Wells Fargo Clearing Services, LLC v. Foster

Filing 39

ORDER - Wells Fargo's Ex Parte Application for Temporary Restraining Order (ECF No. 8 ) is denied as moot. Wells Fargo's Emergency Motion for Temporary Restraining Order (ECF No. 12 ) is denied. Defendant's Mot ion to Compel Arbitration and to Dismiss Action (ECF No. 17 ) is denied. This action is stayed in its entirety pending resolution of the separate arbitration proceeding before FINRA. Upon resolution of that proceeding, the parties must f ile a joint status report within seven (7) days informing this Court of the effect of the arbitration upon the claims in this case. The Clerk shall administratively close this case.Signed by Judge Miranda M. Du on 4/11/2018. (Copies have been distributed pursuant to the NEF - DRM)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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WELLS FARGO CLEARING SERVICES,
LLC, dba WELLS FARGO ADVISORS,

ORDER

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Plaintiff,
v.

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Case No. 3:18-cv-00032-MMD-VPC

JAMES F. FOSTER,
Defendant.

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I.

SUMMARY

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This dispute involves supposed violations by Defendant James Foster of an

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employment agreement with Plaintiff Wells Fargo Clearing Services, LLC (“Wells Fargo”).

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Before the Court are three motions: (1) Wells Fargo’s Ex Parte Application for Temporary

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Restraining Order (“First TRO Motion”) (ECF No. 8); (2) Wells Fargo’s Emergency1 Motion

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for Temporary Restraining Order (“Second TRO Motion”) (ECF No. 12); and (3)

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Defendant’s Motion to Compel Arbitration and to Dismiss Action (“Motion to Compel”)

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(ECF No. 17). The Court has reviewed the parties’ respective responses and replies (ECF

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Nos. 18, 25, 28, 37.) Because the Court declined to consider the First TRO Motion on an

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1The

Court did not consider this motion on an emergency basis because Plaintiff
failed to demonstrate how this situation constituted an emergency. For instance, Plaintiff
sent a cease-and-desist letter to Defendant on December 7, 2017 (see ECF No. 12-1 at
12), yet waited until January 19, 2018, to file its First TRO Motion. Similarly, Plaintiff
produced no evidence that Defendant continued to solicit its customers past December
19, 2017. See discussion infra Sec. III(C).

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ex parte basis, Wells Fargo filed the Second TRO Motion. The Court therefore construes

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the First TRO Motion as moot and denies it as such.

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For the reasons discussed herein, the Court denies the Second TRO Motion and

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the Motion to Compel. The Court further stays this action pending the result of arbitration

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proceedings currently underway before the Financial Industry Regulatory Authority

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(“FINRA”).

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II.

BACKGROUND

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Defendant accepted an offer of employment as a financial advisor with Wells Fargo

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on September 7, 2011. (ECF No. 12 at 5.) At that time, Defendant executed an agreement

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with Plaintiff entitled “Wells Fargo Agreement Regarding Trade Secrets, Confidential

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Information, Non-Solicitation, and Assignment of Inventions” (“the Agreement”). (Id.

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(citing to ECF No. 12-1 at 7-10).) Defendant left Wells Fargo in October 2017 to join a

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competitor, Edward Jones. Plaintiff alleges that before Defendant left his employment

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with Wells Fargo, Defendant solicited customers to move their accounts to Edward Jones

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“despite an explicit one year ‘non-solicitation’ provision” in the Agreement. (ECF No. 12

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at 5.) Wells Fargo also claims that Defendant violated the Agreement by soliciting

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customers with its trade secret information after Defendant left his employment with Wells

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Fargo.

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Plaintiff brings claims for breach of contract, breach of duty of loyalty,

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misappropriation of trade secrets under Nevada law, interference with prospective

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economic relations, intentional interference with contractual relations, and fraud, seeking

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compensatory damages, punitive damages, and injunctive relief. (See ECF No. 1 at 5-

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13.) Plaintiff also filed a Statement of Claim to commence arbitration against Defendant

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in FINRA Arbitration on January 18, 2018, one day before Plaintiff initiated this action.

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(ECF No. 12 at 8.)

