In hiring or employing registered representatives, federally-registered securities brokers and brokerages have no duty to further explain the legal consequences of a clear, explicit, conspicuous, and unambiguous arbitration agreement required by or conforming to SEC-approved regulations.
Bucy vs. Edward D. Jones & Co., L.P., No. DA 18-0493 (Mont., 7/30/19).
Adam Bucy left Edward Jones after 19 years to join LPL Financial, but the transfer didn’t last. Mr. Bucy claims that Edward Jones, aware of his intention to leave, encouraged the filing of two customer complaints, at least one of which sparked an investigation by FINRA. He also maintains that, while the firm announced his departure internally as “voluntary,” it stated in his Form U5 termination notice that he was “permitted to resign” and under “internal review” at the time. Ultimately, there were six customer complaints, he alleged in this lawsuit, and “[s]everal of the new complainants subsequently testified that Edward Jones personnel encouraged them to file FINRA complaints against Bucy....” He filed claims for statutory blacklisting, defamation and tortious interference with his business relationships.
Edward Jones responded to the trial court below with a motion to compel arbitration. It relied on a bilateral agreement signed by Mr. Bucy and the Form U4 application. Plaintiff objected that the agreements were unenforceable on a variety of grounds and that his allegations, all relating to post-termination conduct, were outside the scope of the agreements to arbitrate. The trial court agreed with Plaintiff and Edward Jones appealed. On appeal, the Court first decides that the dispute is covered by the FAA and by the Montana Uniform Arbitration Act (MUAA), the MUAA governing where the FAA does not.
The Court poses five questions to tackle and takes them in series, after setting forth the applicable law governing the facts before them. First, the question of enforceability was arguably waived by Appellee when he did not cross-appeal. Broker Bucy argues that he did not waive these issues, as they were fully argued below, where he prevailed, and raised by him in defense of the matters that Jones appeals. The Court supports Appellee and entertains his objections to enforcement: lack of mutuality, illegality and unconscionability.
While Edward Jones reserved the right for itself to pursue injunctive relief, FINRA Rule 13904 expressly authorizes regulated parties to apply for injunctive relief in court. “Against this backdrop,” the Court finds, “Bucy has made no factual or legal showing that the limited injunctive relief remedy preserved to Edward Jones in the parties’ 2003 employment agreement renders the arbitration agreement either illusory or oppressive.” The question of legality under Montana constitutional precepts is closer. Knowing and voluntary consent must accompany the waiver of such rights as trial by jury and neither of the agreements was “the product of arms-length negotiation.” Here, however, Appellee is an intelligent, educated, and business-experienced broker signing official documents with no “factual showing” of coercive misconduct or duress. The agreements are forthright in stating that legal consequences flowed from their execution and, finally, the framework of SEC-regulated entities and forms favors enforcement.
Returning to the coercion or adhesion theme, the Court applies unconscionability principles in a final test of enforceability. Its reservations about the adhesive nature of these form contracts is overcome, however, by the federal framework in which the agreements exist. Referring to earlier precedent in the securities realm, the Court rules: “Agreements to arbitrate in accordance with SEC-approved procedures are not unconscionable as a matter of law.” Scope ends the Court’s discussion and is easily answered. The agreements refer to termination issues, they are broad, and wholly relate to “business activities,” as that phrase applies in FINRA Rule 13200.
(ed: A SAC h/t to Peter Boutin, who alerted us to this new decision, and whose partner at Keesal Young & Logan -- Julie L. Taylor -- was lead counsel for Appellant Edward Jones.)
(SOLA Ref. No. 2019-29-03)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
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