Former WaMu Brokers Prevail in FINRA Arbitration Solicitation Case

July 22, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim field in April 2009, Claimant Chase Investment Services (formerly WaMu Investments, Inc.) asserted

  • violation of the Washington Trade Secrets Act;
  • violation of Computer Fraud and Abuse Act;
  • breach of contract;
  • breach of fiduciary duty; and
  • unfair competition.

Those allegations arose in connection with Respondents' termination from employment and subsequent contacts with Claimant's customers. After the filing of the Statement of Claim and subsequent merger, Claimant amended the caption of the matter to Chase Investment Services fka WaMu Investments, Inc.

Claimant obtained against Respondents a Temporary Restraining Order (TRO) entered by the Pierce County Superior Court on May 1, 2009 in Case No. 09-2-08081-5, and continuing until April 9, 2010.  Thereafter, Claimant requested from the FINRA Arbitration Panel a Permanent Injunction enjoining Respondents from using, disclosing, or transmitting information that Claimant deemed trade secrets. Among such information designated for protection were customers' identities, names, contact information, addresses, social security numbers and WaMu's account numbers.

Claimant also sought to enjoin for one year further contacts/solicitations by Respondents of most persons/entities that they had serviced during their tenure at Claimant. Moreover, Claimant sought damages of up to $1 million, costs, and fees. At the close of the damages hearing, Claimant requested a range of damages from $280,000.00-$480,000.00, and treble damages.

In the Matter of the FINRA Arbitration BetweenChase Investment Services fka WaMu Investments, Inc., Claimant vs. Dag Olov Magnus Brandfors, Joshua James Hummel, and Teresa C. Herrick, Respondents (FINRA Arbitration 09-02224, July 18, 2011).

Respondents generally denied the allegations and asserted various affirmative defenses. Respondent Henick denied being subject to FINRA's jurisdiction and claimed to be subject to an arbitration agreement with WaMu that required arbitration before the American Arbitration Association. Respondents Brandfors and Hummel requested that the FINRA arbitration be dismissed because WaMu, a dissolved corporation, lacked the legal capacity to maintain any legal action.


On June 1, 2009 and June 9, 2009, a hearing was held on Claimant's Request for Permanent Injunction

By a vote of 2-1, the FINRA Arbitration Panel ordered that commencing upon the expiration of the Temporary Restraining Order (TRO) entered by the Pierce County Superior Court on May 1, 2009 in Case No. 09-2-08081-5, and continuing until April 9, 2010:

1. Except as specifically provided below, Respondents, and any person working in concert with them, including but not limited to any officer, agent, representative, or employee of Respondents, Steilacoom Investments Co., or Commonwealth Financial Network, are enjoined from initiating contact with, or soliciting, any person who as of April 9, 2009 was a customer of Washington Mutual Bank or its subsidiaries, and whose name Respondents became aware of solely through their employment by WaMu Investments Inc.

2. Respondents may speak without restriction to any WaMu customer or former customer who initiates contact with Respondents for the purpose of transferring, or discussing the possible transfer of, a WaMu account to another firm with whom Respondents are associated as registered representatives (whether in response to an announcement sent pursuant to the terms of the Temporary Restraining Order entered May 1, 2009 by Pierce County Superior Court or otherwise).

3. Respondents may retain and, after April 9, 2010, use without restriction the names, addresses and telephone numbers of the clients they serviced while employed by WaMu investments, inc. (the "permitted information"). Prior to April 9, 2010, Respondents are enjoined from using the permitted information for any purpose other than sending the announcements allowed by the Pierce County Superior Court in the Temporary Restraining Order entered May 1, 2009 in Cause No. 09-2-08081-5. 

Separately, the FINRA Arbitration Panel unanimously ordered that:

4. Other than the permitted information, Respondents shall not retain or utilize for any purpose any information or documents of WaMu that they obtained while they were employed by WaMu.

5. Respondents are ordered to permit Chase or its agents, at its discretion, to engage a qualified expert to forensically mirror image computers used by the Respondents, wherever located, and thereafter to analyze the contents thereof for the sole purpose of identifying information which was taken from WaMu, or information taken from WaMu which was subsequently deleted, on the following terms:

a. Chase need not request the mirror imaging of all the Respondents' computers, but may identify one or more users' computers to be done.

b. A qualified independent third party shall be engaged to review and analyze the data in the mirror images, for the sole purpose of identifying information taken from WaMu, or information taken from WaMu which was subsequently deleted.

c. Chase shall require any party having access to the mirror imaged data to agree, in writing, to hold confidential and not disclose to any other party any of that information, other than to identify, and provide to counsel for the parties (or, if they have no counsel, then to the parties directly) WaMu information or deleted information.

d. The party(ies) selected to forensically mirror image the computers and thereafter to analyze the data must be acceptable to Respondents' counsel.

e. Chase shall pay the costs of this process. If in this proceeding Chase proves that Respondents' computers contained material WaMu information which Respondents, in affidavits or in testimony at the Preliminary Injunction, represented that they did not have, at a time they represented they did not have  it. Chase shall be entitled to recover from Respondents Brandfors and/or Hummel (only) the reasonable costs incurred in mirror imaging the computers and identifying such information.

f. Chase shall have two weeks from the date FINRA delivers this order to counsel for the parties, within which to give Respondents' counsel written notice of Chase's intent to have mirror images made pursuant to this order. The parties thereafter shall cooperate to complete the process in a reasonably prompt manner, if no such notice is given, the tenns of this order relating to the forensic mirror imaging process shall terminate.

g. Claimant's request that the Panel bar Respondents from further mailings allowed by the Pierce County Superior Court's TRO is denied.

h. Claimant's request for expedited discovery is denied as moot.

