FINRA Code of Arbitration Procedure for Industry Disputes Rule 13200: Required Arbitration(a) GenerallyExcept as otherwise provided in the Code, a dispute must be arbitrated under the Code if the dispute arises out of the business activities of a member or an associated person and is between or among: Members; Members and Associated Persons; or Associated Persons.(b) Insurance ActivitiesDisputes arising out of the insurance business activities of a member that is also an insurance company are not required to be arbitrated under the Code.
(b) Associated Person
The term "associated person" or "associated person of a member" means a person associated with a member, as that term is defined in paragraph (u).
The term "dispute" means a dispute, claim or controversy. A dispute may consist of one or more claims.
For purposes of the Code, the term "member" means any broker or dealer admitted to membership in FINRA, whether or not the membership has been terminated, suspended, cancelled, revoked, the member has been expelled or barred from FINRA or the member is otherwise defunct; and any broker or dealer admitted to membership in a self-regulatory organization that, with FINRA consent, has required its members to arbitrate pursuant to the Code and to be treated as members of FINRA for purposes of the Code, whether or not its membership has been terminated, suspended, cancelled, revoked, the member has been expelled or barred from its self-regulatory organization, or the member is otherwise defunct.(u) Person Associated with a MemberThe term "person associated with a member" means:(1) A natural person who is registered or has applied for registration under the Rules of FINRA; or(2) A sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with FINRA under the By-Laws or the Rules of FINRA.For purposes of the Code, a person formerly associated with a member is a person associated with a member.
6. In March 2020, CBFP alleged that due to COVID-19, the GDC dropped below the threshold amount, and therefore, CBFP would suspend payments to Schlang until further notice. Schlang requested CBFP's financials in order to verify the company's findings. Thereafter, the parties attempted to negotiate an agreement regarding Schlang's payments. Appellants alleged that Schlang agreed to suspend the payments as of June 29, 2020, in what they term the 6/29/20 Suspension Agreement. Schlang denied agreeing to the suspension. Additionally, Schlang alleged that there had been a windfall event that Appellants failed to disclose to him. Such a windfall would have required Appellants to pay up to $250,000 to Schlang. Subsequently, the parties agreed to a settlement of the amounts owed to Schlang. Appellants alleged that that agreement was finalized on September 18, 2020, which they term the 9/18/20 Settlement Agreement. Schlang, however, claimed that the agreement was to be finalized upon execution of a mutual release.7. On September 28, 2020, Appellants sent a mutual release to Schlang. Schlang objected to the release, arguing that it included new and objectionable terms. The following month, Schlang formally notified Appellants that they had failed to make the last three quarterly payments to him pursuant to the Redemption Agreement and that if he did not receive payment within 15 days they would be in default of that agreement. On or about October 15, 2020, Appellants severed their relationship with Schlang and asked him to vacate the premises. Prior to leaving, Schlang downloaded information regarding his clients from Appellants' computers. On October 29, 2020, Appellants filed a complaint that alleged Schlang's demand for payment was a breach of the 6/29/20 Suspension and the 9/18/20 Settlement Agreements.
SIDE BAR: Suspension of disbelief? It's gettin' Windy here!
The folks who bought out Schlang say that as a result of the devastation wrought by Covid, business apparently went into the shitter and, you know, they suspended the payments to Schlang per the Redemption Agreement. Also, the parties had a dispute as to whether there was a triggering windfall.Doesn't quite seem that Schlang agrees with how things went down. A version of events is that someone drafted a Suspension Agreement to address the suspension of payments to Schlang; however, he says that he never agreed to anything, or he might have agreed to something in principal but that the agreement contemplated an executed Settlement Agreement and a predicate Mutual Releases, which Schlang seems to argue don't exist.In any event, from there, the Appellants told Schlang to get the hell out of the premises, and, depending on who you ask, Schlang may or may not have improperly downloaded customer information.
breach of contract alleging Schlang breached the 6/29/20 Suspension Agreement (Count 1); anticipatory repudiation, arguing Schlang refused to proceed with the 9/18/20 Settlement Agreement (Count 2); specific performance, asking the court to enforce the 9/18/20 Settlement agreement (Count 3); conversion (Count 4); violation of the Uniform Trade Secrets Act (Count 5); tortious interference with business relations (Count 6); and declaratory judgment asking the court to find both the 6/29/20 and 9/18/20 agreements binding and enforceable (Count 7).
breach of contract on the promissory note (Count 1); breach of contract for failure to make the windfall payment according to the Redemption Agreement (Count 2); breach of contract, for failure to pay compensation for client fees (Count 3); fraudulent concealment, for concealing information regarding a windfall event (Count 4); fraudulent misrepresentation, for lying about the GDC dropping below the threshold amount (Count 5); and declaratory judgment, asking the court to determine the rights and obligations in his favor (Count 6).10. Schlang discovered after litigation commenced that Appellants had filed a Uniform Termination Notice for Securities Industry Registration (commonly, "Form U5") that he claimed was defamatory. A Form U5 is a document that must be filed whenever there is a termination of employment. Schlang moved to amend his counterclaim to add a claim relative to the alleged defamatory action. Appellants objected arguing that that claim was subject to FINRA arbitration. The trial court denied the motion, finding that Schlang's defamation counterclaim was subject to binding arbitration under FINRA Rule 13200 and the express arbitration agreement in Schlang's Form U4. The court further noted, "[O]n the other hand, the claims and counterclaims asserted by the parties thus far are outside the scope of the mandatory arbitration provisions of FINRA Rule 13200."
