This case was not handled by our firm. However, if you have any questions regarding this case, or any employment matter, please contact Joseph Maya at 203-221-3100 or by email at JMaya@MayaLaw.com. J. M. Layton & Co. v. Millar, 2004 Conn. Super LEXIS 2226 Mr. Reid Millar worked at J. M. Layton & Co., a… Read More
Today, it has become common practice for firms to threaten their representatives with filing false assertions on a broker’s U5 when they depart the firm. This allows the firm to gain leverage over the representative because a dirty U5 is disastrous in the industry. In New York, this has become more of a problem since the Met Life case held that firms are given absolute immunity from defamation actions based on U5 filings, where most states only provide limited immunity if the wrongful submission was not intentional.
Due to the widely publicized New York Met Life decision, besides getting FINRA to take some remedial action on their own, a New York broker’s (other states may only provide limited immunity from defamation actions) only choices to remove a false U5 filing(s) is to either:
(a) pay an attorney to file an arbitration claim for reformation of his CRD which does not provide for damages, but simply may remove the false assertion after meeting the stringent requirements, and gaining court confirmation of the arbitrators order;
(b) Seek damages by attempting to circumvent the Met Life limitation by asserting and proving that the brokerage firm not only filed a false U5, but went around to others and repeated such falsehoods which can be the subject of a defamation claim; or
(c) One can attempt to seek damages based on the negligent or intentional infliction of emotional distress, if one can prove such in FINRA arbitration rather than defamation related to U5.
The final choice is under recent guidelines in relation to the expanded information on FINRA Brokercheck. The representative may provide evidence and request that FINRA investigate such and remove the false assertion from FINRA Brokercheck if they deem it not true. However if the information is simply on the CRD and not on the public Brokercheck, the new process would not be available according to FINRA’s Guidelines. The requirements to avail one’s self to such mechanism is provided for on FINRA’s Web site where it stated that they have:
“Formalize(d) the process for current and former brokers to dispute the accuracy of factual information disclosed through BrokerCheck. Brokers will be able to submit a written notice of the dispute to FINRA – FINRA will post the appropriate form on its website – with all available supporting documentation. If FINRA determines that the dispute is eligible for investigation, it will add a general notation to the broker’s BrokerCheck report stating that the broker is disputing certain information in the report – and that notation will only be removed when FINRA has resolved the dispute. If its investigation shows the information is in fact inaccurate, FINRA will update, modify or remove that information as appropriate.”
Any one of the above choices can in theory be done on one’s own, without an attorney, but by doing so one is starting out behind the eight ball as the representative would not know what is significant and what is not significant in order to obtain the results sought. In addition, pursuing arbitration is not simple, as it is guided by its own set of code provisions, rules and deadlines that the layperson would not realize. At the same time the experienced attorney for the brokerage firm would run circles around the representative. Such is why most pro-se (self represented) representatives lose in arbitration, even if their claim was valid.
Of course as with any change in employment, the representative can always file their own rebuttal when they arrive at their next firm so that both the prior firm’s statements and what the broker asserts appears on the CRD disclosure for investors and regulators to see. Often times this in itself may lead to significant problems for the former firm. One former client provided detailed information contradicting the former firm’s allegation within the U5 and asserted that he was basically a whistleblower attempting to stop violations of securities laws when he was fired for that reason. As a result, of the broker’s rebuttal U4 filing FINRA opened an investigation into the former firm, in addition to the representative retaining this firm to pursue a significant breach of contract, wrongful discharge, and defamation claim as his career was ruined by the former firm.
In the end firms which engage in the practice of attempting to penalize an employee for complaining about securities violations via marking up a broker’s CRD, are playing with fire. However, other issues such as disputes related to personalities, support, bonuses, etc obviously do not raise this type of concern for the firm and as such are more difficult for the representative to deal with and try to correct.
Keywords: Dirty U5, U5 attorney, FINRA, lying on U5, false U5
Role of Consideration in Connecticut Non-Compete Agreements
J. M. Layton & Co. v. Millar, 2004 Conn. Super LEXIS 2226
Mr. Reid Millar worked at J. M. Layton & Co., a Connecticut commercial insurance brokerage firm, for close to twenty years until he voluntarily terminated his employment on December 3, 2003. During his career at Layton, Mr. Millar developed and maintained client relationships and the company even sent him to seminars in Florida on how to engender customer loyalty. In January 1994, the company’s ownership transferred to an ‘Employee Stock Option Plan” scheme wherein Mr. Millar and the other employees became the new owners of the brokerage firm. Mr. Millar signed an employment agreement later that year in August in response to a memo from the company’s president stating, “The value of the stock in the company would increase when all employees/shareholders signed employment agreements”. The employment agreement contained non-compete and non-solicitation clauses prohibiting Mr. Millar from performing any service provided by Layton for a period of two years to any entity or person that was a client of Layton in the two years prior to termination.
Four years later, in 1998, the employee-owners sold the firm to SIG Acquisition Co. for $5.59 million. Mr. Millar terminated his employment on December 3, 2003 and began to work for a competitor, Shoff Darby, soon after this decision. Several clients made the switch with Mr. Millar and he provided them with services they previously received from Layton. Layton sued Mr. Millar to enforce the terms of the restrictive covenant to which Mr. Millar presented a defense that there was not adequate consideration for the agreement to be enforceable.
The court found in favor of Mr. Millar and held that the agreement between Layton and himself lacked the adequate consideration required to make the covenant legally binding on the signatory parties. The court rejected Layton’s contentions that continued employment and increased value of stock in the firm were adequate forms of consideration for the agreement. Consideration is a crucial contract law principle wherein each party must receive a benefit and/or a detriment from the agreement to make it legally valid and enforceable. In the absence of consideration, an executory promise is generally unenforceable. Courts have determined that continued employment alone is not adequate consideration for a restrictive covenant. Past decisions have permitted it to qualify as adequate consideration when it accompanied by another defined benefit such as a change in compensation.
Likewise, the court held that the “increase in stock value” argument was without merit and did not constitute adequate consideration. There was a timeline disconnect with the issuance of the stock, the employment agreement, and any increase in value that prevented adequate consideration in this form. Mr. Millar received the stock seven months prior to signing the employment agreement and the increase in its value (if any) occurred four years after the agreement’s execution. These components lacked a coherent connection that would unite them in a manner as to represent the adequate consideration needed to make the agreement enforceable. The court concluded that the possible increase in stock value was far too “imprecise, indefinite, and self-serving, to be adequate consideration” and it denied Layton’s request for enforcement of the non-compete agreement.