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Federal Court Denies JPMorgan TRO Against Former Employee But Grants Expedited Discovery
September 15, 2022
In this blog, I have often mused -- often lamented -- that Wall Street doesn't always play nice. It's not a street where former employers and former employees tend to shake hands and amicably part ways. Far too often, when someone leaves a brokerage firm, even after a decade's of employment, what ensues is akin to hardball. In today's version of the post-Wall-Street-employment-gauntlet, JPMorgan alleges that a former employee violated his Non-Solicitation Agreement by trying to persuade former clients to transfer their account to his new shop.
Double-Barreled Litigation
According to FINRA's online BrokerCheck database, Seth Chamberlain was first registered in 2001, and was registered with J.P. Morgan Securities from October 2012 to May 2022, after which he appears to have joined Ameriprise Financial Services, LLC. All in all, Chamberlain has had a somewhat uneventful 20-plus year industry career (but for a few dings); however that slumber was about to change when he resigned from JPMorgan on May 27, 2022, and joined Ameriprise. JPMorgan alleges that after Chamberlain resigned, he violated his 2013 Non-Solicitation Agreement by trying to persuade dozens of his former clients to transfer their account to his new digs at Ameriprise. Accordingly, JPM sued Chamberlain in the United States District Court for the District of Arizona; and also sued Chamberlain and Ameriprise in a FINRA intra-industry arbitration.
J.P. Morgan Securities LLC, Plaintiff, v. Seth A. Chamberlain, Defendant (Order, United States District Court for the District of Arizona, 22-CV-0217)
https://brokeandbroker.com/PDF/ChamberlainDAZOrder220907.pdf
Numerous, Unnamed Clients Said
On July 20, 2022, JPM filed a Motion for a Temporary Restraining Order, Preliminary Injunction and an Order Permitting Expedited Discovery. Now that's a mouthful! In a display of its massed firepower, and in support of its Motion, JPM submitted a Declaration from Jamie Cecich, its Market Director for the Chase Wealth Management division (Mesa/Southwest Region) where Chamberlain had worked):
[I]n this declaration, Cecich avowed that "numerous clients have informed JPMorgan that [Chamberlain] called them after he resigned from JPMorgan seeking to discuss Ameriprise or set up a meeting to discuss transferring their accounts to him at Ameriprise. In some instances, the clients specifically told JPMorgan that [Chamberlain] expressly asked the clients to move their business to him at Ameriprise. I personally spoke with several of these clients." (Id. ¶ 6.) In the next three paragraphs, Cecich summarized his conversations with three particular JPMorgan customers who allegedly had been solicited by Chamberlain. (Id. ¶¶ 7-9.) Cecich did not, however, identify those customers by name or provide verbatim accounts of his conversations with them. (Id.)
at Page 2 of the Order
In response to JPM's Motion, D. Ariz issued an Order requiring expedited briefing on the proposed temporary restraining order ("TRO"). In his opposition to the TRO, Chamberlain argued, in part, that his former employer had not established a likelihood of success on the merits of the Non-Solicitation Agreement claim. Pointedly, Chamberlain denied soliciting his former clients but conceded that several "Several clients have exercised their freedom of choice to continue being serviced by me. To date, eighty-nine clients have signed Declarations affirming that they were not solicited. . . . " at Page 3 of the Order. After entertaining arguments on the Motion, the Court denied JPM's TRO Motion. In part, the Court explained that:
[I]f there were a case where a broker were shown clearly to be violating solicitation agreements, I think that the equities and the public interest would be advanced by enjoining that conduct . . . . But on the other hand, when, as here, there has not been a showing as to a likelihood of the solicitation violations, . . . [t]here's not a public interest in prophylactically restraining a broker who has not been shown compellingly to have done anything wrong . . . ."].)
