The Prudential Insurance Company of America et al v. Sandvold
Filing
48
ORDER denying 30 Motion to Strike the Preliminary Injunction; Granting in part 2 MOTION for Temporary Restraining Order (Written Opinion). Signed by Senior Judge David S. Doty on 2/16/2012. (PJM)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 12-132(DSD/JJK)
The Prudential Insurance
Company of America and
Pruco Securities, LLC,
Plaintiffs,
ORDER
v.
Terry C. Sandvold,
Defendant.
Anthony Paduano, Esq., Leonard Weintraub, Esq. and
Paduano & Weintraub LLP, 1251 Avenue of the Americas
Ninth Floor, New York, NY 10020 and Norah E. Olson
Bluvshtein, Esq., Theresa M. Thompson, Esq. and
Fredrikson & Byron, PA, 200 South Sixth Street, Suite
4000, Minneapolis, MN 55402, counsel for plaintiffs.
Thomas E. Jamison, Esq., Douglas L. Elsaas, Esq., Adam A.
Gillette, Esq. and Fruth, Jamison & Elsaas, 3902 IDS
Center, 80 South Eighth Street, Minneapolis, MN 55402,
counsel for defendant.
This matter came before the court on February 14, 2012, upon
the motion for preliminary injunction by plaintiffs Prudential
Insurance
Company
of
America
and
Pruco
Securities,
LLC
(collectively, Prudential) and the motion by defendant Terry C.
Sandvold
to
strike
the
hearing
for
preliminary
Prudential and Sandvold appeared through counsel.
injunction.
Based on a
review of the file, record and proceedings herein, including
Sandvold’s submission on February 15, 2012, the court denies the
motion to strike and grants in part the motion for a preliminary
injunction by modifying the temporary restraining order (TRO)
entered on January 25, 2012.
The background of this matter is fully set out in the TRO
issued on January 25, 2012, and the court addresses only those
facts necessary to dispose of the instant motions. After the court
issued its TRO, Prudential requested an expedited hearing before
the
Financial
Industry
Regulatory
issuance of a permanent injunction.
37.
An
arbitration
panel
was
Authority
(FINRA)
for
the
See Paduano Decl. ¶ 7, ECF No.
appointed,
and
a
hearing
for
permanent injunctive relief was set for February 8, 2012. Id. ¶ 8.
Prior to the hearing, two of the arbitrators failed to file their
FINRA disclosure statement.
Id. ¶ 9.
Once disclosures were made
at the hearing, Prudential objected to the composition of the
panel, and the hearing was adjourned.
Id. ¶¶ 9-10.
Because the
FINRA panel failed to grant permanent injunctive relief, Prudential
now requests that this court issue a preliminary injunction.
Sandvold argues that because FINRA arbitration has begun, the
court is without jurisdiction to enter a preliminary injunction.1
The court need not address this issue, because it retains authority
1
Sandvold argues that the FINRA arbitration has begun. Rule
13100(m) defines a hearing to mean a meeting “on the merits of an
arbitration under Rule 13600.”
Prudential objected to the
composition of the panel prior to the arbitrators addressing the
merits of the underlying dispute, and thus an arbitration has not
begun.
2
under Rule 60(b)(5)-(6) to modify its prior TRO.
See Ass’n for
Retarded Citizens of N.D. v. Sinner, 942 F.2d 1235, 1239 (8th Cir.
1991).
“[S]ound judicial discretion may call for the modification of
the terms of an injunctive decree if the circumstances, whether of
law or fact, obtain[ed] at the time of its issuance have changed,
or new ones have since arisen.”
Sys. Fed.’n No. 91, Ry. Emps.’
Dep’t v. Wright, 364 U.S. 642, 647 (1961).
“When considering
whether to modify a ... [TRO], a district court is not bound by a
strict standard of changed circumstances but is authorized to make
any changes in the injunction that are equitable in light of
subsequent changes in the facts or the law.”
Omaha Indem. Co. v.
Wining, 949 F.2d 235, 239 (8th Cir. 1991) (citations and internal
quotation marks omitted).
In its TRO, the court ordered mutual expedited discovery.
Prudential sought to depose Sandvold and his custodian of records,
Tracy Smith. Sandvold did not allow the depositions to occur until
February 13 and 10, respectively.
In light of new information
revealed in those depositions and further analysis of the law, the
court reexamines its analysis under Dataphase Systems, Inc. v. C.L.
Systems, Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc).
Prior to issuing the TRO, Sandvold argued that Prudential
should not be given possession of the client files because they
contained
both
Prudential
and
3
non-Prudential
materials.
Specifically, Sandvold argued that the client files contained Blue
Cross/Blue Shield health insurance information, and that giving
this information to Prudential would be a violation of the Health
Insurance Portability and Accountability Act (HIPAA). This concern
is unfounded. Smith explained in her deposition that only fifty to
seventy-five clients, out of nearly 3500, have medical policies.
