Desperately Seeking FINRA Arbitration On Remand From Federal Court

Carl Adkins and "Fort Washington Investment Advisors, Inc. ('Employer' . . . and collectively with Western & Southern Financial Group, Inc. (the 'Parent Company') . . .and any entity that is wholly or partially owned by the Employer or the Parent Company. . .)." (Id. at #32). Both Adkins and two Fort Washington representatives signed the Non-Solicitation Agreement. (Id. at #36). 

[B]ut the transition was far from smooth. Almost immediately, Fort Washington claims that several of Adkins' and Owens' clients began to transfer their accounts from Fort Washington to Wells Fargo. (See Compl., Doc. 1, ¶ 21, #5). After a little digging, Fort Washington says it discovered that Owens accessed, edited, printed, and deleted client information in Fort Washington's computer system shortly before her departure. (Id. at ¶¶ 24-35, #6-8). That information, Fort Washington says, correlates with the clients who subsequently followed Adkins and Owens to Wells Fargo Advisors. (Id. at ¶¶ 36-56, #8-10).

Defendants first argue that Fort Washington should arbitrate this dispute -- whether Touchstone is added as a party or not -- because the arbitration agreements in FINRA's Form U4 and FINRA Rule 13200 allegedly apply to Fort Washington. (Defs.' Mot. at #156). As discussed above, Form U4 contains a broad arbitration clause where Owens and Adkins agreed to arbitrate according to FINRA rules. The most relevant rule, as Defendants point out, is FINRA Rule 13200, which requires arbitration of disputes between an Associated Person, like Adkins and Owens, and a Member, like Touchstone and Wells Fargo. Defendants acknowledge that Fort Washington is not a FINRA Member-firm, and thus, is not party to the Form U4 agreement. (Defs.' Mot. at #154). Nonetheless, Defendants argue that Form U4 requires Fort Washington to arbitrate this dispute because (1) Fort Washington derived a "direct benefit" from the Defendants executing the agreement and is therefore equitably estopped from avoiding the arbitration clause, (Defs.' Mot. at #153), or because (2) Fort Washington is a third-party beneficiary to the agreement (Defs.' Reply, Doc. 22, #584). 

In the alternative, Defendants argue that the Court should add Touchstone as a necessary party under Fed. R. Civ. P. 19, and then compel arbitration. Defendants argue that Touchstone is a necessary party for two reasons. First, Defendants point to their Confidentiality Agreements and the Non-Solicitation Agreement (i.e., the agreements allegedly breached here). (Defs.' Mot. at #151). Defendants note that, both agreements identify Western and Southern, not Fort Washington, as the "Company" that is the counterparty on the contracts. Defendants further explain that the term Company is defined to include all subsidiaries, and that Touchstone is a subsidiary of Western and Southern. Touchstone is thus technically a party to both agreements, Defendants say, and failing to join it to this litigation may impair and impede its interests. (Id.). Secondly, Defendants argue that Touchstone is a necessary party because, as Defendants' former employer, it might separately sue in the future (i.e., independent of the outcome here), which could subject Defendants to conflicting obligations under the agreements. (Id. at #151-52). Once Touchstone is joined, Defendants continue, the FINRA rules necessitate arbitration because there would be FINRA Associated Persons and Members adverse to each other in this action. 

[T]here are four agreements that are potentially relevant to this suit. The first is Adkins's Non-Solicitation Agreement, which does not contain an arbitration agreement. (Doc. 1-6). Next are the two Confidentiality Agreements Owens and Adkins both signed. Again, neither of these agreements contain an arbitration agreement. (Docs. 1-4, 1-7). Finally, there are the FINRA Form U4s, which Adkins and Owens signed to update their FINRA registrations. The Form U4s do contain an arbitration agreement. That arbitration agreement requires Associated Persons, like Owens and Adkins, to "arbitrate any dispute, claim or controversy that may arise between [them] and [their] firm, or a customer, or any other person, that is required to be arbitrated under the rules, constitutions, or by-laws of [FINRA]." Form U4 at Section 15A, ¶ 5; (Defs.' Mot. at #144).

[N]otably, however, Fort Washington is not FINRA-regulated, nor is it a Member, and Defendants admit as much. (See Defs.' Mot. at #154 ("Defendants concede that the named Plaintiff in this action, Fort Washington is not a FINRA-member firm.")). As Fort Washington has no formal relationship with FINRA, it has never expressly consented to FINRA's various arbitration clauses. Accordingly, neither the Form U4 nor FINRA Rule 13200, standing alone, provide grounds for the Court to compel Fort Washington to arbitrate this dispute. 

[S]pecifically, Adkins and Owens first argue that Fort Washington has derived a direct benefit from the Form U4, and as such, "principles of . . . equitable estoppel" compel Fort Washington to arbitrate. (Defs. Mot. at #153). Secondly, Adkins and Owens say that Fort Washington is an intended third-party beneficiary of the Form U4, and thus, is bound to the Form's arbitration agreement. (Defs.' Reply, Doc. 22, #584).

[E]very single Touchstone client Owens and Adkins managed was also a Fort Washington client. In fact, Owens and Adkins's only dealings with Touchstone involved three Fort Washington clients who wanted to purchase certain FINRA securities, which in turn, required Adkins and Owens to complete those purchases through Touchstone. And although this lawsuit does not concern those three clients, both Touchstone and Fort Washington would have an equal interest, and incentive, to sue Adkins and Owens for soliciting those clients. Id. (instructing courts to consider whether the present party is "capable of and willing to make" the arguments of the absent party). 

Accordingly, Fort Washington will undoubtedly make all of the arguments that Touchstone would make if the Court joined it to the litigation. In all, Defendants have advanced no evidence that Touchstone would "offer any necessary element to the proceedings" that Fort Washington would neglect. . . .

Here, Owens and Adkins contend that if not joined, Touchstone "could initiate an arbitration against Defendants," either under the employment agreements or for a violation of the FINRA rules.9 (Defs.' Mot., Doc. 14, #151-52). The fact that Touchstone has "a right to file suit in another forum," Defendants argue, exposes them to the risk of inconsistent obligations. (Id.). But even if Touchstone could also sue to enforce the employment agreements, that does not mean that those potential suits present a risk of inconsistent obligations. As discussed above, Fort Washington's claims concern exclusively Fort Washington clients. If Touchstone were to sue in the future, it presumably would have to sue concerning its own clients, or at least, the clients it shared with Fort Washington. None of those clients are at issue in this case. In other words, although both this suit and Touchstone's potential suit stems from the same agreement, they raise different issues involving different clients, and the Court's determination on one front will not affect the Defendants' liability on the other front.

• Fort Washington Investment Advisors
• Western & Southern Financial
• Touchstone Securities
• Wells Fargo
• Arbitration
• FINRA
• Non-Solicit
• Non-Solicitation
• Form U4
• U4
• Third Party Beneficiary
• Equitable Estoppel
• Rule 13200
• BrokeAndBroker
• Bill Singer