Freund v. UBS Fin. Servs., Inc.

• Decision Date: 23 October 2015
• Docket Number: Case No. 15–cv–7965
• Citation: 141 F.Supp.3d 797
• Parties: Alexander Freund, Plaintiff, v. UBS Financial Services, Inc., Defendant.
• Court: U.S. District Court — Northern District of Illinois

141 F.Supp.3d 797

Alexander Freund, Plaintiff,

v.UBS Financial Services, Inc., Defendant.

Case No. 15–cv–7965

United States District Court, N.D. Illinois, Eastern Division.

Signed October 23, 2015

Christopher Scott Griesmeyer, Mack H. Reed, Greiman, Rome & Griesmeyer, LLC, Chicago, IL, for Plaintiff.

Michael Joseph Faley, Schuyler Roche & Crisham, PC, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Robert M. Dow, Jr.

, United States District Judge

Plaintiff Alexander Freund filed this action against Defendant UBS Financial Services, Inc. ("UBS") pursuant to 28 U.S.C. § 1332

to enjoin an arbitration proceeding before the Financial Industry Regulatory Authority ("FINRA") Office of Dispute Resolution. Plaintiff seeks a declaration that FINRA does not have jurisdiction over him and cannot require him to participate in the FINRA arbitration because there is no valid arbitration agreement between Plaintiff and UBS. Before the Court is Plaintiff's motion for a preliminary injunction and expedited ruling [5]. For the reasons set forth below, the Court denies Plaintiff's motion for a preliminary injunction, but grants the motion for expedited ruling [5].

I. Background

UBS is a member of FINRA. UBS hired Plaintiff as a Client Service Associate on November 7, 2011. Plaintiff's manager was financial advisor David Kinnear. According to UBS, Kinnear and Plaintiff were old family friends and Kinnear requested that UBS hire Plaintiff. At the time of his hiring, Plaintiff signed a letter agreement [1–1] with UBS. Plaintiff agreed that he would "not disclose to any person any Confidential Information relating to UBS Financial Services Inc., UBS AG, or any of their subsidiaries or affiliates (‘UBS Group’) except in the course of carrying out [his] duties * * * or as required by an order of court or governmental agency with jurisdiction." Id. at 2. Plaintiff also committed to "adhere to all federal laws and rules and regulations of the various exchanges or other regulatory and/or self-regulatory organizations of which [UBS] is a member as well as all internal rules, regulations[,] policies and codes of conduct that the Firm has established." Id. at 3. The letter agreement does not mention FINRA or arbitration.

On February 15, 2012, Plaintiff tendered his resignation from UBS. Later the same day, Wells Fargo hired Plaintiff as a Client Associate. Kinnear and two other UBS employees, Kathleen Bakas, a broker, and Steven Fryman, an associate, also resigned from UBS and accepted employment from Wells Fargo on February 15, 2012. On February 16, 2012, UBS filed suit against Kinnear and Bakas in the Circuit Court for Cook County, Illinois (Case. No. 12–CH–5333) seeking an injunction to prevent Kinnear and Bakas from violating restrictive covenants contained in their employment agreements with UBS. Plaintiff and Fryman were not parties to the Cook County lawsuit.¹ On February 16, 2012, UBS filed a Statement of Claim with FINRA's Office of Dispute Resolution (Case No. 12–554) against Kinnear, Bakas, and Wells Fargo; Plaintiff was not named as a respondent.

On April 19, 2012, while employed at Wells Fargo, Plaintiff submitted an application for registration with FINRA. This was the first time that Plaintiff sought to register with FINRA. Wells Fargo is a FINRA member. Plaintiff's application included a signed Form U–4. The U–4 is the Uniform Application for Securities Industry Registration or Transfer. Representatives of broker-dealers, investment advisers, or issuers of securities must use this form to become registered in the appropriate jurisdictions and/or self-regulatory organizations ("SROs"). The U4 contains an arbitration clause. Specifically, the U–4 provides:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of the SROs indicated in Section 4 (SRO REGISTRATION) as may be amended from time to time and that any arbitration award rendered against me may be entered as a judgment in any court of competent jurisdiction.

[11–1] at 9. On February 21, 2013, FINRA accepted Plaintiff's application for registration.

