Citizens Bank, N.A. v. Margolis
| Decision Date | 23 December 2020 |
| Docket Number | Case No. 20-cv-12393 |
| Citation | 509 F.Supp.3d 967 |
| Parties | CITIZENS BANK, N.A., Plaintiff, v. Howard L. MARGOLIS, et al., Defendants. |
| Court | U.S. District Court — Eastern District of Michigan |
Vincent C. Sallan, Paul A. Wilhelm, Clark Hill PLC, Detroit, MI, for Plaintiff.
Jonathan A. Scobie, Stevens & Lee, P.C., Lawrenceville, NJ, Phillip C. Korovesis, Butzel Long, Detroit, MI, for Defendants.
On September 2, 2020, Plaintiff Citizens Bank, N.A. ("Citizens Bank") filed the instant action against Defendants Howard Margolis ("Margolis"), RBC Capital Markets, LLC, and RBC Wealth Management, a division of RBC Capital Markets, LLC (collectively referred to as "RBC"). See ECF No. 1. In its Complaint, Plaintiff alleges that Margolis intentionally solicited Citizens Bank clients to transfer their business to RBC in violation of his prior employment agreements with Plaintiff. Id. Plaintiff brings nine federal and state claims against Defendants, including breach of contract and conversion as well as violations of the Defend Trade Secrets Act and the Michigan Uniform Trade Secrets Act. See id. at PageID.21-32. On September 3, 2020, this Court granted Plaintiff's Ex Parte Temporary Restraining Order and enjoined Defendants from soliciting or otherwise enticing Citizens Bank clients to terminate their existing relationships with Citizens Bank, among other directives. ECF No. 10, PageID.234. The parties subsequently entered into a stipulated preliminary injunction on September 24, 2020. ECF No. 27.
Presently before the Court is Defendants’ Motion to Compel or in the Alternative Dismiss Portions of the Complaint [#28]. The matter is fully briefed. A hearing was held on December 16, 2020. For the reasons herein, the Court will DENY Defendants’ Motion to Compel or in the Alternative Dismiss Portions of the Complaint [#28].
In March 2015, Defendant Howard Margolis began his employment with Plaintiff Citizens Bank as a Senior Vice President. ECF No. 28-2, PageID.621. Defendant served as a financial advisor for upwards of twenty clients, including friends and family members, while at Citizens Bank. Id. ; ECF No. 1, PageID.2. As a condition of his employment, Margolis was exposed to confidential Citizens Bank information such as "private bank and institutional clients of Citizens Bank and its affiliates, along with a host of key prospects ... strategic targets, fees and pricing ... and both client and employee relationships" in his targeted region. ECF No. 1, PageID.10.
Margolis executed two employment agreements with Citizens Bank—one in 2015 ("2015 Agreement"), and the next in 2018 ("2018 Agreement"). ECF No. 28, PageID.599; ECF No. 31, PageID.683. Pursuant to the 2015 Agreement, Defendant was duly employed with Citizens Bank and its nonparty affiliate, CCO Investment Services Corporation, now known as Citizens Securities, Inc. ("Citizens Securities"). ECF No. 1, PageID.9-10. As a condition of his employment, Margolis was required to adhere to various industry rules and regulations, including those of the Financial Industry Regulatory Authority ("FINRA"). ECF No. 28-4, PageID.630-631. Margolis also agreed to remain licensed as a FINRA-registered financial advisor. Id. Margolis was accordingly registered under FINA throughout the entirety of his employment at Citizens Bank. ECF No. 28-2, PageID.621. While Citizens Securities is a FINRA-member firm, Citizens Bank is not. ECF No. 28, PageID.598.
On April 30, 2018, Margolis was offered a new position at Citizens Bank. ECF No. 28-5, PageID.637. The 2018 Agreement superseded the 2015 Agreement and designated his promotion to the position of Senior Vice President, PWM Advisor Group Market Lead. Id. (). Importantly, the 2018 Agreement is only between Margolis and Citizens Bank; there is no mention of Citizens Securities or dual employment as in the 2015 Agreement. See id. Plaintiff states that "beginning in 2018, Margolis was not working for [Citizens Securities], but rather could refer clients to individuals at [Citizens Securities] if clients were appropriate for that market segment." ECF No. 31, PageID.683 (internal parentheticals omitted). Defendants maintain, however, that Margolis continued as a dual employee of Citizens Securities after the execution of the 2018 Agreement. ECF No. 28, PageID.599.