SIDE BAR:  In response to the frequent queries from former employees as to "what can they do to me after I've left?", I have noted the fairly exacting terms of the FINRA Arbitration Panel's Injunction.  As is typical in such cases where this relief is granted, we first have a court ordered TRO - which frequently contemplates that it will only remain in place until such time as the FINRA Arbitration Panel considers any motions for a Permanent Injunction.  Upon issuing a ruling on an injunction, the FINRA Panel may eliminate, modify, or continue the court-ordered TRO (subject to any express terms to the contrary as indicated by the Court).

As is evident in this case, Claimant asked for very expansive constraints against its former employees and their firms.  Moreover, the remedies that were implemented during the ongoing FINRA Arbitration appear to have been very, very carefully considered and crafted.  The goal of such interim remedies is to ensure, as best as possible, that the parties do not sustain irreparable harm during the ongoing litigation and that any damages sustained to date are appropriately mitigated.


The FINRA Arbitration Panel found that there was insufficient evidence from which the Panel could conclude that Respondents had solicited any of Claimant's customers. Although the Panel deemed it undisputed that Respondents telephoned many of their former WaMu customers immediately after terminating their employment and starting a new firm, it was noted that:

many credible witnesses testified that Respondents in those calls simply advised of their move to a new firm, but did not ask the customer to continue working with them, establishing what appears to have been a pattern for those calls.

SIDE BAR: Note the distinction between soliciting (which contemplates some effort to initiate or further a transaction) and communicating (which could include virtually any effort to communicate - email, phone, fax, etc. - but does not cross the threshold of attempting to solicit the contacted party.  As this FINRA Arbitration Panel noted, merely telephoning a former client and communicating a change of employment may not always rise to the level of soliciting business.

Setting aside the issue of whether Respondents did or didn't solicit their former WaMu clients, the FINRA Arbitration Panel raised a fairly odd evidentiary issue. Pointedly, the Panel noted that Claimant called no customers or former customers as witnesses to testify that they had been solicited.  Consequently, the Panel implies that it didn't view Respondents communications as rising to the level of solicitations and, even if there was some doubt, Claimant failed to introduce testimony from the horse's mouth (the customer) in support of its claim. 

SIDE BAR:The ability to present a customer's testimony at a FINRA Arbitration is not such a simple undertaking in an intra-industry dispute because neither industry party can force a public customer to voluntarily appear at the industry arbitration and testify.  Moreover, to pressure such a client to testify may often backfire if the client is troubled by the circumstances and closes out his or her account - and, worse, may retain legal counsel to explore whether there are grounds for suing the former employer and/or employee.

In further exploring the issue of allegedly improper contacts between Respondents and their former clients, the FINRA Panel refused to infer from the fact that a given client may have transferred his or her account from WaMu to the Respondents' new firm that there was some impropriety involved in motivating that migration. To the contrary, the Panel found ample evidence that come customers might (or did) choose to relocate with Respondents rather than remain at WaMu.  Further, the Panel found that Claimant:

did not attempt to mitigate its damages by taking any steps to contact those customers whom Respondents serviced, after Respondents' termination to reassure the customers about the bank's new owner or to encourage the customers to remain with the firm.

Finally, the Panel concluded that even if Respondents had wrongfully solicited Claimant's customers, Claimant did not provide persuasive evidence from which the Panel could measure Claimant's claimed damages, and the Panel rightfully declined to speculate as to such losses.

SIDE BAR:  As I often explain to my clients, there are typically two parts to any civil lawsuit.  First, you have to demonstrate by a preponderance of the evidence that the your adversary was guilty of whatever you are alleging.  That's the liability phase. Second, you have to demonstrate the nature and extent of your damages.  Not every wrong to you necessarily results in damages.  In this FINRA Arbitration, the Panel seemed perplexed that Claimant apparently made such a to-do about Respondents' allegedly wrongful conduct but when it came time to present the bill for such perceived harms, Claimant essentially was viewed as having passed a blank sheet of paper, a pencil, and a calculater to the Panel.  As this Panel noted, that's not how it works.


In conclusion, the FINRA Arbitration Panel dismissed all of Claimant's claims with prejudice.  Additionally, the Panel held that Claimant did not pursue a damages claim against Respondent Herrick, and all claims against her were dismissed for want of prosecution.

SIDE BAR: Compliments to this FINRA Panel for intelligently setting forth the facts and its rationale behind its rulings.  Not only is the ruling compelling but the written Decision will provide substantial guidance to future parties with similar disputes.  A truly superb effort by these arbitrators!