Bass, Berry & Sims attorney Chris Lazarini analyzed a case in which the defendant's motion to compel arbitration, opposed by plaintiffs, was granted by the court finding arbitration is required under Plaintiffs' Forms U4 and FINRA Rule 13200. The arbitration panel will now decide if plaintiffs disregarded the one-year non-solicitation period in their employment agreement by distributing postcards announcing their new job affiliation.
Chris provided the analysis for Securities Litigation Commentator (SLC). The full text of the analysis is below and used with permission from the publication. If you would like to receive additional content from the SLC, please visit the SLC website to sign up for the newsletter.
Mullins vs. U.S. Bancorp Investments, Inc., No. 1:15-CV-00126 (W.D. Ky., 4/7/16)
The absence of an arbitration provision in an employment agreement does not negate the independent basis for arbitration that exists in the Form U4 and FINRA Rule 13200.
When Plaintiff brokers joined Defendant, they signed confidentiality and one-year non-solicitation agreements. In September 2015, they resigned from Defendant, joined a new firm, and sent postcards to customers, friends, and family members, announcing their new affiliation. Defendant sent a cease and desist letter, after which Plaintiffs filed a state court declaratory judgment action.
Defendant removed the case to federal court on diversity grounds and moved to compel arbitration. Plaintiffs opposed the motion, arguing that their confidentiality and non-solicitation agreements do not contain arbitration provisions. The Court rejects this argument, finding that arbitration is required under Plaintiffs' Forms U4 and FINRA Rule 13200. Because all claims are arbitrable, the Court compels arbitration and enters an order of dismissal.
Even though Defendant alleged that Plaintiffs made impermissible phone contact with clients, Defendant elected not to seek injunctive relief, a right that existed in the employment agreements. The arbitration should be interesting, as the Panel will be tasked with determining whether the one year non-solicitation period is reasonable and whether Plaintiffs' postcard, which stated that it was "for informational purposes only and not a solicitation" was, in fact, a solicitation in violation of the employment agreements.