Morgan Stanley v. Abel

Filing 19

ORDER granting 14 Plaintiff's Emergency Motion to Stay Proceedings Pending Arbitration and Extend Duration of Temporary Restraining Order. The hearing set for Tuesday, February 6, 2018, is cancelled. The Court's Temporary Restraining Order is extended until 5 p.m, February 20, 2018. Status reports due February 12, 2018; noon, on February 16, 2018; and every thirty days thereafter. The Clerk of Court is directed to stay and administratively close the case.. Signed by Judge Marcia Morales Howard on 2/5/2018. (MMG)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
JACKSONVILLE DIVISION

MORGAN STANLEY SMITH BARNEY,
LLC,
Plaintiff,
vs.

Case No. 3:18-cv-00141-J-34MCR

DANIEL J. ABEL,
Defendant.
_____________________________________/
ORDER
THIS CAUSE is before the Court on Plaintiff, Morgan Stanley Smith Barney, LLC’s
(Morgan Stanley) Emergency Motion to Stay Proceedings Pending Arbitration and Extend
Duration of Temporary Restraining Order and Incorporated Memorandum of Law in
Support Thereof (Emergency Motion, Doc. 14), filed February 1, 2018. Defendant Daniel
J. Abel (Abel) filed Defendant’s Response in Opposition to Plaintiff’s Emergency Motion
to Stay Proceedings Pending Arbitration and Extend Duration of Temporary Restraining
Order (Response, Doc. 17), on February 2, 2018. Accordingly, this matter is ripe for
review.
Morgan Stanley initiated this action by filing a Motion for a Temporary Restraining
Order and Preliminary Injunction and Incorporated Memorandum of Law in Support
Thereof (TRO Motion, Doc. 2) on January 22, 2018. On that same day, Morgan Stanley
filed its Amended Complaint for Injunctive and Other Relief (Amended Complaint, Doc.
6).

In the TRO Motion, Morgan Stanley sought a temporary restraining order and

preliminary injunction precluding Abel, and anyone acting in concert with him, from
soliciting Morgan Stanley’s customers, in violation of the employment agreement between
the parties. TRO Motion at 1. Morgan Stanley further sought an order directing Abel to
return the company’s confidential information. Id.
On January 23, 2018, the Court granted Morgan Stanley’s request and entered a
Temporary Restraining Order, (TRO, Doc. 10), which remains in effect until 5 p.m.,
Tuesday, February 6, 2018. At the same time, the Court set a hearing for Tuesday,
February 6, 2018, to determine whether the Temporary Restraining Order should be
converted into a preliminary injunction, and also set a schedule for the submission of
briefs on the matter. The parties have complied with the briefing schedule set forth in the
TRO, thus Morgan Stanley’s request for a preliminary injunction is ripe. See Defendant’s
Response to Plaintiff’s Emergency Motion for Temporary Restraining Order and
Preliminary Injunction (Response to TRO, Doc. 12), filed January 30, 2018; Plaintiff’s
Reply in Support of Plaintiff’s Emergency Motion for Temporary Restraining Order and
Preliminary Injunction (TRO Reply, Doc. 16), filed February 2, 2018.