On October 23, 2013, UBS filed an Amended Statement of Claim with FINRA. The Amended Statement of Claim added Plaintiff as a respondent. UBS alleges that Kinnear, assisted by Plaintiff, Bakas, and Fryman, "stole thousands of confidential UBS client and business records and other proprietary information from UBS in the months preceding [their] resignation" and that Wells Fargo "aided and abetted Kinnear's efforts to misappropriate UBS records and wrongly solicit UBS clients." [1–1] at 6–7. UBS further alleges that Plaintiff, during his "short tenure at UBS," "created over a dozen excel spreadsheets on his personal computer that contained a mountain of confidential UBS client information," and "then emailed those spreadsheets from his personal email account to Kinnear's personal email accounts on multiple occasions." [1–1] at 25. According to UBS, Plaintiff "admitted at his deposition in the State Court Litigation that he had kept those spreadsheets on his personal computer when he resigned from UBS and joined Wells Fargo." Id. at 26. "[O]ver the ensuing weeks and months" following the team's resignation, UBS alleges, "Kinnear used the stolen records and information that he had misappropriated from UBS" to solicit business from UBS clients. Id. at 42.

UBS's Amended Statement of Claim contains two claims against Plaintiff: Count III for breach of contract; and Count IV for breach of fiduciary duty and duty of loyalty. In Count III (which is also brought against Kinnear, Fryman, and Bakas), UBS alleges that Plaintiff breached his contractual duty to maintain the confidentiality of UBS's confidential client information during and after his employment at UBS. In Count IV (which is also brought against Wells Fargo, Kinnear, Fryman, and Bakas), UBS alleges that Plaintiff owed a fiduciary duty of complete loyalty and fidelity to UBS during his employment at UBS, which he breached while still employed at UBS by removing UBS's confidential information and providing it to Wells Fargo, by simultaneously acting on UBS's and Wells Fargo's behalf, and by making secret plans to deprive UBS of confidential information. Id. at 47–48.

Plaintiff and Fryman filed a Response to UBS's Amended Statement of Claim on January 29, 2014. In the Response, Plaintiff objected to FINRA's jurisdiction over him. Plaintiff also resisted UBS's requests for discovery on the basis that FINRA did not have jurisdiction over him. On October 22, 2014, UBS filed a motion to compel Plaintiff's responses to its discovery requests. On December 18, 2014, the FINRA arbitration Chairperson, acting on behalf of the FINRA arbitration panel, granted UBS's motion to compel and rejected Plaintiff's jurisdictional objections. On the question of whether FINRA had jurisdiction over Plaintiff, the Chairperson's full ruling is as follows:

Claimant's Motion to Compel seeking FINRA jurisdiction over Alexander Freund on the basis that he is an "associated person" as defined in the Code of Arbitration Procedure is granted. The basis of this ruling is the broad language of Rule 13100(r)(2) and the Letter Agreement dated November 7, 2011 between UBS and Freund.

[1–8] at 3. On September 8, 2015, the FINRA case administrator sent the parties, including Plaintiff, notice that the arbitration of UBS's claims would begin on October 26, 2015.

On September 9, 2015, Plaintiff filed a complaint [1] in this Court seeking a declaration that he is not required to participate in the FINRA arbitration and preliminary and permanent injunctive relief. On September 17, 2015, Plaintiff filed a motion for preliminary injunction asking the court to enjoin UBS and "any individual or entity in active concert or participation with [UBS] from prosecuting any claims against, proceeding as to, or otherwise maintaining or continuing the FINRA Arbitration as to Plaintiff." [5] at 3. At Plaintiff's request, the Court set an expedited briefing schedule on Plaintiff's motion for preliminary injunction and advised the parties that it would make every effort to issue a written ruling by October 23, 2015 given that the arbitration is set to begin the following week. The parties have fully briefed the motion. See [6], [11], [12].

II. Legal Standard

"A preliminary injunction is an extraordinary equitable remedy that is available only when the movant shows clear need." Turnell v. CentiMark Corp., 796 F.3d 656, 661 (7th Cir.2015)

(citing Goodman v. Ill. Dep't of Fin. and Prof'l Regulation, 430 F.3d 432, 437 (7th Cir.2005) ). The Seventh Circuit uses a two-step analysis to assess whether preliminary injunctive relief is warranted. See Girl Scouts of Manitou Council, Inc. v. Girl Scouts of USA, Inc., 549 F.3d 1079, 1085–86 (7th Cir.2008). "In the first phase, the party seeking a preliminary injunction must make a threshold showing that: (1) absent preliminary injunctive relief, he will suffer irreparable harm in the interim prior to a final resolution; (2) there is no adequate remedy at law; and (3) he has a reasonable likelihood of success on the merits." Turnell, 796 F.3d at 661–62.

If the movement makes the required threshold showing, then the court moves on to the second stage and considers: "(4) the irreparable harm the moving party will endure if the preliminary injunction is wrongfully denied versus the irreparable harm to the nonmoving party if it is wrongfully granted; and (5) the effects, if any, that the grant or denial of the preliminary injunction would have on nonparties," i.e. the public interest. Id. at 662

. The Court balances the potential harms on a sliding scale against the movant's likelihood of success. The greater the movant's likelihood of success, "the less strong a showing" the movant "must make that the balance of harm is in its favor." Foodcomm Int'l v. Barry, ...