Both the 2015 and 2018 Agreements included non-solicitation language that bound Margolis for one year after his employment was terminated. See ECF No. 28-4, PageID.633; ECF No. 28-5, PageID.638. The 2018 Agreement contained the following non-solicitation language:
Defendant Margolis was terminated from his position at Citizens Bank on July 15, 2020. ECF No. 1, PageID.16. About a month later, Margolis joined Defendants RBC and began his employment on August 20, 2020. Id. at PageID.272. RBC, unlike Citizens Bank, is a FINRA-member firm. ECF No. 28, PageID.599.
Citizens Bank commenced this action alleging that immediately upon joining RBC, Margolis began contacting and soliciting Citizens Bank's clients in violation of his non-solicitation agreements. See ECF No. 15, PageID.441. Plaintiff supports its claim by providing documentation of Margolis’ social media posts and emails that purportedly demonstrate attempts at solicitation. See ECF No. 1, PageID.89, 95. Citizens Bank also contends that Margolis is utilizing "his insider and specific knowledge of client information in an attempt to solicit clients away from Citizens Bank" and to Defendants RBC. ECF No. 1, PageID.21.
Defendants move the Court to find that this dispute is subject to FINRA arbitration and should be dismissed for lack of subject matter jurisdiction. If this Court does not compel arbitration, Defendants alternatively request dismissal of three claims alleged in Plaintiff's Complaint. The Court will address each argument in turn.
When a party seek to dismiss an action under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), a district court is "bound to consider the 12(b)(1) motion first, since the Rule 12(b)(6) challenge becomes moot if this court lacks subject matter jurisdiction." Moir v. Greater Cleveland Reg'l Transit Auth. , 895 F.2d 266, 269 (6th Cir. 1990).
Courts within this Circuit have applied a Rule 12(b)(1) analysis to motions to compel arbitration and dismiss the underlying complaint. See Others Powers Distrib. Co., Inc. v. Grenzebach Corp. , No. 16-12740, 2016 WL 6611032, at n.1 (E.D. Mich. Nov. 9, 2016) (). Thus, a district court must first determine whether it lacks subject matter jurisdiction to hear a plaintiff's claims because they must submit to arbitration instead. See Multiband Corp. v. Block , No. 11-15006, 2012 WL 1843261, at *5 (E.D. Mich. May 21, 2012). In doing so, a court may "rely on affidavits or any other evidence properly before it and has wide latitude to collect evidence to determine the issue of subject matter jurisdiction." Id.
It is incumbent on a district court to determine as a threshold matter whether an agreement creates a duty for the parties to arbitrate a particular grievance or claim. AT&T Techs., Inc. v. Commc'ns Workers of Am. , 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986) ; see also Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. , 473 U.S. 614, 625, 105 S.Ct. 3346, 87 L.Ed.2d 444, (1985) (). This inquiry requires a court to evaluate, first, whether a valid agreement to arbitrate exists between the parties and, second, whether the specific dispute at issue falls within the substantive scope of that agreement. Watson Wyatt & Co. v. SBC Holdings, Inc. , 513 F.3d 646, 649 (6th Cir. 2008).
Generally, "doubts regarding arbitrability must be resolved in favor of arbitration ... because there is a strong presumption in favor of arbitration" under the Federal Arbitration Act. Glazer v. Lehman Bros. , 394 F.3d 444, 450 (6th Cir. 2005) (additional citations omitted). The United States Supreme Court has cautioned, however, that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers of Am. v. Warrior & Gulf Nav. Co. , 363 U.S. 574, 582, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960). Federal courts have often denied motions to compel FINRA arbitrations rather than require a party to submit to an arbitration to which that party did not agree. CIG Asset Mgmt. v. Bircoll , No. 13-CV-13213, 2013 WL 4084763, at *2 (E.D. Mich. Aug. 13, 2013) (Drain, J.) (...
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