However, in the

midst of these filings, Morgan Stanley filed the Emergency Motion seeking alternative
relief, specifically that the Court to stay the proceedings and extend the TRO pending
completion of an expedited arbitration. See generally Emergency Motion.
In support of its request to stay the proceedings and extend the TRO, Morgan
Stanley notes that in the employment agreement between Morgan Stanley and Abel, the
parties agreed to resolve any disputes in an arbitration before the Financial Industry
Regulatory Authority (FINRA). Id. at 2; id., Exhibit 2 (Employment Agreement) at 5.
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Pursuant to the FINRA Rules, parties may seek temporary injunctive relief from the
federal courts to preserve the status quo while the underlying controversy proceeds to
arbitration. FINRA Code of Arbitration Procedure Rule 13804(a)(1) (FINRA Rule(s)). The
FINRA Rules require that a party who seeks such temporary relief from a court “must, at
the same time,” file a Statement of Claim with FINRA, id. at FINRA Rule 13804(a)(2),
which Morgan Stanley has done in this case. See Amended Complaint at ¶ 1, n.1; ¶ 4,
n.2. FINRA Rules further provide that if a federal court grants temporary injunctive relief,
the parties shall proceed under an expedited arbitration schedule, in which an arbitration
hearing must begin within “15 days of the date the court issues” temporary relief. FINRA
Rule at 13804(b)(1). Given that this Court issued the TRO on January 23, 2018, the
FINRA arbitration hearing is required to begin no later than Thursday, February 8, 2018.
Emergency Motion at 1. Morgan Stanley contends that the impending FINRA arbitration
hearing, which will resolve Morgan Stanley’s request for permanent injunctive relief
against Abel, negates this Court’s need to rule on Morgan Stanley’s pending motion for
preliminary injunctive relief, and therefore Morgan Stanley seeks a stay of the
proceedings in this Court. Id. at 4. Morgan Stanley also asserts that extending the TRO
pending arbitration will not prejudice Abel, given that the injunction mirrors Abel’s
contractual obligations to Morgan Stanley, and that Morgan Stanley will present evidence
by way of testimony and evidence to the FINRA arbitration panel regarding Abel’s
violations of those obligations. Id. at 5. As such, Morgan Stanley contends that
FINRA’s jurisdiction over the mandatory arbitration of this matter, the
imminent mandatory FINRA hearing, the fact that FINRA might hold the
hearing and issue a ruling before this Court addresses the papers thereby
potentially rendering the issue moot, and notions of judicial economy, all
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constitute good cause to justify [a stay of the proceedings and a] brief
extension of the Temporary Restraining Order.
Id. at 4.
In his Response, Abel does not dispute that the parties have contractually agreed
to arbitration, nor does he object to the entry of a stay of this proceeding pending
completion of the FINRA arbitration. Response at 5-6. However, he contends that the
Court should proceed with the scheduled preliminary injunction hearing first, and only
after the Court has determined whether the TRO should be converted to a preliminary
injunction, should the Court stay the proceedings. Id. at 6. His principal argument is that
Morgan Stanley, in its initial TRO Motion, mislead the Court by arguing that the
controversy between Morgan Stanley and Abel should be evaluated under Florida law,
rather than New York law. Id. at 4-5, 6. As such, Abel contends that staying the action
while permitting the TRO to remain in place will deprive him of due process. Id. at 6. 1
In seeking to stay this proceeding pending a resolution of the parties’ dispute in a
FINRA arbitration, Morgan Stanley relies on the Federal Arbitration Act, 9 U.S.C. §§ 1–
16 (FAA). Section 2 of the Act provides:
A written provision in any maritime transaction or a contract evidencing a
transaction involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction, or the refusal to
perform the whole or any part thereof, or an agreement in writing to submit
to arbitration an existing controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable, and enforceable, save

1 Abel also objects to Morgan Stanley’s request in its TRO Reply that the Court alter the terms of the TRO
to impose stricter limitations on Abel’s conduct. See TRO Reply at 17-18; Response at 3. The Court notes
that the inclusion of this request for affirmative relief in the Morgan Stanley’s TRO Reply, rather than filing
a motion, is improper. See Rule 7(b)(1), Federal Rules of Civil Procedure (Rules(s)). Accordingly, Morgan
Stanley’s request that the Court enhance the terms of the TRO are not properly before the Court and will
not be considered.

