Couch v. Morgan Stanley & Co, Inc., et al., No. 1:2014cv00010 - Document 76 (E.D. Cal. 2015)

Court Description: MEMORANDUM DECISION and ORDER; ORDER GRANTING 47 Motion for Summary Judgment, in favor of Morgan Stanley & Co, Inc. and against Plaintiff; ORDER DENYING 51 Motion to Stay Arbitration Proceedings and/or for an Order regarding Preliminary Injunction, signed by District Judge Lawrence J. O'Neill on 8/6/15. CASE CLOSED(Martin-Gill, S)

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1 2 UNITED STATES DISTRICT COURT 3 FOR THE EASTERN DISTRICT OF CALIFORNIA 4 5 DAVID COUCH, 6 1:14-cv-10-LJO-JLT Plaintiff, MEMORANDUM DECISION AND ORDER RE DEFENDANTS’ MOTION 7 v. FOR SUMMARY JUDGMENT (Doc. 47) AND DEFENDANTS’ PETITION FOR 8 MORGAN STANLEY & CO., INC., MORGAN AN ORDER PERMANENTLY STANLEY SMITH BARNEY, LLC, STAYING ARBITRATION 9 PROCEEDINGS AND/OR FOR AN Defendants. ORDER GRANTING PRELIMINARY 10 INJUNCTION (Doc. 51) 11 I. INTRODUCTION 12 Plaintiff David Couch (“Plaintiff” or “Couch”) was a Financial Advisor (“FA”) for Defendant 13 14 Morgan Stanley Smith Barney1 (“MSSB,” “Morgan Stanley,” or “the Firm”) from September 2007 until 15 his termination in January 2013. Doc. 20, First Amended Complaint (“the FAC”), at ¶¶ 6, 28. Plaintiff 16 alleges MSSB unlawfully terminated him and brings claims against the Firm for (1) violation of 17 California Labor Code section 1101(a)2; (2) violation of section 1102; (3) violation of section 98.6; (4) 18 intentional interference with existing and prospective economic relationships; (5) and negligent 19 interference with existing and prospective economic relationships. FAC at 9-19. Plaintiff filed this suit on January 2, 2014 and filed the currently operative FAC on May 9, 2014. 20 21 On June 5, 2015, MSSB moved for summary judgment on the ground the Firm’s termination of Plaintiff 22 1 “The company that hired Plaintiff . . . was called Morgan Stanley & Co., Incorporated, which is now Morgan Stanley & Co. 23 LLC. A Morgan Stanley & Co. LLC entity later entered into a joint venture with Smith Barney, and the company that employed Couch became Morgan Stanley Smith Barney LLC.” Doc. 66-1, MSSB’s Separate Statement Reply in Support of 24 Defendants’ Motion for Summary Judgment or, in the Alternative, Summary Adjudication (“UMF”), at 1 n.1. Because the parties do so, the Court also will refer to Defendants collectively as a single entity unless otherwise indicated. 25 2 All further statutory references are to the California Labor Code unless otherwise indicated. 1 1 was lawful. Doc. 47 at 1. On June 11, 2015, MSSB’s counsel came into possession of an arbitration 2 claim filed by Plaintiff on June 2, 2015, requesting arbitration before the Financial Industry Regulatory 3 Authority (“FINRA”) that, in her view, contained related and identical claims to those now pending 4 before the Court. Doc. 50-1, Declaration of Mary C. Dollarhide (“Dollarhide Decl. 1”) at ¶ 2; Doc. 51-2. 5 MSSB contends Plaintiff has waived any and all rights to pursue arbitration before FINRA. See Doc. 51 6 at 11. Accordingly, on June 17, 2015, MSSB filed a petition requesting a permanent injunction against 7 the FINRA arbitration or a preliminary injunction against the proceeding while the petition and MSSB’s 8 motion for summary judgment are pending. Doc. 51 at 5. For the following reasons, the Court (1) GRANTS MSSB’s motion for summary judgment; (2) 9 10 DENIES AS MOOT MSSB’s motion for a preliminary injunction against the FINRA arbitration; and (3) 11 DENIES MSSB’s motion to permanently enjoin the FINRA arbitration. II. FACTUAL BACKGROUND3 12 In 2007, MSSB recruited Plaintiff, Brad Barnes, and Lance Horton as a 3-person team known as 13 14 “the Buena Vista Group.” UMF #31. Plaintiff held a 16% interest in the Buena Vista Group clients who 15 are identified as the “Couch Client Transferees.” UMF #32. MSSB hired Plaintiff as a full-time FA in September 2007. UMF #2; Doc. 47-17, Declaration of 16 17 Rachell Fanucchi (“Fanucchi Decl.”) at ¶ 4. It is unknown how many of his Buena Vista Group clients 18 were part of his portfolio when he joined MSSB. UMF #34. Each FA at MSSB works full-time; there 19 are no part-time FAs. Doc. 48-7, Deposition of Rob Hampton (“Hampton Depo.”) at 57:15-19. Pursuant 20 to the Financial Advisor Employment Agreement (“the Employment Agreement”) between Plaintiff and 21 MSSB, Plaintiff’s position was “strictly at-will and may be terminated by either party, for any reason or 22 for no reason, at any time, with or without notice, and with or without cause.” Doc. 48-1, Deposition of 23 24 25 3 The Court has considered the entire record, but will discuss only the facts and evidence necessary to resolve MSSB’s motions. In addition, the Court will only rule on the parties’ numerous evidentiary objections and motions to strike when necessary. 2 1 David Couch (“Couch Depo.”), Ex. 3 at 1. The Employment Agreement further provided that “all 2 customers [Plaintiff] serviced while with MSSB were customers of MSSB,” UMF # 27, and that 3 “nothing in the Agreement is intended to affect, change, modify or otherwise alter in any way [] 4 [MSSB’s] ownership of client accounts.” Couch Depo., Ex. 2. Thus, Plaintiff had no personal contracts 5 or agreements between himself and the clients he serviced while at MSSB because they were 6 exclusively MSSB’s clients. UMF ##28-29; Couch Depo. at 44:11-45:8. At the time he joined MSSB, Plaintiff was a member of the City Council of Bakersfield (“the 7 8 City Council”), which is a part-time position. UMF #3. MSSB’s Code of Conduct provides that MSSB 9 employees, including FAs, “may not engage in certain activities outside the scope of their employment 10 with the Firm without prior written approval.” Couch. Depo., Ex. 5 at ¶ 2.3.1. Among other things, 11 MSSB employees “must obtain prior written approval . . . to [s]eek or remain in any political or 12 governmental office, or serve or remain on a public or municipal board or similar public body.” Id. Prior 13 to joining MSSB, Plaintiff requested approval from MSSB to continue to serve on the City Council and 14 to run for and potentially serve on the non-partisan Kern County (“the County”) Board of Supervisors 15 (“the Board”), if elected. UMF #4; Couch Depo., Ex. 9 at 1. On June 15, 2007, MSSB issued a 16 memorandum to Plaintiff and his future supervisor, Rachell Fanucchi, outlining their respective 17 obligations concerning Plaintiff’s continued service on the City Council and his potential running for 4 18 and serving on the Board (“the June 2007 memo” ) while employed as an FA at MSSB. Couch Depo., 19 Ex. 9. MSSB permitted Plaintiff to serve on the City Council for over five years while employed by the 20 Firm. UMF #3. In July 2008, Plaintiff requested and received Firm approval for at least three “Outside Business 21 22 Interests” (“OBIs”) forms. MSSB permitted Plaintiff to serve as (1) a board member for the Boy Scouts 23 of America; (2) a board member for the Bakersfield Homeless Center; and (3) a board member for 24 25 4 Plaintiff refers to this document as the “MS&Co. Consent Re Public Office” or “CPRO.” See Doc. 56 at 9. 3 1 Youth of Christ of Kern County. Couch Depo., Exs. 14, 16, 18. In approving those OBI requests, MSSB 2 explained, among other things, that Plaintiff “must continue to devote [his] entire time during normal 3 business hours to Firm matters” because “[t]here are potential regulatory supervisory requirements if 4 more than a small period of time is devoted to an outside entity during regular business hours.” See id. In June 2010, the Securities and Exchange Commission (“the SEC”) adopted Rule 206(4)-5, 5 6 a.k.a. the “Pay to Play” rule.5 See 17 C.F.R. § 275.206(4)-5. MSSB “modified its procedures as a result 7 of the new and heightened regulations” imposed under Rule 206(4)-5. Doc. 47-1 at 11. MSSB 8 “tightened its policies regarding political contributions[,] more critically analyzed its FAs’ political 9 activities,” and “issued notices and conducted trainings which Plaintiff received.” Id. (citing Doc. 47-4, 10 Declaration of Jennifer Blake (“Blake Depo.”) at ¶ 8; Doc. 48-2, Deposition of David Couch II (“Couch 11 Depo. II”) at 10-14). In addition, MSSB “began asking governmental agencies to execute ‘No Conflict 12 Letters’ certifying that there was ‘no law, rule, regulation or policy that would preclude [MSSB] or its 13 affiliates from doing business with the [entity] as a result of [the employee’s] position.’” Id. (quoting 14 Couch Depo., Ex. 26 at 1). MSSB has executed No Conflict Letters with numerous government agencies 15 throughout the country, many of which are materially identical to one another. See generally Doc. 47-7, 16 Declaration of Jennifer Blake (“Blake Decl.”), Ex. D. In the fall of 2011, Plaintiff began campaigning for the Board position. Doc. 47-17, Declaration 17 18 of Lance Horton (“Horton Decl.”), at ¶ 6; Fanucchi Decl. at ¶ 8. Lance Horton, another FA at MSSB, 19 urged Plaintiff “to get formal approval from MSSB” to run for the Board position because he was 20 concerned “that MSSB may not approve [Plaintiff’s] holding two full-time jobs . . . especially in light of 21 the new Pay to Play regulations.” Horton Decl. at ¶ 7. Plaintiff was aware that he could not run for the 22 Board position without approval from MSSB. See Couch Depo., Ex. 48 at 2 (email from Plaintiff on 23 February 23, 2010, stating that “[i]n order to run [for California State Assembly] I needed to obtain 24 25 5 Rule 206(4)-5 imposed a number of new conditions on “political contributions by certain investment advisers” that the Court need not discuss in detail to resolve Defendants’ motions. 