Court Denies J.P. Morgan Securities Expedited Discovery in Solicitation Case

February 23, 2022

As the January 2022 version of this post reported, J.P. Morgan Securities ("JPMS") had alleged that Timothy Logsdon needed to be restrained from disclosing confidential information and soliciting the firm's clients. As things turned out, although the Court denied JPMS' requested TRO, the judge left open the possibility of a subsequent injunction, and, trying to squeeze through that narrow opening, JPMS requested an evidentiary hearing in order to depose Logsdon. 

Lack of Evidence

At issue in 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 / January 18, 2022) (the "January 2022 Opinion/Order")
https://brokeandbroker.com/PDF/LogsdonWDKYOpOrd220118.pdf 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. . . .

at Page 1 of the January 2022 Opinion/Order

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. . . .

at Page 1 of the January 2022 Opinion/Order

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. 

Deserved Weight

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. 

at Page 2 of the January 2022 Opinion/Order

January 25, 2022 Blog: 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.

UPDATE: February 2022

Although Judge Beaton denied JPMS' requested TRO, the Court left open the possibility of a subsequent injunction based upon a robust evidentiary hearing, which, JPMS then moved to put into play. 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 / February 18, 2022) (the "February 2022 Opinion/Order") https://brokeandbroker.com/PDF/LogsdonWDKYOp220218.pdf
Pointedly, JPMS requested an evidentiary hearing:

(1) seeks to depose Logsdon "for no longer than three hours" and (2) requests production of documents pertaining to Logsdon's communications with J.P. Morgan clients, dating from November 12, 2021 through the date of production. . . .

at Page 1 of the February 2022 Opinion/Order

In opposing JPMS' Motion to Expedite Discovery, Logsdon argued that the firm had not shown good cause, which would exist where a plaintiff's need for expedited Discovery outweighs the possible prejudice or hardship to the defendant. Although JPMS argued that the Court's denial of its request for a TRO did not extend to a denial of a Preliminary Injunction, and, as such, those facts alone show "good cause," Judge Beaton disagreed:

This interpretation is too narrow. The Court rejected the TRO on the ground that evidence supporting an essential justification for temporary injunctive relief under Rule 65-irreparable harm-was absent from the record. This reasoning behind the TRO denial applied equally to the requested preliminary injunction. Plaintiff's counsel admitted it lacked evidence of any ongoing disclosure, and defense counsel represented to the Court that he was not aware of any present or ongoing communications between Logsdon and (current) J.P. Morgan clients. Order at 1-2. The same shortcoming, of course, would've kept J.P. Morgan from obtaining a preliminary injunction as well. 

J.P. Morgan now seeks discovery to support a "renewed request for relief based on a more robust evidentiary showing. . . which could satisfy Rule 65's requirements for an injunction or restraining order." Order at 3 (emphasis added). It contends the preliminary-injunction request remains pending, at least in a technical sense. Even if so, J.P. Morgan hasn't offered any showing of good cause that could support expedited discovery beyond that found insufficient after the Court's initial hearing. The record currently before the Court not only fails to support temporary relief; it also fails to explain why expedited discovery is necessary in a case that will ultimately be adjudicated before a FINRA arbitrator. Lacking any real-world risks or litigation concerns that would necessitate an accelerated schedule, the Court lacks a basis to conclude that good cause supports expedited discovery and denies J.P. Morgan's motion to expedite (DN 23). 

at Page 2 of the February 2022 Opinion/Order

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