SIDE BAR: According to online FINRA BrokerCheck disclosures as of September 23, 2022, Cedar Brook Group reported that Schlang had been "Permitted to Resign" on October 16, 2020, based upon allegations of "Improper download of firm-owned data." The "Firm Statement" alleges;Following Mr. Schlang's voluntary resignation from Cedar Brook, the firm discovered that the evening before Schlang's departure from the firm, he improperly and unlawfully downloaded and transferred the firm's (and their clients') confidential, proprietary and trade secret information. Schlang's misconduct was in violation of the firm's internal compliance policies and applicable regulations, all of which he attested to numerous times over multiple years. The firm took prompt remedial action by filing a complaint and request for restraining order against Schlang. On December 9, 2020, the Cuyahoga County Court of Common Pleas partially granted the firm's restraining order, and the parties are still actively litigating that and related issues surrounding Schlang's resignation from the firm.In response to the firm's allegations and statement, Schlang's "Broker Statement" alleges:Mr Schlang emphatically contests Cedar Brook Group's Disclosure and Allegation. The files alleged to have been improperly downloaded were primarily related to clients Schlang maintained through his ongoing Broker/Dealer relationship with Securities America. Legal action by Mr Schlang against Cedar Brook is ongoing and should resolve questions associated with the download. Moreover, the July 2020 FINRA guide Individual Form Filing: Form U5 states that "Internal Review Disclosure question in Question 7B and the Internal Review Reporting Page (DRPU5) are used to report matters relating to compliance, not matters of a competitive nature. Responses should not include situations involving employment related disputes between the firm and the individual." Cedar Brook's attempt to use Form U5 as a weapon in this unrelated legal dispute is inappropriate
NEW YORK, April 28, 2021 /PRNewswire/ -- Cadaret Grant, an independent wealth management firm and wholly-owned subsidiary of Atria Wealth Solutions, Inc. (Atria), today announced the addition of Ohio-based Cedar Brook Group. Cedar Brook, an office of supervisory jurisdiction with $2 billion in assets under administration, adds 20 licensed financial professionals to the Atria family. William Glubiak launched Cedar Brook Group in 2005, quickly growing the organization into one of the largest financial practices at his prior firm. Glubiak continues to lead the firm as CEO/Founding Principal.
Although we are not bound by the trial court's findings, it is a useful starting place to begin our review. In its decision, the trial court noted:[T]he court reconsiders its finding of 6/2/2021 that all claims previously asserted were outside the scope of FINRA Rule 13200. The Second Circuit Court of Appeals has broadly interpreted the, "arise out of," in arbitration clauses like that in FINA [sic] Rule 13200. "If the allegations underlying the claims 'touch matters' covered by the parties' * * * agreements, then those claims must be arbitrated." Greenberg [v. Ameriprise Fin. Servs., E.D.N.Y. No. 15-CV-3589 (ADS)(AYS), 2016 U.S. Dist. LEXIS 45250, 22 (Mar. 31, 2016)] * * *.The parties' claims relating to the parties' promissory note, suspension agreement and settlement agreement arise out of the business activities with each other as FINRA member and associated person. See Axos Clearing, Ltd. Liab. Co. v. Reynolds, S.D.Fla. No. 19-CIV-20979-RAR, 2019 U.S. Dist. LEXIS 149622, at ¶ 10-17 (Aug. 30, 2019).* * *In light of the foregoing, this matter is stayed pending arbitration.
Governing Law/Forum Selection. * * * Any lawsuit arising out of this Agreement and/or the redemption of the Schlang Interest shall be filed in the Cuyahoga County, Ohio Court of Common Pleas.
[T]he language in Schlang's Form U4 is a broad arbitration clause, mandating arbitration of any dispute, claim, or controversy that is required to be arbitrated under the rules, constitutions, or bylaws of FINRA. Therefore, unless the forum-selection clause explicitly removes the dispute from arbitration or forcefully excludes arbitration, the arbitration clause is controlling. In this case, the forum-selection clause does not address arbitration at all. It merely states that "any lawsuit" must be filed in the Cuyahoga County Common Pleas Court. This language does not explicitly and/or forcefully exclude the Redemption Agreement from arbitration. Here, given the preference for arbitration, the term "any lawsuits" means any dispute unresolved in arbitration. Consequently, FINRA arbitration prevails. Given the above considerations, we agree with the trial court's finding that the forum-selection clause does not supersede the arbitration clause in the Form U4 or FINRA Rule 13200.