17 CFR 275.206(4)-5. It is undisputed that the Rule applied to Plaintiff as an FA employed by MSSB. 4 1 approval from my employer”). In February 2012, Fanucchi directed Plaintiff to file an OBI regarding the Board position. 2 3 Fanucchi Decl. at ¶ 9. On February 14, 2012, Plaintiff filed an OBI request for the Board position. 4 Couch Depo., Ex. 21. The OBI request indicated that the Board position would require approximately 35 5 hours of work per week. Id.; Couch Depo. at 127:1-9. This “triggered inquiries from units with Morgan 6 Stanley, including Compliance and Risk, because what [Plaintiff] proposed conflicted with MSSB’s 7 requirement that [he] work full-time as an FA . . . [and] it also created Pay to Play concerns.” Fanucchi 8 Decl. at ¶ 10. Pursuant to Firm policy, because the County was a MSSB institutional client at the time Plaintiff 9 6 10 ran for the Board position (and had been a client for years), UMF #16 , “Plaintiff . . . was asked 11 repeatedly to have Kern County execute a No Conflicts Letter confirming that his taking office [on the 12 Board] would not bar MSSB from doing work for the County.” UMF # 17-18. Plaintiff was directed “to 13 have the County sign a letter that would confirm that, if elected, his position would create no conflict of 14 interest between the County and Morgan Stanley, given his role as an FA at Morgan Stanley.” Fanucchi 15 Decl. at ¶ 11. On February 21, 2012, Jennifer Blake, one of Plaintiff’s superiors at MSSB, “sent [Plaintiff] a 16 17 standard ‘No Conflicts Letter’ . . . to be completed by the government agency where he was seeking 18 election.” Blake Decl. at ¶ 6. Plaintiff did not respond. Blake followed up about the No Conflict Letter 19 on April 24, 2012, but, again, Plaintiff did not respond. Id. at ¶ 10. Plaintiff continued to campaign for the Board position until his election to the position in June 20 21 2012. UMF #21. When publicly questioned about whether he would continue to work simultaneously as 22 23 24 25 6 Plaintiff claims this fact is disputed, see UMF #16, but MSSB’s supporting evidence—including Plaintiff’s deposition testimony—shows that it is not disputed credibly. Rob Hampton, MSSB’s “Executive Director, Human Resources for Morgan Stanley Wealth Management,” testified that the County “was an institutional client of the Firm prior to [Plaintiff’s] bid for the County Supervisor position, and continues to be a Firm client.” Doc. 49, Declaration of Rob Hampton (“Hampton Decl.”), at ¶ 7. 5 1 a full-time FA and full-time Board Supervisor, Plaintiff initially suggested that his Board position could 2 be part-time. Couch Depo. at 131:9-12. It is undisputed that MSSB never approved the February 2012 OBI and therefore never permitted 3 4 Plaintiff to run for the Supervisor position. UMF #4, 20. This was due, in part, to Plaintiff’s failing to 5 obtain a No Conflicts Letter from the County, which Plaintiff ultimately never obtained. UMF # 19; see 6 also UMF #4 (Plaintiff explaining that he “was not permitted to serve as a Supervisor because Kern 7 County declined to sign the No Conflicts Letter drafted by MSSB”). In March 2012, Kern County Chief Administrative Officer John Nilon conferred with Kern 8 9 County Counsel about a draft No Conflicts Letter for Plaintiff that MSSB had requested. Doc. 62, 7 10 Declaration of Theresa Goldner (“Goldner Decl.”), at ¶ 2. In March 2012, an attorney in Kern County 11 Counsel directed Nilon not to sign the No Conflicts Letter from MSSB. Id. at ¶ 3. She indicated that 12 there was no rule that absolutely prohibited Plaintiff from serving on the Board while remaining at 13 MSSB under all circumstances. Id. at ¶ 3. She explained that, although there was a rule that generally 14 would prohibit it, some exceptions to the rule may apply. Id. In April 2012, Kern County Counsel 15 concluded that MSSB’s No Conflicts Letter was drafted too broadly and refused to sign it. Id. at ¶ 4. On July 26, 2012, after Plaintiff had been elected to the Board, Kern County Counsel Theresa 16 17 Goldner explained to Fanucchi and another unidentified MSSB employee that she “would be willing to 18 recommend that the County sign the [No Conflicts] Letter if MSSB revised” it. Id. at ¶ 6. An MSSB 19 representative “promised to send a revised draft of the No Conflicts Letter to address the concerns that” 20 Kern County Counsel had had with the draft. Id. Kern County Counsel did not receive a revised No 21 Conflicts Letter from MSSB. Id. at ¶ 7. Goldner requested and obtained an opinion from outside counsel 22 as to whether Plaintiff could not serve as a Supervisor while employed at MSSB. Id. at ¶ 8. “Nothing in 23 the opinion prompted any concern on [Goldner’s] behalf” that Plaintiff could not do so. Id. Nonetheless, 24 25 7 MSSB’s motion to strike Goldner’s declaration (Doc. 66-7) is DENIED. 6 1 the County never executed a No Conflicts Letter for MSSB concerning Plaintiff’s position as a Board 2 Supervisor. See Couch Depo. at 135:16-136. Plaintiff was scheduled to be sworn into the Board position in January 2013. UMF #21. In 3 4 November 2012, various MSSB employees in different MSSB departments had discussed with one 5 another their concerns about Plaintiff’s working full-time as an FA and as a full-time Board Supervisor. 6 See Hampton Depo. at 98:10-17; Doc. 47-18, Declaration of Bess McKay (“McKay Decl.”) at ¶¶ 3-4.8 7 In their view, Plaintiff “could not fulfill the duties of two full-time roles at the same time and it would 8 create risk related to client service, as well as regulatory risk.” McKay Decl. at ¶ 4; see also Doc. 47-13, 9 Declaration of Jeff Branch (“Branch Decl.”) at ¶ 4. Other MSSB employees agreed. See, e.g., Doc. 47- 10 19, Declaration of Michael Struckman (“Struckman Decl.”) at ¶ 3; Fanucchi Decl. at ¶¶ 14, 20. In December 2012, MSSB ultimately determined that Plaintiff could not serve as both a full-time 11 12 FA and as a full-time Board Supervisor. UMF #22; Couch Depo. at 154. On December 20, 2012, Jeff 13 Branch, Fanucchi’s supervisor, participated in a phone call with Plaintiff and Fanucchi in which he 14 “communicated to [Plaintiff] that he would need to choose which full-time position he would pursue” 15 because “[h]e could not be both an FA and a full-time County Supervisor.” Branch Decl. at ¶ 4; see also 16 Fanucchi Decl. at ¶¶ 15. Plaintiff understood that it was MSSB’s opinion that he could not do both jobs 17 simultaneously, and that the Firm would not permit him to do so. Couch Depo. at 223:3-4. On December 28, 2012, Plaintiff sent Fanucchi a text message that read, in part: 18 On our conference call on December 20th Jeff Branch said I needed to get back to you on the 28th. So…here I am. Given the choice given to me by you and Jeff (either be an FA or a Supervisor), the best move for me, especially financially, is to remain an FA with Morgan Stanley . . . . How I break this to everyone in the next few days I haven’t determined but I should have that figured out next week when people return to work at the County . . . . It won’t be easy for me and I’m gonna take a lot of grief for it. I also need to know if it’s possible to get me enrolled in Morgan Stanley’s health insurance plan. I think the deadline has passed for open 19 20 21 22 23 8 Counsel for Plaintiff points to an email from McKay in January 2013 in which she asks another MSSB employee for a copy 24 of Plaintiff’s February 2012 OBI so she could “see what info he put on the form regarding . . . the hours he would be 25 working.” Doc. 59-12, Klar Decl., Ex L. Counsel for Plaintiff asserts this email shows McKay did not review the February 2012 OBI until “January 2013, after MSSB threatened [Plaintiff] that if he did not resign as a Supervisor he would be terminated.” Klar Decl. at ¶ 13. The email does not support that proposition. 7 enrollment. We can talk about that next week too. 1 2 Couch Depo., Ex. 32 at 1-4. Fanucchi understood this text message to mean that Plaintiff had chosen to 3 remain with MSSB and would not assume the Board position. Fanucchi Decl. at ¶ 15. Fanucchi 4 “promptly relayed what [she] understood to be [Plaintiff’s] decision to . . . Branch.” Id.; Branch Decl. at 5 ¶ 5; see also Couch Depo., Ex. 40 (email from Plaintiff to Fanucchi on January 14, 2013 stating “Dec. 6 20, 2012 is the date Morgan Stanley told me through you and Jeff Branch that I had to decide whether I 7 wanted to be a Financial Advisor at Morgan Stanley or a County Supervisor”). On January 7, 2013, Plaintiff was sworn into office as a Board Supervisor. UMF # 24; Couch 8 9 Depo., Ex. 33. During the day of January 10, 2013, Fanucchi saw Plaintiff on TV attending a press 10 conference as a County Supervisor in Taft, approximately 35 miles from Bakersfield. Doc. 48-3, 11 Deposition of Rachell Fanucchi (“Fanucchi Depo.”) at 218:22-25; Couch Depo., Ex. 38; Couch Depo. at 12 166:13-167:20. MSSB again told Plaintiff that he had to decide whether he would be an FA at MSSB or 9 13 remain a Board Supervisor. Couch Depo. at 40:4-22. On January 14, 2013, Plaintiff emailed Fanucchi, 14 stating that he had “been given an ultimatum for a second time,” but did not indicate whether he would 15 choose to be solely an FA at MSSB or a Board Supervisor. Couch Depo., Ex. 40 at 1. “MSSB 16 terminated Plaintiff’s employment in mid-January, 2013.” UMF #26. III. PROCEDURAL HISTORY 17 Plaintiff filed this case on January 2, 2014. Doc. 1, Complaint (“Compl.”). The Complaint 18 19 alleged five causes of action for (1) violations of section 1101(a); (2) violation of section 1102; (3) 20 violation of section 98.6; (4) declaratory relief under California Business & Professions Code section 21 16600 (“section 16600”); and (5) violations of California Business & Professions Code section 17200 22 (“the UCL”). 