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Bank of America, N.A. v. UMB Financial Services

August 26, 2010


Appeals from the United States District Court for the Western District of Missouri.

The opinion of the court was delivered by: Bye, Circuit Judge.

Submitted: May 11, 2010

Before BYE, MELLOY, and SHEPHERD, Circuit Judges.

UMB Financial Services and individual defendants appeal a series of orders in which the district court*fn1 declined to compel Bank of America (BOA) to submit to arbitration and declined to stay litigation pending the outcome of such arbitration. We affirm.


Sheryl Bolsilevac, Elizabeth Brown, Aaron Israelite, Amy Pieper, and Molly Kerr all worked for BOA as financial advisors for high-net-worth clients of the bank. Bosilevac, Brown, Pieper, and Israelite, were licensed to broker securities; Kerr was not. All five were paid salary by BOA. They also periodically received commissions from Banc of America Investment Services (BOAIS), a subsidiary of BOA which dealt with investments in securities, when such commissions came from a securities-related sale.

All five employees worked under employment agreements that included non-solicitation clauses which prohibited them from soliciting BOA customers for a period of time if they left BOA's employment. The non-solicitation clauses for three of the employees -- Bosilevac, Brown, and Pieper -- referred to both BOA and BOAIS*fn2 and provided as follows:

Registered Representative agrees to solicit the sale of, market, and/or sell securities only for Firm pursuant to this Agreement, except as otherwise approved in writing by Firm. Should the Registered Representative separate from the Firm, Bank or the Affiliate, whether voluntarily or involuntarily, the former Registered Representative agrees that, for a period of one year, the Registered Representative may not and will not solicit or attempt to solicit any securities related business, directly or indirectly, any Firm, Bank or Affiliate customers who were served by or whose names became known to the Registered Representative while in the employ of the Firm, Bank, Affiliate, or any of their predecessors.

The non-solicitation agreements for the other two employees -- Israelite and Kerr -- referred only to BOA and contained the statement:

If I am hired as an employee of the Bank, I agree that for the period of my employment by the Bank and for six months after the date of the termination of my employment with the Bank, I will not (i) solicit or induce any associates of the Bank to leave the employ of the Bank or (ii) solicit the business of any customer of the Bank (other than on behalf of the Bank) of whom I became aware or was introduced in the course of my duties for the Bank.

Thus, the non-solicitation period was one year for Bosilevac, Brown, and Pieper, and six months for Israelite and Kerr.

All five employees left BOA in the spring of 2009 and started work for UMB, where their duties did not include the sale of securities. BOA believed the five employees began courting their previous customers from BOA in violation of the non-solicitation agreements. On May 15, 2009, counsel for BOA and BOAIS sent a letter to UMB demanding that UMB cease "any efforts to contribute or cause current or former Bank of America employees to violate their obligations regarding nonsolicitation[.]"

BOA filed this suit on July 27, 2009, to enforce all five agreements and sought damages. BOAIS never brought claims against the employees. BOA requested a temporary restraining order to prevent irreparable loss of its client base during the litigation. Three days later, UMB responded by moving to dismiss the complaint for failure to join BOAIS as a necessary party and for lack of subject matter jurisdiction. The district court immediately granted BOA's request for a temporary restraining order (TRO) pending a hearing on BOA's request for a preliminary injunction set for August 19. On August 3, UMB moved again to dismiss the case, this time for failure to state a claim upon which relief could be granted, and moved in the alternative for judgment on the pleadings.

On August 6, UMB also filed a statement of claim with the Financial Services Regulatory Authority (FINRA) to commence arbitration proceedings against BOA and BOAIS. FINRA is the organization that issued licenses to Bosilevac, Brown, Pieper, and Israelite to broker securities. FINRA was formed by consolidation of NYSE Regulation, Inc. (the enforcement arm of the New York Stock Exchange) and the National Association of Securities Dealers, Inc. (the regulating organization for securities brokers). Organized under 15 U.S.C. § 78s, part of the Securities and Exchange Act (SEA), FINRA regulates the securities industry pursuant to an agreement between its member entities and approval by the Securities and Exchange Commission. FINRA is a private entity, part of the system of self-regulation set up under SEA.

FINRA has its own Code of Arbitration for disputes between members and between members and their employees. Each member of FINRA agrees, by membership, to submit to arbitration if a "dispute arises out of the business activities of a member or an associated person and is between or among: Members: Members and Associated Persons; or Associated Persons." "Associated persons" are defined under the FINRA code as individuals who are registered with FINRA, whereas "members" refers to the organizations regulated by FINRA. UMB Financial Services is a member of FINRA. BOA is not a member of FINRA. BOA claims none of the individual defendants, except for Pieper, work for UMB Financial and requested leave of the district court to substitute UMB Bank (a non-FINRA entity) as defendant. That motion is stayed along with the rest of the district court proceedings pending the outcome of these appeals.

On August 7, UMB moved to stay proceedings in district court pending outcome of the arbitration and asked the district court to compel BOA to participate in the FINRA proceedings. On August 28, the district court denied the motion to compel arbitration "without prejudice" and expressed its intent to preserve the status quo until it could hear argument and adequately consider the issues before it. FINRA sent the district court a letter stating that it intended to conduct the arbitration because the district court had not specifically enjoined UMB and the five former BOA employees from arbitration with BOAIS, but indicating FINRA would comply with any subsequent order directly enjoining such arbitration. The district court entered an order sua ...

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