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III. SECOND TRO MOTION (ECF No. 12)

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Plaintiff moves for a temporary restraining order (“TRO”) on all of its claims, asking

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that this Court enjoin “Defendant from using any and all of Plaintiff’s trade secrets and

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confidential information, from refusing to return customer files,2 and from soliciting

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Plaintiff’s customers in violation of his agreement with Plaintiff.”3 (ECF No. 12 at 5.) The

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Court finds that Plaintiff has failed to meet its burden in establishing a likelihood of

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irreparable harm in the absence of temporary injunctive relief. The Court therefore does

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not address the remaining factors for a TRO.

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A. Interim Injunctive Relief under FINRA

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As a preliminary matter, Defendant contends that “Wells Fargo wasted [its one

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opportunity to obtain temporary injunctive relief under FINRA] by seeking a temporary

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restraining order on an ex parte basis.” (ECF No. 37 at 2.) The Court disagrees and finds

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that Rule 13804 of FINRA permits the Court to consider the Second TRO Motion.

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Rule 13804 under FINRA states that “[i]n industry or clearing disputes required to

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be submitted to arbitration under the Code, parties may seek a temporary injunctive order

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from a court of competent jurisdiction.” Defendant argues that this provision permits only

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one motion for a TRO such that Plaintiff exhausted its ability to move for injunctive relief

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with its First TRO Motion. Rule 13804(a)(1). However, the Second TRO Motion merely

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changed the form of the motion—from an ex parte motion to an emergency motion—on

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the basis of this Court’s minute order (“MO”). That MO did not deny the First TRO Motion

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or address the merits of it; rather, the Court indicated that it would not consider the motion

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on an ex parte basis. (ECF No. 10. 4)

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The Court therefore finds it is consistent with Rule 13804 for the Court to consider
the merits of the Second TRO Motion.

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2Functionally,

because an injunction requiring Defendant not to refuse to return
customer files results in Defendant having to return those files, the Court construes this
as a request for mandatory injunctive relief.
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did not file an application for preliminary injunction in conjunction with the
Second TRO Motion, and Fed. R. Civ. P. 65(b)(2) makes clear that a court may only issue
a TRO that lasts for no more than fourteen days. It is therefore unclear whether Plaintiff
is also seeking a preliminary injunction in conjunction with the TRO.
Court did state that “[t]he proper recourse is to ask for emergency relief, not
ex parte relief.”
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B. Legal Standard for Temporary Restraining Order

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Federal Rule of Civil Procedure 65 governs preliminary injunctions and temporary

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restraining orders, and requires that a motion for a temporary restraining order include

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“specific facts in an affidavit or a verified complaint [that] clearly show that immediate and

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irreparable injury, loss, or damage will result to the movant before the adverse party can

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be heard in opposition,” as well as written certification from the movant's attorney stating

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“any efforts made to give notice and the reasons why it should not be required.” Fed. R.

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Civ. P. 65(b)(1)(A) & (B).

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Temporary restraining orders are governed by the same standard applicable to

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preliminary injunctions. Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc.,

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181 F. Supp. 2d 1111, 1126 (E.D. Cal. 2001). Furthermore, a temporary restraining order

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“should be restricted to serving [its] underlying purpose of preserving the status quo and

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preventing irreparable harm just so long as is necessary to hold a hearing, and no longer.”

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Granny Goose Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers Local No. 70 of

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Alameda Cty., 415 U.S. 423, 439 (1974).

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A preliminary injunction may be issued if a plaintiff establishes: (1) likelihood of

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success on the merits; (2) likelihood of irreparable harm in the absence of preliminary

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relief; (3) that the balance of equities tips in his favor; and (4) that an injunction is in the

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public interest. Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008). “Injunctive

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relief [is] an extraordinary remedy that may only be awarded upon a clear showing that

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the plaintiff is entitled to such relief.” Id. at 22. The Ninth Circuit has held that “‘serious

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questions going to the merits’ and a hardship balance that tips sharply toward the plaintiff

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can support issuance of an injunction, assuming the other two elements of the Winter test

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are also met.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1132 (9th Cir. 2011).