23 24 25 9 The record does not indicate which MSSB employee(s) told Plaintiff this, but it is undisputed that he was told at some point between December 20, 2012 and January 14, 2013 for a second time to decide either to stay a full-time FA at MSSB or to remain on the Board. 8 1 On April 18, 2014, the Court granted in part and denied in part MSSB’s motion to dismiss 2 Plaintiff’s Complaint. Doc. 17 at 1. On May 9, 2014, Plaintiff filed the currently operative FAC, which 3 alleges causes of action for: (1) violation of section 1101(a); (2) violation of section 1102; (3) violation 4 of section 98.6; (4) intentional interference with existing and prospective economic relationships; (5) 5 and negligent interference with existing and prospective economic relationships. FAC at 9-19. 6 Plaintiff’s first cause of action for violation of section 1101(a). Section 1101(a) provides that 7 “[n]o employer shall make, adopt, or enforce any rule, regulation or policy . . . [f]orbidding or 8 preventing employees from engaging or participating in politics or from becoming candidates for public 9 office.” Plaintiff alleges, among other things, that MSSB’s requirement that its employees execute a No 10 Conflicts Letter “in connection with the employee’s service as an elected public official . . . while 11 employed by Morgan Stanley—or be terminated by Morgan Stanley—reflects a clear policy of Morgan 12 Stanley that its employees must refrain from engaging or participating in politics and from becoming 13 candidates for public office.” FAC at ¶ 40. Plaintiff asserts “[t]hat policy, as applied to [Plaintiff], 14 violates . . . § 1101(a).” Id. 15 Plaintiff’s second cause of action for violation of section 1102. Section 1102 provides in full: 16 “No employer shall coerce or influence or attempt to coerce or influence his employees through or by 17 means of threat of discharge or loss of employment to adopt or follow or refrain from adopting or 18 following any particular course or line of political action or political activity.” Plaintiff alleges, among 19 other things, that MSSB, “in violation of [section 1102], made clear threats to [Plaintiff] that were 20 designed to attempt to coerce or influence [Plaintiff] through or by means of threat of discharge and loss 21 of employment to relinquish his newly-elected position on [the Board].” FAC at ¶ 48. 22 Plaintiff’s third cause of action for violation of section 98.6, which “provides, among other 23 things, that no employer shall discharge or discriminate against any employee because he engaged in 24 conduct protected under the Labor Code.” Rope v. Auto-Chlor Sys. of Wash., Inc., 220 Cal. App. 4th 25 635, 649 (2013). Plaintiff alleges, among other things, that MSSB’s unlawful termination of Plaintiff 9 1 violated sections 1101 and 1102, which also constitutes a violation of 98.6. FAC at ¶ 56. Plaintiff’s fourth and fifth causes of action are for intentional interference with existing and 2 3 prospective economic relationships, and negligent interference with existing and prospective economic 4 relationships, respectively. FAC at 14, 17. Both claims are premised on Plaintiff’s assertion that MSSB 5 wrongfully interfered with Plaintiff’s relationship with the Couch Transferee Clients. See FAC at ¶¶ 69, 6 74. The fourth claim asserts MSSB’s allegedly unlawful conduct was intentional, whereas the fifth cause 7 of action alleges that conduct was negligent. In both claims, Plaintiff alleges, among other things, that “[a]t the time of [his] unlawful 8 9 termination . . . at least 75% of [his] client accounts were accounts that were owned or controlled by 10 Couch Client Transferees with whom [Plaintiff] had an existing economic relationship, with the 11 probability of future economic benefit to [him].” FAC at ¶¶ 62, 73. In addition, both claims allege that paragraph three of the Employment Agreement, titled “Unfair 12 10 13 Competition” unlawfully prohibited him from continuing his existing economic relationships with the 14 Couch Transferee Clients after his termination from MSSB. Id. at ¶¶ 64, 74. The Unfair Competition 15 Clause, which MSSB sometimes refers to as the “Non-Solicitation Agreement,” see Doc. 51 at 6, reads 16 in relevant part: For a period of one year following termination of employment for any reason, you will not solicit or attempt to solicit, directly or indirectly, any of Morgan Stanley’s customers who were served by you . . . while in the employ of Morgan Stanley . . . . For purposes of this provision, the term “solicit” includes initiation of any contact with customers for the purpose of conducting business with or transferring accounts to any other person or firm that does business in any line of business in which Morgan Stanley or any of its affiliates is engaged . . . . 17 18 19 20 For a period of one year following termination of employment for any reason, you will not, directly or indirectly, recruit or solicit any employee of Morgan Stanley for employment with any other organization . . . . 21 22 Employment Agreement, §§ 3.2-3.3. 23 Plaintiff further alleges MSSB “caused the business and accounts of his Morgan Stanley clients, 24 25 10 The parties interchangeably refer to the clause as “the Non-Solicit Clause” or the “Non-Compete Clause.” 10 1 including the Couch Client Transferees, to be diverted to other financial advisors employed by Morgan 2 Stanley.” Id. at ¶¶ 69, 78. Plaintiff asserts the Unfair Competition Clause constitutes a non-compete 3 agreement that violates California Business & Professions Code sections 16600 and 17200 (“the UCL”) 4 and MSSB’s enforcement of it “negligently interfered with [Plaintiff’s] existing and prospective 5 economic relationship with the Couch Client Transferees and successfully misappropriated and diverted 6 the Couch Client Transferees to new Morgan Stanley financial advisors.” FAC at ¶¶ 69, 81. On June 9, 2014, the Magistrate Judge issued a scheduling order that provided, among other 7 8 things, that “[a]ny requested pleading amendments . . . either through a stipulation or motion to amend” 9 were to be filed by August 25, 2014. Doc. 28 at 3. The parties proceeded to conduct discovery. 10 On February 10, 2015, Plaintiff’s counsel informed MSSB that “[n]ot included in the FAC are 11 the claims that [Plaintiff] has against [MSSB] for breach of contract, including all associated contract 12 claims.” Doc. 51-3, Declaration of Mary C. Dollarhide (“Dollarhide Decl. 2”), Ex. B at 1. Counsel 13 explained: 14 15 16 Consistent with the agreements between [Plaintiff] and Morgan Stanley, those claims are required to be submitted to FINRA for arbitration . . . . Please advise whether Morgan Stanley will stipulate that the . . . contract claims shall be included in a second amended complaint . . . . If Morgan Stanley will not so stipulate, [Plaintiff] will proceed with his contract claims before FINRA. 17 Id. MSSB’s counsel asked to review a draft second amended complaint, but Plaintiff’s counsel did not 18 send one until May 6, 2015. Pursuant to the Magistrate Judge’s scheduling order, this was almost three 19 months after the close of non-expert discovery, and over seven months after the deadline for the parties 20 to stipulate to any further complaint amendments. See Doc. 28 at 3. 21 B. MSSB’s Motion for Summary Judgment. 22 MSSB filed its motion for summary judgment on June 5, 2015. Doc. 47. Although discussed in 23 more detail below, MSSB’s motion boils down to its position that the Firm validly and lawfully 24 terminated Plaintiff for two primary reasons: (1) Plaintiff could not simultaneously perform a full-time 25 job as a FA at MSSB and a full-time job as a Board Supervisor and, (2) even if he could, “neither 11 1 Morgan Stanley’s rules nor the rules of various state and federal regulatory agencies would allow it.” 2 Doc. 47-1 at 8. 3 C. Plaintiff’s Demand for FINRA Arbitration. Plaintiff’s employment agreement contains the following arbitration clause: 4 5 7. ARBITRATION 6 7.1 Any controversy or claim arising out of or relating to (i) your employment by Morgan Stanley (excluding statutory employment claims and other claims covered by Paragraph 7.2) or (ii) this Agreement (or its breach), will be settled by arbitration before either the National Association of Securities Dealers, Inc., (“NASD”) or the New York Stock Exchange, Inc. (“NYSE”) in accordance with their respective rules, and judgment upon an award issued by the arbitrator(s) may be entered in any court having jurisdiction. Except as otherwise expressly agreed, any dispute as to the arbitrability of a particular issue or claim pursuant to this arbitration provision is to be resolved in arbitration. This paragraph will not be deemed a waiver of Morgan Stanley’s right to injunctive or provisional relief from any court, as provided for in this Agreement. 