- breach of promissory notes;
- unfair competition;
- intentional interference with contractual relations and prospective advantage;
- violation of confidentiality agreement and misappropriation of trade secrets;
- violation of non-solicitation agreement; and
- injunctive relief for violation of the Broker Recruiting Protocol.
In the Matter of the Arbitration Between Morgan Stanley Smith Barney, Claimant, vs. Sean Anthony Lehmann, Kurt J. Halverstadt, and Capital Investment Management Group, Inc., Respondents (FINRA Arbitration 09-05181, June 7, 2011).
Piling on the Damage Claims
Claimant MSSB sought both monetary and non-monetary relief:
A monetary award against:
- Respondent Lehmann in the sum of $1,970,666.67 with 4.25% interest until paid in full, and all attorneys' fees and collection costs;
- Respondent Halverstadt in the amount of $2,081,813.97 4.25% interest until paid in full, and all attorneys' fees and collection costs;
- Respondents for damages caused by Respondents' unfair competition under the California Business and Professions Code § 1720 and MSSB's attorneys' fees and litigation expenses; and
- Respondents for damages to be proved at the hearing for Respondents' intentional interference with contractual relations and prospective advantage; Respondents' violation of their confidentiality agreements; misappropriation of trade secrets; and other violations of the provisions of Respondents' Financial Advisor Employment Agreements;
An order and mandatory permanent injunction:
- requiring Respondents to return all confidential and trade secret information of MSSB in their possession, custody or control, and/or taking all other steps necessary to purge themselves and all of their record-keeping instrumentalities of all MSSB confidential and trade secret information;
- enforcing the provisions of paragraph 3.3 of Respondents' Financial Advisor Employment Agreements that prohibit Respondents from directly or indirectly recruiting or soliciting any employee of MSSB for employment in a securities field for a period of one year;
- A monetary award, order, and injunction providing relief for any and all damages, and for an injunctive order requiring full compliance with the Protocol for Broker Recruiting; and/or
- A declaratory judgment that the Respondents do not have the right to preclude MSSB from using "The Sullivan Group."
At the conclusion of the FINRA Arbitration hearing, Claimant MSSB amended its initial claims for damages and sought:
For breach of promissory notes:
- $2,096,032.00 plus per diem interest of $242.95 from February 1. 2011 until paid against Respondent Lehmann;
- $2,210,714.60 plus per diem interest of $249.80 from February 1, 2011 until paid against Respondent Halverstadt;
- $435,588.72 in Attorneys' fees and costs; and
- $100, 000 to $200,000 for breach of protocol and non-solicitation agreement, unfair competition, intentional interference with contractual relations and prospective advantage, violation of confidentiality agreement and theft of trade secrets.
Respondents Lehmann and Halverstadt generally denied the allegations and asserted various affirmative defenses.
The FINRA Arbitration Panel made no determination with respect to Claimants claims against Respondent Capital Investment Management Group, Inc. because that respondent is not a FINRA member firm and did not voluntariloy submit to arbitration.
The FINRA Arbitration Panel found that each Respondent breached his respective Promissory Note(s), and were liable to and ordered to pay Claimant MSSB:
Respondent Lehmann: $2,096,032.00 plus per diem interest of $229.46 from February 1. 2011 until
the award is paid in full.
Respondent Halverstadt $2,210,714.60 plus per diem interest of $236.31 from Febmary 1, 2011 until
the award is paid in full.
Respondents Lehmann and Halverstadt are given an off-set of $100,000.00 due to loss of income attributable to delays and difficulties in the transition process, which reduced the amounts respectively owed to Claimant MSSB to $1,996,032.00 and $2,110.714.60.
Respondents Lehmann and Halverstadt are jointly and severally liable for and shall pay to Claimant $75,000.00 in attorneys' fees and costs.
Claimant MSSB's cause of action for injunctive relief for violation of the Protocol on Broker Recruting is found to be moot, and accordingly, denied.
Based on the evidence presented at the arbitration hearing, the Panel found that Respondents did not have the exclusive right to use the name "Sullivan Group."
Respondents Lehmann and Halverstadt were found to have breached the protocol and non-solicitation agreement, and are jointly and severally liable for and ordered to pay to Claimant an additional $100,000.00 in compensatory damages.
Respondents Lehmann and Halverstadt are ordered to return or destroy any confidential and/or trade secret information of Claimant in Respondents' possession and/or control.