Rosensweig v. Morgan Stanley & Co., Inc.

• Decision Date: 09 August 2007
• Docket Number: No. 05-15325.,05-15325.
• Citation: 494 F.3d 1328
• Parties: Phil ROSENSWEIG, Plaintiff-Appellee, v. MORGAN STANLEY & CO., INC., f.k.a. Morgan Stanley Dean Witter, Incorporated, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

494 F.3d 1328

Phil ROSENSWEIG, Plaintiff-Appellee, v. MORGAN STANLEY & CO., INC., f.k.a. Morgan Stanley Dean Witter, Incorporated, Defendant-Appellant.

No. 05-15325.

United States Court of Appeals, Eleventh Circuit.

August 9, 2007.

Joseph Clay Coates, III, Bradford D. Kaufman, Greenberg, Traurig, P.A., West Palm Beach, FL, Elliot H. Scherker, Julissa Rodriguez, Greenberg, Traurig, P.A., Miami, FL, for Defendant-Appellant.

Curtis Carlson, Carlson & Lewittes, P.A., Miami, FL, for Plaintiff-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before EDMONDSON, Chief Judge, and TJOFLAT and JOHN R. GIBSON,^* Circuit Judges.

JOHN R. GIBSON, Circuit Judge:

Morgan Stanley appeals from an order of the district court which confirmed the award of an arbitration panel in favor of one of Morgan Stanley's former employees, Philip E. Rosensweig, and ordered the expungement of Rosensweig's regulatory record. Rosensweig had instituted the arbitration proceedings to recover damages flowing from his termination as a securities broker at Morgan Stanley and Morgan Stanley's alleged retention of client records that Rosensweig claimed belonged to him. Morgan Stanley contends that the arbitrators committed misconduct by refusing to hear evidence about certain computer disks that contained the client data and that the expungement order is contrary to public policy. We affirm the order of the district court.

Rosensweig joined Dean Witter, which later merged with and became known as Morgan Stanley, as a retail broker in Miami, Florida, in 1992. At that time, he had been a licensed securities broker for ten years, and he brought with him a significant book of business. Rosensweig kept his client information, including names, addresses, phone numbers, portfolio information, and personal notes, in a computer program called Broker's Ally, which he had purchased before joining Morgan Stanley and continued to use during his seven years there. Rosensweig was known as a "top producer" at Morgan Stanley, with annual commissions and fees reaching as high as $900,000.

On May 28, 1999, Morgan Stanley terminated Rosensweig. When a firm terminates a registered securities broker, the firm must submit a form called a "Form U-5" setting forth the reasons for the termination to the "Central Registration Depository," where regulatory authorities can access the information. The Form U-5 Morgan Stanley submitted after Rosensweig's termination stated that he was terminated for "failure to follow instructions with respect to one account not prompted by a customer complaint, a difference in investment philosophy from the firm[,] and two customer complaints." The terms of Morgan Stanley's stock options, bonus, and deferred compensation plans allowed it to declare Rosensweig's benefits forfeited because his termination was for cause.

When a securities broker is terminated for cause in the State of Florida, the State investigates the matters set forth on that broker's Form U-5. In Rosensweig's case, the State held up the transfer of his securities license to a new firm until the investigation was complete, which took over eight months. Once his license finally cleared, Rosensweig was earning about $50,000 per year as an independent contractor with a small firm.

In October 2001, Rosensweig filed a complaint against Morgan Stanley with the Arbitration Division of the National Association of Securities Dealers, Inc. His statement of claim alleged that Morgan Stanley falsely reported to regulators that he was terminated for cause, which prevented him from working as a broker during the State's eight-month investigation; improperly treated his deferred compensation, stock options, and bonuses as forfeited based on the purported termination for cause; failed to return his personal property; failed to return his client information contained in the Broker's Ally computer program; and stole his clients. Rosensweig asserted claims against Morgan Stanley for breach of employment agreement, breach of equitable and just principles of trade, tortious interference, violation of the Florida Trade Secrets Act, and conversion. He sought damages for loss of future income between $1 million and $3 million and for loss of $500,000 in the deferred compensation, bonuses, and stock options that Morgan Stanley claimed were forfeited, as well as punitive damages and attorney's fees.

