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Veteran Stockbroker Sues For Unjust Termination Involving Sales Goals and Outside Business Activities
November 19, 2021
Today's reported FINRA intra-industry arbitration is somewhat sad in nature. We are presented with the plight of a nearly four-decade industry veteran, who seems to have run afoul of a somewhat ticky-tacky bit of alleged misconduct. Frankly, his troubles may have been prompted by something as relatively minor as a failure to disclose in writing what he believed was already known by a compliance officer. Of course, Wall Street's rules are nothing but ticky-tacky at times, and the failure to dot an "i" or cross a "t" is the grist on which the industry's compliance and regulatory mills turn.
Case in Point
In a FINRA Arbitration Statement of Claim filed in April 2019, associated person Claimant Shubert asserted breaches of contract and of the covenant of good faith and fair dealing, and further alleged that the Form U5 filed by Respondent CBIZ Financial Solutions, Inc., as part of registration records maintained by the Central Registration Depository ("CRD") is defamatory in nature.
In the Matter of the Arbitration Between John M. Shubert, Claimant, v. CBIZ Financial Solutions, Inc., Respondent (FINRA Arbitration Award 19-00960)
https://www.finra.org/sites/default/files/aao_documents/19-00960.pdf
As alleged in part in the FINRA Arbitration Award:
The claim related to allegations that, after terminating Claimant without just cause, Respondent misappropriated Claimant's entire book of business and falsely accused Claimant of failing to disclose outside business activities and not consistently meeting corporate sales goals.
Claimant Shubert sought the following relief:
a) Damages for the lost income for the revenues he expected to make over the next ten (10) years of over $200,000.00-$300,000.00;b) Lost benefits for reimbursement of lost vacation compensation;c) Damages of approximately $1,200,000.00, as a result of Claimant's lost book of business;d) A declaration that the covenants against competition in Claimant's agreements with Respondent are null and void;e) Expungement of Claimant's Form U5 filed by Respondent;f) Costs, expenses, and disbursements associated with his filing of this claim and defending and having to respond to FINRA inquiries regarding the language on the Form U5, including attorneys', expert fees, and interest;g) Punitive damages; andh) Such other relief as the Panel deems just and proper.
Respondent CBIZ Financial Solutions generally denied the allegations and asserted affirmative defenses.
Award
The FINRA Arbitration Panel denied Claimant Shubert's claims and his requested expungement. The Panel offered the following "Explained Decision":
Bill Singer's CommentThe Panel finds that the termination clause of Claimant's Confidentiality and Non-Solicitation Agreement, effective January 1, 2005, sufficiently defined "just cause" or so-called "for cause" so it would be inappropriate for the Panel to look outside the agreement for guidance in defining, interpreting, and applying that phrase.Claimant's request for compensation for lost income and lost vacation benefits is denied, since he was terminated for cause pursuant to the foregoing termination clause for failure to "strictly adhere to all the rules, regulations, and reporting requirements of the Securities and Exchange Commission, the NASD. . ." and failure to "strictly adhere to all operational, procedural and conduct rules as the Corporation has established for the conduct of its Registered Representatives, including, but not limited to, those set forth in the Corporation's compliance and procedure manuals. . ." with respect to disclosing and receiving approval for his outside business activities prior to engaging in them. Though Claimant provided substantial testimonial and documentary evidence that Respondent's Chief Compliance Officer ("CCO") was clearly aware of Claimant's most significant outside business activities and the CCO did not ensure that Claimant complied with the applicable rules, regulations, and reporting requirements or Respondent's operational, procedural and conduct rules, it was ultimately Claimant's responsibility as a registered representative to comply. Furthermore, the Panel finds that Claimant was terminated for cause, pursuant to the foregoing termination clause, for failure "to meet production objectives as established by the Corporation or its affiliates and communicated to Claimant".Claimant's request for compensation for his lost book of business is denied, since that book of business was purchased by Respondent via the Agreement and Plan of Merger, dated March 31, 1999.Claimant's request for compensation for costs, expenses, and disbursements associated with having to respond to FINRA inquiries, regarding language on his Form U5, including attorneys' fees, expert's fees, and interest, and the filing of this claim is denied, since the termination was for cause pursuant to Confidentiality and Non-Solicitation Agreement and Respondent complied with the FINRA rule that required a Form U5 (to report the reason for termination) to be filed within 30 days of Claimant's employment end date.Claimant's request for punitive damages for defamation is denied, since the information reported on the Form U5 is true and Respondent's disclosure is protected by a qualified privilege. Termination was for cause pursuant to Confidentiality and Non-Solicitation Agreement and Respondent complied with the FINRA rule that required a Form U5 to be filed within 30 days of Claimant's employment end date. Furthermore, Claimant has not shown that Respondent acted with actual malice in making such statements on the Form U5.Claimant's request to declare the covenants against competition in Confidentiality and Solicitation Agreement null and void is denied. Respondent has presented compelling arguments, not overcome by Claimant, that its non-competition and non-solicitation covenants are reasonable and, thus, enforceable.Claimant's request for expungement of the language in his Form U5 is also denied, since the information reported is accurate and not defamatory.