at Page 4 of the Order
Expedited Discovery
The Court then turned to JPM's motion for expedited Discovery. In its application, JPM sought the Court's permission to serve eight requests for production ("RFPs") as part of what it characterized as "limited expedited discovery." at Page 5 of the Order. Under the section "Analysis" in the Order, the Court offers this:
Nearly all of Chamberlain's objections to JPMorgan's request to engage in expedited discovery flow from the premise that the FINRA rules preclude, either expressly or in spirit, the pursuit of discovery and a preliminary injunction once a TRO request has been denied. But that premise is mistaken. FINRA Rule 13804(a) provides that "[i]n industry or clearing disputes required to be submitted to arbitration under the Code, parties may seek a temporary injunctive order from a court of competent jurisdiction. Parties to a pending arbitration may seek a temporary injunctive order from a court of competent jurisdiction even if another party has already filed a claim arising from the same dispute in arbitration pursuant to this paragraph, provided that an arbitration hearing on a request for permanent injunctive relief pursuant to paragraph (b) of this rule has not yet begun." See https://www.finra.org/rules-guidance/rulebooks/finra-rules/13804. Critically, FINRA Rule 13100(ff) further provides that "[t]he term 'temporary injunctive order' means a temporary restraining order, preliminary injunction or other form of initial, temporary injunctive relief." See https://www.finra.org/rules-guidance/rulebooks/finra-rules/13100. Thus, under FINRA Rule 13804(a) as clarified by FINRA Rule 13100(ff), although JPMorgan must proceed in an arbitral forum in this "industry dispute" to the extent it wishes to obtain permanent injunctive relief, JPMorgan is permitted to go to federal court to obtain temporary forms of injunctive relief, which include both a TRO and a preliminary injunction. Put another way, although JPMorgan's earlier attempt to obtain a TRO was unsuccessful, JPMorgan remains free to seek a preliminary injunction. See, e.g., Fid. Brokerage Servs., LLC v. Guadagnino, 2019 WL 7371822, *1 (S.D. Fla. 2019) (rejecting defendant's argument "that Fidelity is not entitled to the procedural mechanism of obtaining preliminary injunctive relief in this Court pursuant to FINRA Rules and applicable law" because "even a cursory examination of relevant law indicates that . . . [Fidelity] is entitled to seek such relief in this Court"); Primerica Fin. Servs., Inc. v. Charnot, 2016 WL 7510248, *3 (N.D. Ill. 2016) ("Charnot contends that FINRA rules preclude PFSI from seeking a preliminary injunction in this Court, as opposed to a temporary restraining order, which it already has. The argument . . . is unpersuasive in light of FINRA Rule 13100(aa) [now Rule 13100(ff)], which defines 'temporary injunctive order' as 'a temporary restraining order, preliminary injunction or other form of initial, temporary injunctive relief.'") (citations omitted). And indeed, JPMorgan has made a request for a preliminary injunction and that request remains pending-although JPMorgan sought both forms of temporary injunctive relief in its motion filed on July 20, 2022 (Doc. 2), the Court made clear during the July 29, 2022 hearing that it was only denying the TRO component of this request while leaving for another day the resolution of the preliminary injunction component (Doc. 25 at 45-55).
at Pages 7 - 8 of the Order
Having lost its TRO Motion before the federal court, JPM sought something along the lines of a second bite of a somewhat different apple by asking the FINRA Arbitration Panel to grant a preliminary injunction. In opposing JPM's Motion for Expedited Discovery, Chamberlain argues, in part, that FINRA rules preclude, either expressly or in spirit, the pursuit of discovery and a preliminary injunction once a TRO request has been denied. Unfortunately for Chamberlain, not only does the Court dispute that conclusion but seems to suggest that it has been raised as a form of a smokescreen when it notes that he had:
relatively little to say about the actual substance of JPMorgan's proposed discovery requests. Chamberlain does not, for example, dispute JPMorgan's contention that the discovery requests are narrowly tailored to obtain only documents that relate to JPMorgan's non-solicitation claim. Nor does Chamberlain dispute that it is necessary for JPMorgan to subpoena Ameriprise because he may individually lack authority to gather and produce some of the relevant documents. At bottom, all of Chamberlain's arguments regarding burden and prejudice are the normal burdens that any litigant (or third-party subpoena recipient) would incur when presented with a legitimate discovery request
at Pages 9 - 10 of the Order
D. Ariz. granted JPM's motion for expedited Discovery, and, in part, offered this rationale:
[T]he proposed discovery requests are relatively narrow in scope, JPMorgan's purpose (i.e., to obtain evidence necessary to support its pending request for a preliminary injunction on its non-solicitation claim) is legitimate, the burdens to Chamberlain and Ameriprise are relatively modest, and the request is not premature because, given the unusual interplay between the litigation in this forum and in the arbitral forum, this will be JPMorgan's only opportunity to pursue discovery here. Although the Court continues to be troubled, as it was during the TRO hearing, by JPMorgan's failure to provide specifics concerning the phone calls it has purportedly received from customers regarding Chamberlain's alleged solicitation efforts-Cecich's most recent declaration, like his previous one, simply offers vague summaries of conversations with unspecified individuals-this observation does not undermine the overall conclusion that good cause to engage in expedited discovery is present.
at Page 10 of the Order
Bill Singer's Comment
We sorta got two variations on a theme.
In on iteration, JPM makes much ado about lots and lots of customers claiming that Chamberlain had solicited them to transfer their JPM accounts to Ameriprise. Except, JPM couldn't quite present the Court with the names of those customers or something akin to a "verbatim" account of the conversations. As such, we're left to infer that the Court wasn't overwhelmed with what it viewed as JPM's less-than-probative recollections and allegations.
In the other iteration, Chamberlain argued that FINRA Arbitration rules precluded JPM's pursuit of discovery and a preliminary injunction once D. Ariz. had denied the firm's TRO request. Not only did the Court dispute that conclusion but apparently viewed it as a non-responsive smokescreen. Moreover, the Court viewed JPM's Discovery requests as relatively narrow in scope and not imposing an inordinate burden on Chamberlain.
On the one hand, JPM fails to muster the hard-proof in the form of compelling evidence that customers presented specifics detailing Chamberlain's alleged improper solicitation. On the other hand, Chamberlain didn't want to be subjected to expedited discovery but failed to muster proof that the eight RFPs were overly broad or imposed an undue burden on him. As is often the case in litigation, the Court hears lots of chatter but little that is persuasive. There's argument. There's evidence. Then there's what the court decides.