7 8 9 10 11 Couch Decl., Ex. O (Employment Agreement), at § 7.1. Section 7.2 provides: 12 7.2 Notwithstanding the arbitration requirement of paragraph 7.1 above, you agree that certain other claims (including, but not limited to, statutory discrimination and other statutory employment claims) must be submitted to Morgan Stanley’s Alternative Dispute Resolution Program, “Convenient Access to Resolutions for Employees (‘CARE’). Claims required to be submitted to CARE are recited in the CARE Guidebook.11 13 14 15 16 On June 2, 2015, Plaintiff filed a claim in arbitration (“the Arbitration Claim”) before a FINRA panel. Doc. 51-2, Declaration of Mary Dollarhide (“Dollarhide Decl.”), Ex. A (“Arb. Claim”). MSSB 17 received notice of the Arbitration Claim on June 3, 2015, two days before filing its motion for summary 18 judgment, and counsel for MSSB received the Arbitration Claim on June 11, 2015. 19 The Arbitration Claim’s allegations are materially similar to the FAC’s allegations, though they 20 are not identical. The Claim contains four discrete non-statutory claims for relief for (1) intentional 21 interference with existing and prospective economic relationships; (2) negligent interference with 22 existing and prospective economic relationships; (3) breach of the covenant of good faith and fair 23 dealing; and (4) fraud and deceit. Arb. Claim at 14-20. 24 25 11 The Court refers to §§ 7.1 and 7.2 in the Employment Agreement collectively as “the Arbitration Clause.” 12 1 Plaintiff’s first two arbitration claims concern the same allegedly unlawful conduct of MSSB. 2 They are materially identical with the exception that the first alleges MSSB’s subject conduct was 3 malicious, “intentional, willful, and calculated to cause damage to” Plaintiff, Arb. Claim at ¶¶ 52, 55, 4 whereas the second alleges that conduct “was negligent and has caused and will continue to cause 5 damage to” Plaintiff. Id. at ¶ 64. Both claims allege that “Morgan Stanley knew that upon [Plaintiff’s] 6 termination, [his] existing economic relationships with his clients would not be continued and that 7 Morgan Stanley could cause [his] clients’ accounts to be successfully diverted to [FA’s] employed by 8 Morgan Stanley. Id. at ¶¶ 48, 60. 9 Like the fourth and fifth causes of action in the FAC, Plaintiffs’ first two arbitration claims 10 allege that the Unfair Competition Clause and MSSB’s enforcement of it violates the UCL. Id. at ¶¶ 50, 11 62. Similarly, like those causes of action in the FAC, Plaintiffs’ first arbitration claim alleges that MSSB 12 intentionally and negligently “interfered with [his] existing and prospective economic relationship with 13 the Couch Client Transferees and successfully misappropriated and diverted the Couch Client 14 Transferees to new Morgan Stanley [FA’s].” Id. at ¶ 54. 15 Plaintiff’s third arbitration claim asserts MSSB “acted in breach of the implied covenant of good 16 faith and fair dealing in the [June 2007 memo] when [it] failed to timely advise [Plaintiff] that it would 17 not allow him to serve as [Board] Supervisor.” Id. at ¶ 69. In doing so, MSSB prevented Plaintiff from 18 facilitating “the transfer of at least 75% to 80% of the accounts of clients that [he] serviced during his 19 tenure at Morgan Stanley.” Id. 20 Plaintiff’s fourth and final arbitration claim for fraud and deceit asserts that MSSB fraudulently 21 represented to Plaintiff “prior to his joining Morgan Stanley . . . that he had received [its] approval to run 22 for the [Board position] and serve in that capacity, if elected.” Id. at ¶ 72. Specifically, Plaintiff 23 maintains that Fanucchi, who executed the June 2007 memo, knew that although MSSB approved its 24 terms, she also knew that it could be “unilaterally modified and revoked by Morgan Stanley” so Plaintiff 25 could not run for and serve on the Board, yet she “intentionally concealed” that fact. Id. at ¶¶ 73-74. 13 1 D. MSSB’s Motion to Permanently Stay or, in the Alternative, Temporarily Enjoin the FINRA Arbitration. 2 MSSB moves this Court to permanently stay (i.e., permanently enjoin) or temporarily enjoin 3 4 5 6 Plaintiff’s FINRA arbitration proceedings because failing to do so would permit “belated amendment [of the FAC] in [this Court] or duplicative proceedings in FINRA” arbitration, both of which “would cause significant prejudice to MSSB.” Doc. 51 at 10. In MSSB’s view, Plaintiff’s contract-based claims simply “rehash” the claims alleged “in this Court: that [MSSB] promised he could run for and serve as a 7 [Board] Supervisor, but then would not permit him to do so simultaneous with working as a full-time 8 9 10 11 [FA].” Doc. 51 at 8. As such, these claims are not new. See id. at 10. MSSB argues “Plaintiff has attempted to place MSSB in a no-win situation” because in the absence of this motion, MSSB will be forced to either (1) “ask this Court to accept jurisdiction over Plaintiff’s ‘new’ FINRA claims [under FINRA Rule 13803 (‘Rule 13803’)], in effect allowing Plaintiff 12 to amend his pleadings via the back door nearly ten months after the amendment deadline has passed” 13 14 or (2) “defend itself simultaneously in two separate fora against the same claims it has been litigating for the past 18 months.” Id. at 9-10. 15 MSSB asserts that Plaintiff has waived his right to arbitrate his arbitration claims. Id. at 12. 16 MSSB maintains that Plaintiff had a known right to arbitrate those claims, yet he has acted 17 inconsistently with that right. Id. at 13-14. MSSB points to the fact that Plaintiff had been actively 18 litigating this case in this Court for 18 months prior to demanding FINRA arbitration. Id. at 15. Thus, 19 MSSB claims it will be prejudiced if this Court permits Plaintiff to pursue FINRA arbitration. Id. at 16. 20 Accordingly, MSSB requests that this Court permanently enjoin Plaintiff’s FINRA arbitration 21 proceedings relating because he is no longer entitled to pursue the claims he asserts in that forum. MSSB 22 23 24 further requests that, if this Court declines to do so, then “at a minimum,” this Court should “issue a preliminary injunction to temporarily enjoin the [FINRA] arbitration proceedings while” MSSB’s request to permanently enjoin those proceedings “is further considered, and/or while MSSB’s motion for 25 14 1 summary judgment is pending.” Doc. 51 at 17-19. IV. ANALYSIS12 2 3 A. MSSB’s Motion for Summary Judgment. 4 1. Standard of Decision. 5 Summary judgment is appropriate when the pleadings, disclosure materials, discovery, and any 6 affidavits provided establish that “there is no genuine dispute as to any material fact and the movant is 7 entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A material fact is one that may affect the 8 outcome of the case under the applicable law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 9 (1986). A dispute is genuine “if the evidence is such that a reasonable trier of fact could return a verdict 10 in favor of the nonmoving party.” Id. The party seeking summary judgment “always bears the initial responsibility of informing the 11 12 district court of the basis for its motion, and identifying those portions of the pleadings, depositions, 13 answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes 14 demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 15 (1986) (internal quotation marks omitted). The exact nature of this responsibility, however, varies 16 depending on whether the issue on which summary judgment is sought is one in which the movant or the 17 nonmoving party carries the ultimate burden of proof. See Soremekun v. Thrifty Payless, Inc., 509 F.3d 18 978, 984 (9th Cir. 2007); Cecala v. Newman, 532 F. Supp. 2d 1118, 1132 (D. Ariz. 2007). If the movant 19 will have the burden of proof at trial, it must demonstrate, with affirmative evidence, that “no reasonable 20 trier of fact could find other than for the moving party.” Soremekun, 509 F.3d at 984. In contrast, if the 21 nonmoving party will have the burden of proof at trial, “the movant can prevail merely by pointing out 22 that there is an absence of evidence to support the nonmoving party’s case.” Id. (citing Celotex, 477 U.S. 23 24 25 12 The parties have filed numerous evidentiary objections, motions for judicial notice, and motions to strike. See, e.g., Docs. 57, 58, 66-4, 66-5. The Court will address only the facts, arguments, and motions necessary to resolve MSSB’s motion for summary judgment and motion to enjoin. 15 1 at 323). 2 If the movant satisfies its initial burden, the nonmoving party must go beyond the allegations in 3 its pleadings to “show a genuine issue of material fact by presenting affirmative evidence from which a 4 jury could find in [its] favor.” FTC v. Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009) (emphasis in 5 original). “[B]ald assertions or a mere scintilla of evidence” will not suffice in this regard. Id. at 929; see 6 also Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (“When the 7 moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that 8 there is some metaphysical doubt as to the material facts.”) (citation omitted). “Where the record as a 9 whole could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue 10 for trial.’” Matsushita, 475 U.S. at 587 (quoting First Nat’l Bank of Arizona v. Cities Serv. Co., 391 U.S. 11 253, 289 (1968)). 12 In resolving a summary judgment motion, “the court does not make credibility determinations or 13 weigh conflicting evidence.” Soremekun, 509 F.3d at 984. That remains the province of the jury or fact 14 finder. See Anderson, 477 U.S. at 255. Instead, “[t]he evidence of the [nonmoving party] is to be 15 believed, and all justifiable inferences are to be drawn in [its] favor.” Id. Inferences, however, are not 16 drawn out of the air; the nonmoving party must produce a factual predicate from which the inference 17 may reasonably be drawn. See Richards v. Nielsen Freight Lines, 602 F. Supp. 1224, 1244-45 (E.D. Cal. 18 1985), aff’d, 810 F.2d 898 (9th Cir. 1987). 19 2. Plaintiff’s First and Second Causes of Action – Violation of sections 1101(a) and 1102. 20 Section 1101(a) provides in full that “[n]o employer shall make, adopt, or enforce any rule, 21 regulation, or policy . . . [f]orbidding or preventing employees from engaging or participating in politics 22 or from becoming candidates for public office.” Section 1102 provides in full: “No employer shall 23 coerce or influence or attempt to coerce or influence his employees through or by means of threat of 24 discharge or loss of employment to adopt or follow or refrain from adopting or following any particular 25 course or line of political action or political activity.” 16 “The California Legislature, recognizing that employers could misuse their economic power to 1 2 interfere with the political activities of their employees, enacted Labor Code Sections 1101 and 1102 to 3 protect the employees’ rights.” Gay Law Students Ass’n v. Pac. Tel. & Tel. Co., 24 Cal.3d 458, 486-87 4 (1979)). “These sections are designed to protect ‘the fundamental right of employees in general to 5 engage in political activity without interference by employers.’” Nava v. Safeway, Inc., 2013 WL 6 3961328, at *6 (Cal. Ct. App. 2013) (quoting Gay Law Students, 24 Cal.3d at 487) (quotation marks 7 omitted).13 Sections 1101 and 1102 therefore “prohibit an employer from attempting to coerce or 8 influence its employees’ political activities through the threat of discharge.” Id. at *1. The purpose of 9 sections 1101 and 1102 therefore is “to protect employees’ political freedom.” Wade v. Rackauckas, 10 2006 WL 1086259, at *4 (Cal. Ct. App. 2006). For purposes of sections 1101 and 1102, the California 11 Supreme Court explained that “[t]he term ‘political activity’ connotes the espousal of a candidate or a 12 cause, and some degree of action to promote the acceptance thereof by other persons.” Gay Law 13 Students, 24 Cal.3d at 487 (quoting Mallard v. Boring, 182 Cal. App. 2d 390, 395 (1960)) (emphasis in 14 original). a. MSSB Did Not Violate Section 1101(a). 15 Plaintiff contends that MSSB’s so-called “up-front assurances” policy, which required him to 16 17 obtain a No Conflicts Letter before MSSB would approve his serving on the Board while remaining an 18 FA at MSSB, violates section 1101(a) because it prevented him from serving on the Board. See Doc. 56 19 at 13-14. Plaintiff further asserts that, because there is no evidence that any actual conflict existed due to 20 his simultaneous employment at MSSB and serving on the Board, “consistent with Eldridge [v. Sierra 21 View Local Hosp. Dist., 224 Cal. App. 3d 311, 318-19 (1990)], the Court should find . . . the evidence 22 shows that in connection with [Plaintiff’s] termination, at a time when [he] had no actual conflicts, 23 13 Although this is an unpublished opinion of the California Court of Appeal, see California Rule of Court 977(a), the Court 24 may consider its reasoning. See Jerry Beeman and Pharmacy Servs., Inc. v. Anthem Prescription Mgmt., LLC, 652 F.3d 1085, 25 1093 (9th Cir. 2011) (“Defendants correctly argue that we are not precluded from considering these unpublished decisions as a possible reflection of California law, although they have no precedential value.”). Given the dearth of relevant published decisions concerning sections 1101 and 1102, the Court must resort to unpublished ones. 17 1 MSSB acted in violation of [section 1101(a)].” Doc. 56 at 14-15. 2 As a preliminary matter, Eldridge—the only authority on which Plaintiff relies—did not address 3 section 1101. As the court explicitly stated, “we do not rely upon . . . section 1101 in our analysis.” 224 4 Cal. App. 3d at 317 n.2. Eldridge therefore provides no support for Plaintiff’s position on section 1101. The Court cannot find—and the parties do not provide—any case law directly on point 5 6 concerning section 1101(a)’s prohibition on employers having a rule, regulation, or policy that forbids or 7 prevents employees from running for or holding public office. It appears that no court has squarely 8 addressed what constitutes an impermissible “rule, regulation, or policy . . . forbidding or preventing 9 employees . . . from becoming candidates for public office.”14 As a matter of plain language, the prohibition applies only to an employer’s rule, regulation, or 10 11 policy that necessarily forbids or prevents an employee from running for or holding public office and 12 lacks legitimate, apolitical reasons for its implementation. An employer’s rule, regulation or policy that 13 is enacted for legitimate, apolitical reasons, but has an unintended effect on an employee’s ability to run 14 for or hold public office does not violate section 1101(a). The purpose of the statute—to protect employees’ political freedoms from their employers—and 15 16 the (admittedly scant) relevant case law support this proposition. Section 1101, “in essence, forbid[s] 17 employers to attempt to control the political activities of employees.” McKeon v. Mercy Healthcare 18 Sacramento, 19 Cal.4th 321, 330 (1998). Its purpose is to prevent employers from “misus[ing] their 19 economic power to” do so. Gay Law Students, 24 Cal.3d at 486. In other words, the purpose of section 20 1101 is to prohibit employers from making decisions that adversely affect an employee (e.g., 21 termination) solely because of the employer’s disagreement with an employee’s political viewpoints and 22 his/her expressing them, including but not limited to running for or holding public office. See Smedley v. 23 Capps, Staples, Ward, Hastings & Dodson, 820 F. Supp. 1227, 1230 n.3 (N.D. Cal. 1993) (“the courts 24 25 14 Plaintiff’s claim arguably falls under section 1101(a)’s prohibition 18 1 have traditionally interpreted [section 1100] as being intended to defend employees engaged in 2 traditional political activity from reprisal by their employer”). 3 Section 1101 is not intended to prohibit an employer’s rule, regulation, or policy that is enacted for 4 wholly apolitical reasons that may, when enforced, infringe on an employee’s ability to express his or 5 her political viewpoints. 6 Although not entirely on point, Nava illustrates this principle well. In that case, the plaintiff, an 7 employee of Safeway, was fired for tearing down and throwing out a poster in the store “announcing 8 that June 2009 was ‘GAY/LESBIAN PRIDE MONTH.’” See Nava, 2013 WL 3961328, at *1-2. The 9 plaintiff explained that he tore down the poster because “he was ‘extremely bothered’ by the political 10 agenda Safeway was apparently promoting (i.e., same-sex marriage).” Id. at *2. The plaintiff’s managers 11 “express[ed] ‘disapproval of [p]laintiff’s position.’” Id. The plaintiff was terminated a week later, and 12 alleged it was “‘because he objected to Safeway’s policy of seeking to have its employees and customers 13 support the gay/lesbian political agenda.’” Id. The plaintiff sued for, among other things, violating 14 section 1101. Id. at *2. The trial court sustained Safeway’s demurrer, finding that “the lawsuit arose out 15 of protected activities.” Id. at *4. 16 The Court of Appeal reversed. Id. at *1. In the court’s view, the “key question” in the case was 17 whether the plaintiff was fired because of his “personal political views and advocating relating to . . . 18 same-sex marriage” or whether he was “fired for removing and disposing of Safeway’s poster.” Id. at 19 *7. The court explained that, if the plaintiff was fired simply for tearing down the poster, Safeway’s 20 terminating him was justified because “he was, in effect, interfering with Safeway’s right to free 21 expression” and impermissibly “tamper[ed] with [and] dispos[ed] of company property.” Id. The court 22 emphasized that “[t]he important thing here is that if that was the reason for plaintiff’s termination, it 23 would not constitute a violation of Labor Code sections 1101 or 1102.” Id. (emphasis in original) 24 (footnote omitted). 