Edward D. Jones & Co. v. Schwartz, WD

• Decision Date: 26 May 1998
• Docket Number: No. WD,WD
• Citation: 969 S.W.2d 788
• Court: Missouri Court of Appeals
• Parties: EDWARD D. JONES & CO., Appellant, v. Channing SCHWARTZ, Respondent. 54211.

Page 788

969 S.W.2d 788

EDWARD D. JONES & CO., Appellant, v. Channing SCHWARTZ, Respondent.

No. WD 54211.

Missouri Court of Appeals Western District.

May 26, 1998.

Lawrence R. Goldberg, Peter T. Sadowski, Goldberg, Katz, Sadowski & Croft, Thomas V. Bender, Walters Bender & Strohbehn, Kansas City, for appellant.

Mark A. Stites, Berkowitz, Feldmiller, Stanton, Brandt, Williams & Stueve, Kansas City, for respondent.

Before EDWIN H. SMITH, P.J., and SMART and ELLIS, JJ.

ELLIS, Judge.

Edward D. Jones & Co., a Missouri Limited Partnership, appeals from the trial court's grant of summary judgment denying its application to vacate an arbitration award in favor of Channing Schwartz and against Jones & Co., and confirming the award.

The record reveals that Channing Schwartz worked as a stock broker for Jones & Co. in Alliance, Nebraska. He first began working in that capacity in September, 1983. Alliance is a rural area in the Nebraska panhandle with a population of about 10,000. Jones & Co. and Schwartz did not have a written contract. However, they reached a verbal agreement in 1983 that Schwartz would have his office in Alliance, but he would also have the exclusive right to solicit clients in nearby Chadron. Further, Jones & Co. agreed it would not station any stock broker in Chadron so long as Schwartz was in the Alliance office.

During his employ with Jones, Schwartz compiled a list of 6000 names, taken from the Alliance phone book. Schwartz's wife helped him compile the list, and he kept it on a personal computer in his home. Schwartz never provided anyone at Jones with a copy of the list. Of the 6000 people on the list in May, 1994, Schwartz could identify at least 900 as customers of Edward D. Jones & Company with whom he had been doing business during the time he had been a broker with Jones & Co.

Beginning in mid-1993, general partners at Jones & Co. began indicating to Schwartz their intention to station a stock broker in Chadron. Since this was a violation of the 1983 agreement, Schwartz began to consider leaving Jones & Co. In early 1994, Schwartz received a call from someone at Jones & Co. asking him to meet with and take to dinner the individual they intended to place in Chadron. Schwartz refused and thereafter, resigned his position with Jones & Co. on April 22, 1994.

Following Schwartz's resignation, on May 2, 1994, Jones & Co. filed an action against Schwartz in Nebraska State Court alleging misappropriation of trade secrets and breach of fiduciary duty, and seeking a temporary restraining order ("TRO") which would prevent Schwartz from competing with it. On the same day, Jones & Co. obtained an ex parte TRO and posted a $10,000 bond as required by Nebraska law. ¹ Specifically, the TRO prohibited Schwartz from the following:

(a) soliciting sales of securities and/or insurance business from any customer of Edward Jones or otherwise inducing or attempting to induce any customer of Edward Jones to terminate his/her relationship with Edward Jones, if such customer was someone whom Schwartz dealt with or even contacted or whose name became known to Schwartz while he was in the employ of Edward Jones; and further, from accepting any business from any customer whom Schwartz has so solicited, induced or attempted to induce at any time in the past for the purpose of having such customer do business with Schwartz.

(b) using, disclosing, or transmitting any books or records of Edward Jones, or any trade secrets or other confidential or proprietary information of Edward Jones, including but not limited to the names and addresses of Edward Jones' customers, its customers' financial statements, investments objectives, estate planning documents, and the securities held by such customers ...

Schwartz's counsel entered his appearance in the Nebraska litigation on May 11, 1994, and on May 24, 1994, the Nebraska court dissolved the TRO. In announcing the decision to dissolve the TRO, the Nebraska court stated:

I am not convinced that the Trade Secrets Act covers customer lists and further see no evidence that the defendant took anything from the plaintiff anyway.

I agree with the defendant that the plaintiff is trying to have the court craft a non-solicitation agreement and further that the activity Jones complains of but has not proved is just the activity that Jones has taken in the past when they have hired a person such as the defendant from another company. What is good for the goose is good for the gander and the plaintiffs have engaged in this type of activity.

Thus because of a lack of evidence, no showing that a client list is a trade secret, and further unclean hands, the Temporary Restraining Order and Protective Order are dissolved.

