Stephens, Inc. v. Benjamin F. Edwards Co., Inc., FINRA ID No. 17-02378 (Memphis, TN, Jan. 21, 2022)
A 35-page explained decision in a raiding case resulted in an award in excess of $18 million against the respondents, but includes a strenuous dissent from one of the arbitrators.
Four of the six brokers in Stephens Inc.’s (“Stephens”) Jonesboro, Ark. branch moved to rival brokerage Benjamin F. Edwards & Co. Inc. (“BEF”) over a period of 11 months, resulting in the loss of more than 50% of the branch’s production. Stephens brought a claim against BEF; its principal, Benjamin F. Edwards IV (“Edwards”); and the four departing brokers, Brian Erwin (“Erwin”), Timothy Fitzgerald (“Fitzgerald”), Jeffrey Green (“Green”) and Malcolm Peeler (“Peeler”). The Award, Stephens, Inc. v. Benjamin F. Edwards Co., Inc., FINRA ID No. 17-02378 (Memphis, TN, Jan. 21, 2022), resulted in a majority of the Panel awarding $10,970,000 in compensatory damages and $2,205,373 in attorney fees against all six respondents, $2 million each in punitive damages against BEF and Edwards, and $1 million in punitive damages against Peeler. It also included nine pages of findings in support of the decision and an even longer 20-page dissenting opinion.
Panel Majority Says…
We won’t detail the reasoning, but we will briefly summarize each side’s decision, beginning with the majority. It viewed the broker’s ostensible reasons for departure as pretextual and the time gap as an attempt to cover up the raid, and drew a negative inference from Erwin’s and Peeler’s destruction of some documents. The majority finds: BEF and Edwards liable for raiding. tortious interference and inducing the breach of fiduciary duties; BEF for violating the Protocol for Broker Recruiting; Peeler and Erwin (but not Green and Fitzgerald) for violating the non-solicitation clauses of their employment contracts; all four departing brokers for breaching their fiduciary duties to Stephens as regular employees (but not as officers, despite being titular vice presidents); and all respondents for conspiracy and misappropriation of trade secrets. Punitive damages are appropriate because the BEF, Edwards and Peeler “knew or should have known that, in light of surrounding circumstances, [their] conduct would naturally and probably result in injury and … continued the conduct in reckless disregard of the circumstances, from which malice may be inferred.” However, the majority denies causes of action for business defamation and unjust enrichment, because of insufficient evidence, and unfair competition, deeming it: “subsumed by the other claims.”
One Arbitrator Begs to Differ…
The dissenting Arbitrator agrees “that BEF engaged in aggressive recruiting to the point of reckless disregard to the effect the recruitment would have on Claimant” and Peeler violated his employment contract by soliciting other Stephens brokers. Nevertheless, she concludes, each of the departing brokers had their own reasons for dissatisfaction with Stephens that explained both their decision to leave and the 11-month gap in departures, independent of the raiding efforts, and there is insufficient evidence to prove the claim of pre-resignation solicitation of Stephens’ customers. She declines to draw a negative inference from the destruction of documents because it happened before Stephens sent out preservation notices to the brokers. Therefore, she finds, even though Peeler breached his employment contract and BEF and Edwards tortiously interfered with that contract, Stephens suffered no damages as a result, and failed to meet its burden of proof on any other cause of action.
(ed: *The Panel sanctioned the respondents for the spoliation of evidence referenced in both the majority and dissenting opinions. In addition to the negative inference, the Panel ordered them to pay Stephens’ legal expenses incurred in connection with the motion and certain depositions. **This Squib was prepared by Harry A. Jacobowitz, President of HAJ Research and Writing LLC. Mr. Jacobowitz, a member of the Pennsylvania bar, and his firm perform legal research and writing for attorneys and handle substantive searches of SAC’s Award database. He can be contacted at harryjacobowitz@optimum.net.)
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