See Smith Dep. 67:3-8.
Further, these medical policies are in “a
separate blue folder or a manila folder with a blue stripe at the
top” and are not intermingled with client files.
Id. 67:9-12.
Since Sandvold has no proper purpose for retention of Prudential’s
client files, and because the health insurance information can
easily be separated, the balance of harms more greatly favors
Prudential now than it did upon issuance of the TRO.
Further, through deposition testimony and the submission of a
representative client file, it is clear that allowing Sandvold to
maintain the client files would be a violation of the Gramm-LeachBliley Act, Pub. L. 106-102, 113 Stat. 1338, and SEC Regulation SP, 17 C.F.R. § 248.1, et seq.
These compliance concerns add to the
threat of irreparable harm that already existed when the court
issued its TRO.
Therefore, the court finds that consideration of
the Dataphase factors requires modification of the January 25,
2012, TRO.
4
Accordingly, for both the reasons stated above and in the
temporary restraining order issued on January 25, 2012, IT IS
HEREBY ORDERED that:
1.
The motion to strike the preliminary injunction hearing
[ECF No. 30] is denied.
2.
The motion for a preliminary injunction [ECF No. 2] is
granted in part.
3.
The court continues and modifies the January 25, 2012,
TRO as follows:
a.
Defendant shall return to plaintiffs all hardware,
software and other physical property belonging to plaintiffs,
which, as addressed in subparagraph (c) below, does not
include certain client information collected and maintained by
defendant.
b.
Defendant shall deliver to Prudential, at 600 South
Highway 169, Suite 1000, St. Louis Park, MN 55426, all client
files
and
documents
related
to
Prudential’s
customers,
policyholders and accountholders that are in defendant’s and
Sandvold Associates’ physical files or stored electronically.
Defendant shall return these client files and documents to
Prudential as soon as reasonably possible, but in no event
later than February 23, 2012.
c.
Defendant shall retain and is permitted to use in
defendant’s business one client list that may contain customer
5
names, addresses and phone numbers; all phone logs, records,
journals or other notes reflecting conversations with clients
that
occurred
on
or
after
January
17,
2012;
and
all
correspondence between clients and defendant or Sandvold and
Associates sent on Sandvold and Associates’ letterhead (stored
in physical client files or on email) that occurred on or
after January 17, 2012.
d.
Defendant is permitted to copy all client files for
Terry Sandvold and his family and for employees of Sandvold
and Associates and their families.
Prudential shall retain
the client file, but shall bear the cost of copying, imaging
or duplicating.
e.
Plaintiffs are not permitted to keep or copy client
files or records relating to client purchases of products that
were
not
sold
through
Prudential
or
their
Outbrokerage
program, such as Blue Cross/Blue Shield policies and certain
life insurance products.
f.
Defendant
is
permitted
to
use
the
information
contained in subparagraph (c) to continue to call and solicit
new business from clients he served during the time he was
affiliated with plaintiffs, so long as defendant adheres to
Section 7(d) of his Career Special Agent Contract.
g.
Plaintiffs shall timely process any account transfer
requests received from clients who defendant served while he
6
was affiliated with plaintiffs, so long as defendant adheres
to Section 7(d) of his Career Special Agent Contract.
h.
Defendant, and all those acting in concert with him,
including but not limited to his employees, representatives
and agents, may not use, disclose, or transmit for any purpose
any
confidential
Prudential
and/or
or
proprietary
any
affiliate
information
of
belonging
Prudential,
or
to
which
Prudential and/or any affiliate of Prudential is obligated to
protect, other than those materials addressed in subparagraph
(c).
i.
Plaintiffs and defendant shall continue to cooperate
concerning the identification, copying, imaging, duplicating
and removal of electronic documents on defendant’s computer
systems
that
relate
to
customers,
policyholders
and
accountholders who maintain Prudential accounts or products.
j.
This order shall be binding upon the parties and all
those acting at the direction of the parties, including but
not limited to their employees, representatives and agents.
k.
The parties shall preserve and not alter or destroy
any client files, records or other documents in the parties’
possession
or
representatives.
the
parties’
employees,
agents
and
The parties shall preserve and protect all
7
electronic data as required by the Federal Rules of Civil
Procedure that relate in any way to this litigation and shall
suspend any automatic destruction of any such electronic data.
l.
Plaintiffs shall continue to provide security [ECF
No. 21] to defendants in the form of a bond or deposit of cash
with the Clerk of Court in the amount of $5,000.
m.
This order shall remain in full force and effect
until such time as a FINRA arbitration panel issues a final
decision on Prudential’s request for permanent injunctive
relief, or this court specifically orders otherwise.
Dated:
February 16, 2012
s/David S. Doty
David S. Doty, Judge
United States District Court
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