25 But, “[o]n the other hand, it is possible under the [plaintiff’s] allegations that the poster incident 19 1 was not the real reason for [his] termination.” Id. at *8. “Under th[o]se allegations . . . one theory of 2 plaintiff’s case was that he was fired because of the political perspective or cause that he identified with 3 and espoused in his discussion with Safeway’s managers.” Id. The court therefore found that the 4 plaintiff had stated a claim for wrongful termination in violation of sections 1101 and 1102. The court 5 reasoned: 6 7 If plaintiff was fired for his particular political perspective, affiliation or cause . . . so that it may be inferred that (as plaintiff alleged) Safeway was in effect declaring that the espousal or advocacy of such political views will not be tolerated—then Safeway’s actions constituted a violation of Labor Code sections 1101 and 1102. 8 Id. (emphasis in original) (footnote and citations omitted). 9 Ali v. L.A. Focus Pub., 112 Cal. App. 4th 1477 (2003), disapproved of on other grounds, Reid v. 10 Google, Inc., 50 Cal.4th 512 (2010), is analogous. In Ali, the plaintiff, a writer for the defendant11 newspaper, was terminated approximately one week after he criticized a Congresswoman on public 12 13 radio for her support of a particular political candidate. Id. at 1481. The plaintiff’s manager told him that, “to appease [the Congresswoman], he had ‘no choice’ but to fire” the plaintiff. Id. The plaintiff 14 sued the newspaper for wrongful termination in violation of public policy, among other things. Id. The 15 16 trial court granted the newspaper’s motion for summary judgment in which the newspaper argued, among other things, that “it was entitled to terminate its relationship with [the plaintiff] for speaking in a 17 manner that contravened the editorial policy of the paper and, therefore, [the plaintiff] failed to set forth 18 19 any public policy violated by his discharge.” Id. at 1483, 1486-87. The Court of Appeal reversed. Id. at 1486. The court rejected the newspaper’s suggestion that “it 20 ha[d] the unfettered right to terminate an employee for any speech or conduct that is inconsistent with 21 [its] editorial policies.” Id. at 1488. The court explained that section 1101 reflects California’s “public 22 policy prohibiting employers from terminating an employee for engaging in political activity.” Id. at 23 24 1487. The court then went on to explain that, contrary to the newspaper’s characterization of his claim, the plaintiff “assert[ed] he was fired not because the content of his articles contravened the editorial 25 20 1 policies or standards of the newspaper, but because outside of the workplace he publicly criticized an 2 influential public official for supporting a particular political candidate.” Id. In the court’s view, the 3 plaintiff “submitted sufficient evidence of a public policy violation to survive a motion for summary 4 judgment.” Id. (footnote omitted). 5 Both Nava and Ali stand for the straightforward proposition that an employer cannot terminate its 6 employee solely for expressing his/her political viewpoints or disagreeing with an employee’s political 7 viewpoint. But, as Nava illustrates, an employee’s political expression nonetheless may provide 8 legitimate alternative grounds for termination. As the Court of Appeal explained in Nava, although an 9 employer violates section 1101for terminating an employee for expressing political disagreement with 10 the employer’s views, an employer does not violate section 1101 for terminating an employee who 11 expresses his/her political disagreement via destroying company property. Similarly, an employer 12 potentially would violate section 1101 for terminating its employee for participating in a political rally 13 for a political candidate when that employee is off duty because the employer did not prefer the political 14 candidate. But an employer certainly would not violate section 1101 for terminating a full-time 15 employee who joined a political candidate’s campaign as a full-time employee if doing so meant the 16 employee could not hold two full-time jobs. 17 Likewise, here, if MSSB terminated (or threatened to terminate) Plaintiff solely due to his 18 pursuing outside-of-work political activity that had no bearing on his workplace performance solely 19 because the Firm disagreed with the politics of that activity, the Firm would have violated section 20 1101(a). But there is simply no evidence of a political motivation underpinning either MSSB’s 21 threatening to terminate or ultimately terminating Plaintiff. Rather, a number of undisputed facts 22 establish that MSSB had legitimate, apolitical reasons for doing so—namely, that the Board position 23 was full-time and created potential conflicts of interest. 24 First, MSSB permitted Plaintiff to serve on the City Council for over five years while at MSSB. 25 MSSB also permitted Plaintiff to serve on the boards of various public organizations while at MSSB. 21 1 Plaintiff was required to execute a No Conflicts Letter for these positions that was materially identical to 2 the one he was required to execute for the Board position—a non-partisan County office. All of these No 3 Conflict Letters were apolitical; they only required verification that Plaintiff’s assuming the positions 4 would not create any impermissible conflicts of interest and would not violate any applicable laws. 5 Simply put, MSSB required Plaintiff to execute a No Conflict Letter with the County only to ensure that 6 his becoming a Board Supervisor would not violate the law and would not preclude the Firm from 7 maintaining its business relationship with the County.15 There is no evidence that MSSB attempted to 8 control, direct, or otherwise affect Plaintiff’s outside-of-work political activity in any way. As Plaintiff 9 testified, no one at MSSB “ever attempted to influence [his] political position on any issue.” Couch 10 Depo. at 177:10-18. Plaintiff essentially argues that MSSB’s No Conflicts Letter policy violates section 1101 because 11 12 if he did not execute a No Conflicts Letter with the County, then MSSB would not permit him to serve 13 on the Board while also serving at MSSB. As explained above, MSSB had legitimate, apolitical reasons 14 for requiring a No Conflicts Letter, and accepting Plaintiff’s argument that MSSB’s No Conflicts Letter 15 policy violates section 1101 would lead to absurd results. Under Plaintiff’s logic, MSSB would violate 16 section 1101 unless the Firm gave him carte blanche to run for and hold any political position while 17 keeping his FA job, regardless of the potential conflicts of interest or regulatory compliance issues 18 caused by his holding the position. Plaintiff does not provide—and the Court cannot find—any authority 19 that remotely suggests Plaintiff’s understanding of section 1101 is correct. The Court therefore finds that no genuine issue of material fact exists as to whether MSSB 20 21 violated section 1101. Accordingly, the Court GRANTS MSSB’s motion for summary judgment on 22 Plaintiff’s first claim for violation of section 1101 in MSSB’s favor and against Plaintiff. 23 24 25 15 It is not relevant whether actual conflicts of interest between MSSB and the County arose due to Plaintiff’s assuming the Board position. Given that the County was a MSSB client at all relevant times, the Firm reasonably believed Plaintiff serving as a County Supervisor could create a conflict of interest between MSSB and the County that would preclude them from lawfully maintaining a business relationship, at least in the absence of a No Conflict Letter. 22 b. MSSB Did Not Violate Section 1102. 1 Section 1102, a statute interrelated to section 1101, see McKeon, 19 Cal.4th at 330, “prohibit[s] 2 3 discharge of employees for refusing to follow ‘any particular course or line of political action or political 4 activity.’” Thunderburk v. United Food & Commercial Workers’ Union, 92 Cal. App. 4th 1332, 1344 5 (2001) (quoting section 1102)). Like section 1101, section 1102 is intended “to protect ‘the fundamental 6 right of employees in general to engage in political activity without interference by employers.’” Gay 7 Law Students, 24 Cal.3d at 610 (quoting Fort v. Civil Serv. Commission, 61 Cal.2d 331, 335 (1964)). 8 Plaintiff suggests section 1102 provides an unqualified prohibition on employers from 9 threatening to terminate or actually terminating an employee due to his/her political activity, regardless 10 of how it may affect the employer. See Doc. 56 at 15. According to Plaintiff’s logic, an employer 11 necessarily violates section 1102 if it terminates (or threatens to terminate) an employee for his/her 12 conduct, so long as that conduct constitutes political activity. For instance, under that logic, an employer 13 would violate section 1102 for terminating (or threatening to terminate) an employee who impermissibly 14 misses work to participate in political activity during scheduled work hours. Plaintiff’s interpretation of 15 section 1102, like his interpretation of section 1101, has no merit. The limited case law interpreting section 1102 indicates that, similar to section 1101, section 16 17 1102 prohibits an employer from attempting to control its employees’ political activity “through . . . 