Thereafter, on July 12, 1994, Jones & Co.'s suit against Schwartz was dismissed without prejudice. On August 2, 1994, Schwartz filed a statement of claim against Jones with the National Association of Securities Dealers, Inc. ("NASD") requesting arbitration of his claim for damages arising out of the actions of Jones & Co. from May, 1994 through Schwartz's filing of his complaint. ² Schwartz asserted claims against Jones & Co. for tortious interference with contract, wrongful issuance of injunction, malicious prosecution, and false light publicity. Moreover, Schwartz alleged Jones & Co. personnel stated or implied to customers that Schwartz had committed improper or illegal actions, and that Jones & Co. had an improper and ulterior motive in filing the Nebraska State Court action. Jones & Co. counter-claimed for damages only, again alleging misappropriation of trade secrets and breach of fiduciary duty.

A three-member arbitration panel heard evidence in Kansas City, Missouri on September 18-22, 1995. In addition to relaying the background of his relationship with Jones & Co., Schwartz's evidence included the testimony of an expert witness concerning the amount of damages he had suffered as a result of Jones & Co.'s actions. Mr. Howard Berg testified that Schwartz incurred damages of $1,013,280.00.

Schwartz also presented the testimony of Cheryl Novotny, one of his current customers. Mrs. Novotny and her husband had decided to invest with Mr. Schwartz at Linsco-Private Ledger (his new employer) instead of Jones & Co. because of the lower commission LPL would take on their investments. When Mrs. Novotny told John Kleager, one of Jones & Co.'s brokers, of her decision, Kleager told her to be very careful in dealing with Schwartz and that Schwartz had been fired by Jones & Co. Mrs. Novotny confronted Schwartz with the rumor, and Schwartz was able to explain the situation and retained Mr. and Mrs. Novotny as customers. Mrs. Novotny said that had she not confronted Schwartz, the things Mr. Kleager told her would have been sufficient to cause her to look for a different broker. Further, Alliance resident Larry Leiderer testified that the rumor around town, originating from people connected to Jones & Co., was that Schwartz could not deal with any of his former customers because he had breached his contract with Jones & Co.

On November 3, 1995, the Arbitrators rendered a unanimous award which generally identified the parties, when the claims and pleadings were filed, when hearings were held, a summary of the claims made by the parties and the relief requested, and ultimately the award itself, which stated:

After considering the pleadings, the testimony, and the evidence presented at the hearing the post-hearing submissions, the undersigned arbitrators have decided in full and final resolution of the issues submitted for determination as follows:

Respondent Edward D. Jones & Company is liable for, and shall pay to the Claimant the sum of $745,638.00 as satisfaction for his claim for compensatory damages.

All other claims for relief/requests for damages not specifically set forth herein, are, and each of them, denied and dismissed with prejudice.

Each party shall bear its own costs and expenses associated with this arbitration.

The panel did not specify the basis for its decision.

Jones & Co. filed an application to vacate the arbitration award in the Circuit Court of Jackson County. Both Jones & Co. and Schwartz filed motions for summary judgment. Upon review, the trial court entered judgment granting Schwartz's motion for summary judgment, including confirmation of the arbitration award, and denying Jones & Co.'s motion for summary judgment. From that judgment, Jones & Co. perfected this appeal.

Appellate review of summary judgment is de novo. Rice v. Hodapp, 919 S.W.2d 240, 243 (Mo. banc 1996). We review the record in the light most favorable to the party against whom the judgment was entered. ITT Commercial Fin. Corp. v. Mid-America Marine Supply Corp., 854 S.W.2d 371, 376 (Mo. banc 1993). The party moving for summary judgment has the burden of establishing that it is entitled to judgment as a matter of law. Id. at 382. In conducting the review, this court determines "whether there is genuine dispute as to material facts and whether there is an undisputed right to judgment as a matter of law." Jamieson v. Jamieson, 912 S.W.2d 602, 604 (Mo.App. E.D.1995).

Initially, we observe that both the United States Congress and the Missouri General Assembly have enacted arbitration legislation. The Federal Arbitration Act ("FAA") is found at 9 U.S.C. § 1, et seq. (1970). The Missouri Uniform Arbitration Act ("Missouri Act") appears at § 435.350 et seq. ³ The FAA and the Missouri Act both express the goal of enforcing arbitration agreements as a matter of law "to further the important public policy of resolving disputes without resort to the courts." McCarney v. Nearing, Staats, Prelogar & Jones, 866 S.W.2d 881, 887 (Mo.App. W.D.1993). The FAA applies when an agreement reveals a transaction "involving commerce." Duggan v. Zip Mail Servs., Inc., 920 S.W.2d 200, 202 (Mo.App. E.D.1996). The United States Supreme Court has interpreted the phrase "involving commerce" as...