First and foremost, a round of applause for this FINRA Arbitration Panel for doing its job and discharging its duties in exemplary fashion. Far too often, the BrokeAndBroker.com Blog chastises a Panel for failing to include sufficient content and/or context in its Award so as to make the decision intelligible -- such is not the case here. Similarly, I am often left puzzled by a given Panel's incomprehensible Award, and all the more so when the arbitrators declined to pen an Explained Decision, which, again, is not the case here.
Regardless of whether the parties are aggrieved or satisfied by this Award, they have been provided with a record that should serve well to inform any court presented with an appeal as to what was in dispute and why the arbitrators ruled as they did. Pointedly, the three arbitrators found that Claimant was discharged for "cause," as that term was defined in "Claimant's Confidentiality and Non-Solicitation Agreement." Given the arbitrators' threshold determination of a for-cause termination, their ensuing findings flow from that font.
Online FINRA BrokerCheck records as of November 19, 2021, disclose that Claimant Shubert was first registered in 1979 and has an impressively spotless record. He is an industry veteran who seems to have conducted his affairs in exemplary fashion. The only disclosure on his record is set out under "Employment Separation After Allegations," and reports his June 6, 2018, discharge by CBIZ for "Failure to completely and accurately disclose all outside business activity." Frankly, if that's the worst that any registered rep has after some four decades in the biz (Shubert's last reported date of FINRA member firm registration was July 2018), that's impressive.
As has frequently been reported in the BrokeAndBroker.com Blog, as far as FINRA's rules go, its Outside Business Activities ("OBA") Rule ain't all that complicated:
FINRA Rule 3270: Outside Business Activities of Registered PersonsNo registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Passive investments and activities subject to the requirements of Rule 3280 shall be exempted from this requirement.*** Supplementary Material: ***.01 Obligations of Member Receiving Notice. Upon receipt of a written notice under Rule 3270, a member shall consider whether the proposed activity will: (1) interfere with or otherwise compromise the registered person's responsibilities to the member and/or the member's customers or (2) be viewed by customers or the public as part of the member's business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered. Based on the member's review of such factors, the member must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including where circumstances warrant, prohibiting the activity. A member also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirements of Rule 3280. A member must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1).
The gist of FINRA's OBA Rule is that you have to submit prior, written notice to your employer member firm. From there, the onus is on the member firm. The firm must consider the nature of your proposed OBA, and following that review, the firm may impose conditions/limitations on the activity or may prohibit the activity. I can only imagine Claimant Shubert's frustration when confronted with this finding in the Panel's "Explained Decision":
[T]hough Claimant provided substantial testimonial and documentary evidence that Respondent's Chief Compliance Officer ("CCO") was clearly aware of Claimant's most significant outside business activities and the CCO did not ensure that Claimant complied with the applicable rules, regulations, and reporting requirements or Respondent's operational, procedural and conduct rules, it was ultimately Claimant's responsibility as a registered representative to comply.
http://www.brokeandbroker.com/index.php?a=topic&topic=outside-business-activities