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Relief that “orders a responsibly party to take action” is treated as a mandatory

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injunction. Marlyn Nutraceuticals, Inc. v Mucos Pharma GmbH & Co., 571 F.3d 873, 879

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(9th Cir. 2009). A mandatory injunction “goes well beyond simply maintaining the status

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quo pendent lite and is particularly disfavored.” Stanley v. Univ. of S. Cal., 13 F.3d 1313,

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1320 (9th Cir. 1993) (internal citations and alteration omitted). A “district court should deny

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[mandatory injunctive] relief unless the facts and law clearly favor the moving party.” Id.

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(alteration added); see also Park Vill. Apartment Tenants Ass’n v. Mortimer Howard Tr.,

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636 F.3d 1150, 1160 (9th Cir. 2011) (stating that mandatory injunctions should not issue

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in “doubtful cases”).

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C. Irreparable Harm

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Plaintiff contends that it is likely to suffer irreparable harm without preliminary

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injunctive relief because Defendant will continue to solicit Plaintiff’s customers by utilizing

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its trade secrets. (ECF No. 12 at 15.) The Court disagrees.

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In support of its contention that it is likely to suffer irreparable harm, Plaintiff points

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to one customer, Yoshinko Oswald, who Plaintiff contends was solicited by Defendant on

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December 19, 2017, with the use of Plaintiff’s trade secret information—specifically

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information that Defendant acquired from Oswald while working at Wells Fargo. (ECF No.

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12 at 15.) Yet this solitary example fails to demonstrate that Defendant continued to solicit

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Plaintiff’s customers or use Wells Fargo’s trade secrets past December 19, 2017, and up

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until January 22, 2018 (the date the Second TRO Motion was filed).

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In light of Plaintiff’s inability to demonstrate a likelihood of irreparable harm absent

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temporary injunctive relief, the Court denies the Second TRO Motion.

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IV. MOTION TO COMPEL (ECF No. 17)

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Defendant asks this Court to compel both parties to arbitrate their disputes before

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FINRA and dismiss the Complaint. (ECF No. 17 at 2.) Plaintiff points out that because

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arbitration proceedings are underway the Motion to Compel is moot and also that this

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Court should stay this action, not dismiss the Complaint. (ECF No. 28 at 1-2.) The Court

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agrees with Plaintiff.

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The Federal Arbitration Act provides that where an action is subject to arbitration,

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a court “shall on application of one of the parties stay the trial of the action until such

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arbitration has been had.” 9 U.S.C. § 3. While neither party has applied for a motion to

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stay this action, the Court finds it is within its discretionary power to do so. Landis v. N.

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Am. Co., 299 U.S. 248, 254-55 (1936). The result of the arbitration proceeding before

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FINRA will likely narrow if not eliminate the issues before this Court. While Defendant

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contends that this “Court has discretion to dismiss the action because all claims before it

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are subject to arbitration” (ECF No. 37 at 3 (citing to Simula, Inc. v. Autoliv, Inc., 175 F.3d

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716, 719 (9th Cir. 1999)), the parties have not briefed the scope of the arbitration provision

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in the Agreement or whether the arbitration proceeding before FINRA covers the same

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issues as in this case.

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The Court therefore finds that a stay is warranted, and upon completion of

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arbitration the parties will be required to file a status report informing the Court of whether

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any claims remain.

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V. CONCLUSION

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The Court notes that the parties made several arguments and cited to several

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cases not discussed above. The Court has reviewed these arguments and cases and

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determines that they do not warrant discussion as they do not affect the outcome of the

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parties’ motions.

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It is therefore ordered that Wells Fargo’s Ex Parte Application for Temporary
Restraining Order (ECF No. 8) is denied as moot.
It is further ordered that Wells Fargo’s Emergency Motion for Temporary
Restraining Order (ECF No. 12) is denied.
It is further ordered that Defendant’s Motion to Compel Arbitration and to Dismiss
Action (ECF No. 17) is denied.

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It is further ordered that this action is stayed in its entirety pending resolution of the

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separate arbitration proceeding before FINRA. Upon resolution of that proceeding, the

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parties must file a joint status report within seven (7) days informing this Court of the effect

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of the arbitration upon the claims in this case.

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It is further ordered that the Clerk administratively close this case.

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DATED THIS 11th day of April 2018.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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