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upon such grounds as exist at law or in equity for the revocation of any
contract.
9 U.S.C. § 2. 2 This provision of the FAA represents “‘a congressional declaration of a
liberal federal policy favoring arbitration agreements.’” Davis v. S. Energy Homes, Inc.,
305 F.3d 1268, 1273 (11th Cir. 2002) (quoting Moses H. Cone Mem'l Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)). Federal policy,
therefore, requires courts to “construe arbitration clauses generously, resolving all doubts
in favor of arbitration[.]” Becker v. Davis, 491 F.3d 1292, 1305 (11th Cir. 2007). As such,
“upon being satisfied that the issue involved . . . is referable to arbitration under such an
agreement, [the Court] shall on application of one of the parties stay the trial of the action
until such arbitration has been had in accordance with the terms of the agreement.” 9
U.S.C. § 3; Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 222, 226 (1987) (“[A] court
must stay its proceedings if it is satisfied that the issue before it is arbitrable . . . .”)
(emphasis added). Indeed, the Supreme Court has noted that “[t]he ‘principal purpose’
of the FAA is to ‘ensure private arbitration agreements are enforced according to their
terms.’” AT&T Mobility, LLC v. Concepcion, 563 U.S. 333, 334 (2011) (quoting Volt
Information Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S.
468, 478 (1989)).
Here, the parties do not contest that they have agreed to submit the claims alleged
in Morgan Stanley’s Amended Complaint to arbitration before FINRA. Emergency Motion

2

Subject to the specific exemptions in 9 U.S.C. § 1, which are not applicable here, the Supreme Court has
unequivocally determined the FAA broadly applies to all contracts of employment “involving commerce.”
Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 119 (2001).

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at 2; Employment Agreement at 5; Response at 5-6. Likewise, based on the Court’s
review of the parties’ filings, including a copy of the Employment Agreement between
Morgan Stanley and Abel, the Court is satisfied that the disputed issues involved in this
case are referable to arbitration. Employment Agreement at 5. As such, and pursuant to
9 U.S.C. § 3, this Court is bound to stay the proceedings before it while the matter
proceeds to arbitration before FINRA.
The Court next turns to Abel’s contention that the Court should delay in entering a
stay until after the preliminary injunction hearing scheduled for February 6, 2018, and
should not extend the effect of the TRO. In opposing any extension of the TRO, Abel
notes that Morgan Stanley sought and obtained the TRO on the basis of the application
of Florida law, but the parties’ obligations under the Employment Agreement are actually
governed by New York law. Response at 4-5. In doing so, he contends that the relief
Morgan Stanley obtained in the TRO is broader than that which it could have obtained
under New York law. Id. He does not, however, contend that applying New York law to
the facts set forth in Morgan Stanley’s Amended Complaint, and the TRO Motion with its
supporting affidavits, would or should have resulted in a denial of the TRO Motion. 3
In preparing for the upcoming preliminary injunction hearing, the Court has studied
the applicable New York legal authority. While there exist some distinctions between the
laws of New York and Florida regarding the enforceability of employment restrictive

3

The Court recognizes that in opposing the conversion of the TRO to a Preliminary Injunction, Abel
challenges many of Morgan Stanley’s factual assertions and argues that on this more complete record,
applying New York law, a preliminary injunction is not warranted. This, however, is different than asserting
that the facts as set forth by Morgan Stanley would not have warranted the entry of a TRO under New York
law.

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covenants, the Court is not persuaded that those differences would have materially
impacted the Court’s resolution of the TRO Motion. In other words, it does not appear
that application of New York law to Morgan Stanley’s ex parte request for temporary
injunctive relief would have resulted in a different conclusion. Notably, Abel also contends
that staying this action and continuing the TRO for an additional period of time would be
improper and result in a denial of due process. Response at 5, 6. However, he fails to
explain why the FINRA arbitration in which he agreed to participate does not fully address
any due process concerns. 4
Rule 65(b)(2) of the Federal Rules of Civil Procedures (Rule(s)) governs the length
of time a TRO may remain in effect. The Rule provides that the effect of a TRO is “not to
exceed 14 days . . . unless before that time the court, for good cause, extends it for a like
period or the adverse party consents to a longer extension. The reasons for an extension
must be entered in the record.” Rule 65(b)(2); see also Bracciale, LLC v. Nat’l Sourcing,
Inc., No. 8:17-cv-2040-T-27AEP, 2017 WL 3769284, *1 (M.D. Fla. Aug. 29, 2017);
Trincorp, LLC v. Remotely Operated Auto Racers, No. 6:13-cv-389-Orl-31TBS, 2013 WL
868196, *1 (M.D. Fla. March 7, 2013); Central Alabama Fair Housing Ctr. v. Magee, No.
2:11cv982-MHT, 2011 WL 6090125, *1 (M.D. Ala. Dec. 7, 2011).
Here, the Court finds that Morgan Stanley has demonstrated good cause to
warrant extending the TRO for an additional 14 days. Preliminarily the Court observes