During discovery, Morgan Stanley repeatedly requested material regarding Rosensweig's Broker's Ally files. Rosensweig indicated that Morgan Stanley had given him back-up disks of his Broker's Ally data some time after his termination but that the disks had viruses and that he could not find them. Morgan Stanley moved to strike Rosensweig's claim for damages, arguing that he should not be permitted to claim damages for lost customer relationships when he had failed to produce disks in his possession that contained all his customer data. The arbitrators denied the motion. On the Friday evening before the arbitration was scheduled to begin the following Monday, Rosensweig notified Morgan Stanley that he had found the disks and delivered them to Morgan Stanley with a warning that they might contain viruses and should be opened at Morgan Stanley's own risk.

Arbitration began on Monday, September 15, 2003, and was scheduled to last three days. Morgan Stanley indicated that it planned to present evidence and testimony about the disks but first needed a computer expert to examine them for viruses. The panel stated that the evidence would have to be presented within the three days allotted for arbitration, and Morgan Stanley acquiesced.

Rosensweig was the primary witness at the arbitration, and he offered extensive testimony about his career as a broker and his work at Morgan Stanley. Rosensweig testified that his termination came as a shock, and he cast doubt on each of Morgan Stanley's asserted reasons for the termination. He explained that the alleged "failure to follow instructions" was based on his refusal to illegally restrict the trades of a client. He testified that he had not done anything wrong to provoke the purported "customer complaints," where one concerned his refusal to execute a client's trustee's suspect trading plans and the other was a letter from one of Rosensweig's former in-laws expressing concern about the performance of his investments. Third, he elicited testimony that the statement that he had a "difference in investment philosophy" from the firm was not meant to imply that he had done anything wrong and thus could not provide just cause for his termination. Rosensweig intimated that his branch manager did not understand the industry, particularly Rosensweig's 401(k) business, and feared that Rosensweig would defect to another firm and take other successful brokers with him. Rosensweig testified that this manager once had commented that, if Rosensweig were ever terminated from Morgan Stanley, he would never work at another major firm because the State investigation into the reasons for his discharge would hold up the transfer of his license to another firm. The investigation into Rosensweig's termination from Morgan Stanley indeed lasted over eight months. During that time, the national firm PaineWebber refused to hire him because he would be effectively unlicensed during the pendency of the investigation, and a regional firm that hired him let him go because it was taking too long for his license to transfer. Ultimately, Rosensweig took a position as an independent contractor with a small securities firm.

Rosensweig further testified that, in the months after his termination, he received telephone calls informing him that other brokers at Morgan Stanley were soliciting business from his clients. According to Rosensweig, Morgan Stanley refused to let him take his personal property home on the day he was terminated, giving Morgan Stanley the opportunity to print his client list from his computer and distribute copies of the list to its brokers. Although Morgan Stanley eventually gave him his computer, Rosensweig testified that the Broker's Ally program with all his client data had been deleted from it. He further testified that, upon his request, Morgan Stanley gave him a disk and a CD-Rom with a copy of the Broker's Ally program and the client data, but the disk had a virus and, while the CD-Rom contained his client contact information, his seventeen years' worth of client notes were missing. According to Rosensweig, he had an employment contract with Morgan Stanley that provided that the client list he brought with him when he joined the firm was his property.

Morgan Stanley cross-examined Rosensweig on these issues, including his use of Broker's Ally after his termination. Rosensweig admitted that he had access to many of his clients' contact information from commission statements after the termination, but explained that he was unable to conduct business for them because the State had effectively suspended his license during its investigation of the reasons for termination that Morgan Stanley had stated on the Form U-5. Rosensweig acknowledged that his regulatory file contained several "Form U-4" customer complaints and an adverse arbitration award, but Morgan Stanley had not cited these as reasons for his termination. Moreover, there was evidence that Morgan Stanley disagreed with some of the complaints but settled them because it was most economical, and at least one was expunged by the complainant. Morgan Stanley did not produce other evidence of its reasons for terminating Rosensweig and did not call Rosensweig's former branch or regional managers to testify. Neither side was able to produce a copy of an employment agreement between Rosensweig and Morgan Stanley.

On September 17, 2003, the arbitration was adjourned until December to allow Morgan Stanley time to verify that certain personnel records had been destroyed....