18 threat of discharge or loss of employment” for political reasons. Gay Law Students, 24 Cal.3d 458, is 19 the only binding authority directly on point of which the Court is aware. In that case, individuals and gay 20 rights organizations brought suit against the defendant-telephone company in which they alleged, among 21 other things, the defendant “discriminat[ed] against homosexuals in the hiring, firing and promoting of 16 22 employees,” in violation of section 1102. Id. at 464. The California Supreme Court found that the 23 plaintiffs’ allegations that the defendant “discriminates in particular against . . . homosexual[s], 24 25 16 The Court need not discuss the nuanced factual and procedural history of Gay Law Students. 23 1 [individuals] who defend homosexuality, or who are identified with activist homosexual organizations” 2 stated a claim for violation of section 1102. Id. at 488. As Plaintiff testified, MSSB never attempted to influence or alter his politics or his political 3 4 activities. And as explained above, the undisputed evidence establishes that MSSB threatened to 5 terminate and ultimately did terminate Plaintiff because (1) he failed to obtain a No Conflicts Letter 6 from the County and (2) the Board position was full-time.17 To MSSB, “[i]t did not matter if Plaintiff 7 wanted to work at the White House or at White Castle” because he could not adequately fulfill his duties 8 to the Firm if he took another full-time job, such as a Board Supervisor. Doc. 47-1 at 21. In sum, MSSB 9 did not discharge (or threaten to discharge) Plaintiff for political reasons; its reasons were wholly 10 apolitical. The Court therefore finds that no genuine issue of material fact exists as to whether MSSB 11 12 violated section 1102. Accordingly, the Court GRANTS MSSB’s motion for summary judgment on 18 13 Plaintiff’s second cause of action for violation of section 1102 in MSSB’s favor and against Plaintiff. 14 3. MSSB Did Not Violate Section 98.6. 15 “[S]ection 98.6 provides, among other things, that no employer shall discharge or discriminate 16 against any employee because he engaged in conduct protected under the Labor Code.” Rope v. Auto17 Chlor Sys. Of Wash., Inc., 220 Cal. App. 4th 635, 649 (2013). Thus, section 98.6 only “prohibit[s] 18 terminations for conduct ‘otherwise protected by the Labor Code.’” Grinzi v. San Diego Hospice Corp., 19 120 Cal. App. 4th 72, 87 (2004). Plaintiff claims MSSB “unlawfully terminated [him] because he engaged in conduct protected by 20 21 [sections] 1101 and 1102,” FAC at ¶ 56, and, in doing so, MSSB also violated section 98.6. See id. at ¶¶ 22 23 24 25 17 MSSB claims that by November 2012, the Firm “had focused [its] attention on the hours conflict presented by Plaintiff’s request that MSSB allow him to work a second full-time job,” Doc. 66 at 3, but the evidence cited does not support MSSB’s contention. See Hampton Depo. at 98:10-17. 18 Because Plaintiff’s request for punitive damages is based on his section 1102 claim, see Doc. 56 at 30, the Court also GRANTS MSSB’s motion for summary judgment on Plaintiff’s punitive damages claim. 24 1 57-58; see also Doc. 56 at 17. Plaintiff therefore asserts he is entitled to various damages under section 2 98.6. See id. at ¶¶ 57, 59. 3 As explained above, the undisputed evidence establishes that MSSB did not terminate Plaintiff 4 due to his engaging in conduct protected by the Labor Code (i.e., sections 1101 and 1102). Rather, his 5 employment was terminated because multiple MSSB employees concluded Plaintiff “could not fulfill 6 his full-time obligations to MSSB clients if he was dedicating at least 35 hours each week—25 hours 7 during business hours—to another job.” Doc. 66 at 3. Accordingly, the Court GRANTS MSSB’s motion 8 for summary judgment on Plaintiff’s section 98.6 claim in MSSB’s favor and against Plaintiff.19 9 4. Plaintiff’s Claims for Interference With Prospective Economic Advantage Fail.20 10 Plaintiff’s fourth and fifth causes of action are for intentional and negligent interference with 11 prospective economic relationships, respectively (collectively, “the interference claims”). a. Standards. 12 To establish a claim for intentional interference with prospective economic advantage, Plaintiff 13 14 has the burden to prove the following elements: (1) an economic relationship between Plaintiff and a 15 third party, with the probability of future economic benefit to Plaintiff; (2) MSSB’s knowledge of the 16 relationship; (3) an intentional act by MSSB, designed to disrupt the relationship; (4) actual disruption of 17 the relationship; and (5) economic harm to Plaintiff proximately caused by MSSB’s wrongful act. Korea 18 Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1153-54 (2003). In addition, [t]he intentional act must be “independently wrongful,” i.e., wrongful by some measure beyond the fact of the interference itself. In other words, the act must be proscribed by some constitutional, statutory, regulatory, common law, or other determinable standard, rather than merely be a product of an improper, but lawful, purpose or motive and must be “independently actionable.” The plaintiff need not prove that the defendant acted with the specific intent or 19 20 21 22 19 Because Plaintiff’s first three causes of action fail as a matter of law, the Court need not address MSSB’s alternative 23 arguments that federal law preempts those claims and that MSSB would have terminated him regardless based on “afteracquired evidence.” See Doc. 47-1 at 21-25, 30. 24 25 20 MSSB apparently misconstrued Plaintiff’s interference claims to be based, in part, on alleged interference with contractual relations. See Doc. 47-1 at 25-26. But Plaintiff clarified in his opposition that he is not asserting any contract-based interference claim. See Doc. 56 at 22-23. 25 purpose of disrupting the plaintiff’s prospective economic advantage, as long as the defendant knew the interference was certain or substantially certain to occur as a result of its action. 1 2 Edwards v. Arthur Andersen LLP, 47 Cal. Rptr. 3d 788, 794-95 (2006) (citations and quotation marks 3 omitted), rev’d on other grounds, 44 Cal.4th 937 (2008). This is so because “[t]he tort of intentional 4 interference with prospective economic advantage is not intended to punish individuals or commercial 5 entities for their choice of commercial relationships or their pursuit of commercial objectives.” Korea 6 Supply, 29 Cal.4th at 1158-59. 7 A claim for negligent interference with prospective economic advantage contains the same 8 9 elements, except the defendant’s conduct is alleged to be negligent, not intentional.21 See Crown Imports, LLC v. Superior Court, 223 Cal. App. 4th 1395, 1404 n.10 (2014) (“The difference between 10 intentional interference and negligent interference with prospective economic advantage relates to the 11 defendant’s intent.”). “For negligent interference, wrongful conduct as defined by Korea Supply is still 12 required . . . . But in place of the intentional conduct requirement, the plaintiff must show that the 13 defendant owed the plaintiff a duty of care which was breached by the defendant’s negligent conduct.” 14 Impeva Labs, Inc. v. Sys. Planning Corp., No. 12-cv-125, 2012 WL 3647716, at *6 (N.D. Cal. 2012) 15 (citation and footnote omitted); see also Lange v. TIG Ins. Co., 68 Cal. App. 4th 1179, 1187 (1998) 16 (same). 17 b. The Parties’ Contentions. 18 The interference claims assert that: (1) MSSB terminated Plaintiff in violation of sections 19 1101(a), 1102, and 98.6; (2) the Non-Solicit Clause is void and unenforceable because it violates the 20 21 UCL; and (3) MSSB’s unlawful termination of Plaintiff and its enforcement of the Non-Solicit Clause impermissibly interfered with Plaintiff’s relationships with the Couch Client Transferees, thereby 22 causing him to suffer continuing economic damages. See FAC at ¶¶ 61-81. 23 24 25 21 Because the Court need not address the intent element, the Court’s analysis below applies to both of Plaintiff’s interference claims. 26 1 MSSB moves for summary judgment on both claims on the grounds (1) “Plaintiff cannot make 2 out the first, fourth and fifth prongs of the analysis because the existence of any economic relationship 3 resulting in a future benefit, as well as actual disruption and economic harm, are all entirely 4 speculative,” Doc. 47-1 at 26 (citations omitted), and (2) “even if Plaintiff could prove damage, none is 5 attributable to wrongful conduct by MSSB.” Id. at 28 (emphasis omitted). In addition, MSSB argues in 6 its reply that “the now defunct Non Solicit Clause does not establish wrongdoing,” and, in any event, 7 “Plaintiff offers no evidence of actual disruption.” Doc. 66 at 9-10 (emphasis omitted).22 c. Analysis. 8 As discussed above, Plaintiff’s claims that MSSB’s terminating him violated sections 1101(a), 9 10 1102, and 98.6 lack merit. Those claims and their underlying factual allegations therefore do not 11 constitute “independently wrongful conduct” that would support Plaintiff’s interference claims. That 12 leaves Plaintiff’s argument that MSSB’s use of the Non-Solicit Clause was independently wrongful 23 13 conduct. (1) Use of the Non-Solicit Clause. 14 Citing Edwards v. Arthur Andersen LLP, 44 Cal.4th 937 (2008), Plaintiff asserts MSSB’s use of 15 16 the Non-Solicit Clause in the Employment Agreement violates California Business and Professions 17 Code sections 16600 and 17200 (“the UCL”), and therefore constitutes “wrongful conduct” sufficient to 18 support the interference claims. 