4

In his Response, Abel appears to criticize Morgan Stanley’s request for a TRO in this forum only to be
followed by a request for a stay to allow the parties to proceed with the expedited FINRA evidentiary
hearing. But it appears that this course of action is specifically contemplated by the FINRA Rules which
Morgan Stanley and Abel agreed would govern any dispute between them.

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that because this action must be referred to arbitration before FINRA, it is FINRA, not the
Court, that will resolve the rights and obligations of the parties. The FINRA hearing to
finally adjudicate Morgan Stanley’s claim must begin by February 8, 2018, just two days
after this Court’s scheduled preliminary injunction hearing. Under these circumstances,
“it makes little sense” for the parties and the Court to expend substantial resources on the
contested issue of preliminary injunctive relief when a full evidentiary hearing to resolve
the parties’ dispute fully must begin in a matter of days. See Suntrust Invest. Servs., Inc.
v. Wachovia Sec. LLC, No, 8:08-cv-852-T-26TGW, 2008 WL 2074395, *1 (M.D. Fla. May
15, 2008). Indeed, even if the Court were to proceed with the preliminary injunction
hearing as scheduled, given the complexity of the issues and the diametrically opposed
positions of the parties, it is unlikely the Court would be able to enter a reasoned decision
before the arbitration hearing, rendering the parties’ participation in the preliminary
injunction hearing futile. In addition, any decision made by the Court would be based on
the limited record before the Court on a motion for preliminary injunction. In contrast, the
FINRA hearing, scheduled just two days later, will allow the parties to litigate the dispute
in a full evidentiary hearing, including the calling and cross examination of relevant
witnesses.

Finally, the Court notes that because the controversy between Morgan

Stanley and Abel in this action may implicate policy determinations which are required to
be resolved by FINRA, FINRA industry experts appear to be better suited to examine and
resolve the issues than the judiciary. For all these reasons, the Court determines that
staying the proceedings at this time, while preserving the status quo with the current TRO,

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is justified. Accordingly, the Court determines that good cause exists to extend the TRO
and stay the current proceedings pending arbitration before FINRA.
In consideration of the foregoing, it is ORDERED:

1. Plaintiff’s Emergency Motion to Stay Proceedings Pending Arbitration and Extend
Duration of Temporary Restraining Order (Doc. 14) is GRANTED.

2. The preliminary injunction hearing scheduled before this Court for Tuesday,
February 6, 2018, is cancelled.

3. The Parties are ordered to proceed to an expedited arbitration hearing on the
merits before a duly appointed panel of arbitrators, pursuant to Rule 13804(b) of
the FINRA Code of Arbitration Procedure.

4. The Court’s Temporary Restraining Order which was issued on January 23, 2018,
and due to expire on February 6, 2018, is extended for fourteen days until 5 p.m.,
Tuesday, February 20, 2018.

5. Upon the scheduling of the date for the FINRA evidentiary arbitration hearing,
Plaintiff shall immediately inform the Court of the date of said hearing.

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6. Plaintiff shall provide the Court with a report on the status of the arbitration
proceedings on Monday, February 12, 2018, another report again by noon on
Friday, February 16, 2018, and additional reports every 30 days thereafter until the
FINRA proceedings are complete.

7. The Clerk of the Court is directed to stay and administratively close the case.

DONE AND ORDERED at Jacksonville, Florida on February 5, 2018.

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Copies to:
Counsel of Record
Pro Se Parties

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