19 20 21 22 23 24 25 22 In its reply, MSSB argues Plaintiff’s interference claims fail because they require a contractual relationship, yet Plaintiff contends he had no contract with his clients at MSSB. See Doc. 66 at 8 n.7. MSSB is incorrect. See Pacific Gas & Electric Co. v. Bear Stearns & Co., 50 Cal.3d 1118, 1126 (1990) (“interference with prospective advantage does not require proof of a legally binding contract”). 23 Plaintiff suggests that a number of other things MSSB did before and after he was terminated interfered with his MSSB client relationships and caused him economic harm. For instance, Plaintiff argues that MSSB could have: (1) given him more notice prior to terminating him so that he could have had “sufficient time to find a new firm so he could attempt to transfer his clients and continue to service their business,” Doc. 56 at 26; (2) given him “access to the MSSB computers with his current client information” before shutting off his access without notice, id.; and (3) assured him that the Firm would not enforce the Non-Solicit Clause. Id. But Plaintiff does not assert that any of these actions were “independently wrongful,” nor does he provide any authority that would support a finding that they were. As such, they cannot provide the basis for Plaintiff’s interference claims. See Korea Supply, 29 Cal.4th at 1158-59 (requiring that actions must be “independently wrongful” to support an interference claim). 27 (a) 1 MSSB’s Article III Standing Challenge. MSSB contends Plaintiff lacks Article III standing to pursue a claim premised on the Non-Solicit 2 3 Clause because of the Court’s order dismissing Plaintiff’s fourth cause of action for declaratory relief 4 asserted in his original complaint. See Doc. 47-1 at 28. In addition, MSSB argues that, at the time 5 Plaintiff signed the Employment Agreement (2007), the Non-Solicit Clause was legal under then- 6 existing precedent (i.e., pre-Edwards precedent). Id. MSSB further argues that, regardless of whether the 7 Non-Solicit Clause is void and unenforceable, MSSB never attempted to enforce it. Id.; Doc. 66 at 9. To support its argument that Plaintiff lacks Article III standing to assert any claim premised on 8 9 the Non-Solicit Clause, MSSB points to the Court’s conclusion that “the Non-Solicit Clause has expired 10 and poses no threat of future harm” in the Court’s order dismissing Plaintiff’s original complaint. Doc. 11 47-1 at 18 (quoting Doc. 17 at 10). Plaintiff’s declaratory judgment claim sought a declaration from the 12 Court that the Non-Solicit Clause is void and unenforceable. Doc. 17 at 9. The Court concluded Plaintiff 13 could not pursue that claim because, by its own terms, the Non-Solicit Clause already had expired by the 14 time Plaintiff brought this case and “there [was] nothing to suggest that the Non-Compete Clause 15 [would] ever become effective again.” Id. at 10. Thus, the Court concluded Plaintiff did not have Article 16 III standing to pursue his declaratory relief claim that the Non-Solicit Clause was unenforceable because 17 it was no longer in effect and, accordingly, could not possibly cause Plaintiff any further injury. Id. 18 Because the Non-Solicit Clause had expired by its own terms and MSSB was not attempting to enforce 19 it contrary to its terms, the Court could not order any declaratory relief because there was no threat of 24 20 harm to Plaintiff. The Court’s holding, however, was limited expressly to Plaintiff’s declaratory relief claim only 21 22 and has no bearing on whether Plaintiff has Article III standing to pursue his interference claims. 23 Because the interference claims are premised, in part, on past injuries Plaintiff allegedly already 24 25 24 This result would have been different if, for instance, MSSB was attempting to enforce the Non-Solicit Clause in spite of its clear expiration. 28 1 2 incurred as a result of the Non-Solicit Clause, he has Article III standing to pursue them. (b) MSSB’s Argument That the Non-Solicit Clause Was Legal in 2007. 3 MSSB is correct that the Non-Solicit Clause may have been legal in 2007 prior to Edwards under 4 then-existing Ninth Circuit precedent. But MSSB, in effect, does not dispute Plaintiff’s contention that 5 the Non-Solicit Clause is unlawful under Edwards. See Doc. 66 at 9. 6 In Edwards, the California Supreme Court held that non-compete agreements, such as the Non7 Solicit clause, are invalid under section 16600. 44 Cal.4th at 955. As the court explained, the Ninth 8 Circuit had created the “narrow-restraint” exception to claims alleging a non-compete or non-solicit 9 clause violated section 16600. 44 Cal.4th at 948 (discussing Campbell v. Trustees of Leland Stanford Jr. 10 Univ., 817 F.2d 499 (9th Cir. 1987)). The Ninth Circuit concluded that section 16600 “only makes 11 illegal those restraints which preclude one from engaging in a lawful profession, trade, or business,” and 12 thus held that non-compete clauses that placed only a small or limited restriction on an employee’s 13 ability to pursue his/her profession did not violate section 16600. Id.; Campbell, 817 F.2d at 502. 14 But, as MSSB acknowledges, Edwards explicitly rejected the narrow restraint exception. Id. at 15 948-50, 955. Since Edwards, the California courts have made clear that section 16600 provides an 16 across-the-board prohibition on non-solicit clauses, unless one of the limited statutory exceptions 17 applies. See, e.g., Retirement Group v. Galante, 176 Cal. App. 4th 1226, 1241 (2009); Silguero v. 18 Creteguard, Inc., 187 Cal. App. 4th 60, 66-67 (2010); Dowell, 179 Cal. App. 4th 564, 574-75 (2009). In 19 other words, the Ninth Circuit’s “narrow-restraint” exception is no longer applicable after Edwards. 20 MSSB suggests that the Non-Solicit Clause remains lawful under the Ninth Circuit’s narrow 21 restraint exception, which applies because the Employment Agreement was entered into in 2007, before 22 Edwards was issued. See doc. 66 at 9. The Court cannot find—and MSSB does not provide—any 23 authority to support its suggestion that a non-compete clause entered into pre-Edwards remains lawful 24 even though it is unlawful post-Edwards. 25 29 MSSB also argues that its use of the Non-Solicit Clause was lawful because it is undisputed the 1 2 Firm never attempted to enforce it. See Doc. 47-1 at 28; Doc. 66 at 9. Again, the Court cannot find—and 3 MSSB does not provide—any authority to support its suggestion that an otherwise unlawful Non-Solicit 4 Clause is lawful simply because it is not enforced. The somewhat limited case law on the issue supports Plaintiff’s position that MSSB’s placing the 5 6 Non-Solicit Clause in the Employment Agreement is unlawful in and of itself, regardless of whether 7 MSSB attempted to enforce it. In Applied Materials, Inc. v. Advanced Micro-Fabrication Equip. 8 (Shanghai) Co., 630 F. Supp. 2d 1084, 1092 (N.D. Cal. May 20, 2009), the district court found that 9 because the subject non-compete clause “is unlawful under section 16600, it follows that [it] constitutes 10 unfair competition under section 17200.” Although the plaintiff attempted to enforce the non-compete 11 clause with its law suit, the court focused only on the terms of the clause itself and found that, on its 12 face, the clause violated section 16600. See id. at 1090-91. Similarly, the California Court of Appeal explicitly held that non-compete clauses materially 13 14 similar to the Non-Solicit Clause were “void and unenforceable under section 16600 and . . . their use 15 violates section 17200.” Dowell v. Biosense Webster, Inc., 179 Cal. App. 4th 564, 575 (2009) (emphasis 25 16 added). The court held that “[h]aving properly determined that the clauses were facially void under 17 section 16600, the trial court was not required to undertake any further analysis.” Id. at 579. And in 18 Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 907-08 (1998), the Court of 19 Appeal affirmed the trial court’s conclusion that the defendant’s use of an unlawful non-compete clause 20 in its employee contracts constitutes unfair competition in violation of section 17200. The Court concludes that MSSB’s use of the Non-Compete Clause was unlawful under 21 22 California law and suffices as wrongful conduct to support Plaintiff’s interference claims. That MSSB 23 25 Although the defendants in Dowell attempted to enforce the subject non-compete clauses against the plaintiffs, the court 24 noted that non-compete clauses may be facially invalid in that they violate section 16600. See 179 Cal. App. 4th at 579 25 (citing, among other cases, Latona v. Aetna U.S. Healthcare, Inc., 82 F. Supp. 2d 1089, 1093 (C.D. Cal. 1999) (finding that non-compete clause “on its face . . . [is] in clear derogation of section 16600”). 30 1 did not attempt to enforce them does not change this result. Although one party attempted to enforce the 2 subject non-compete clauses in Dowell and Application Group, the courts held that simply placing the 3 non-compete clauses in the subject contracts was unfair competition that violated section 17200. (2) Plaintiff’s Damages Are Speculative. 4 MSSB moves for summary judgment on Plaintiff’s interference claims, in part, because “there is 5 6 no economic harm attributable to MSSB” and, in any event, any alleged economic harm is “entirely 7 speculative.” Doc. 47-1 at 26. The thrust of MSSB’s assertion that Plaintiff’s claimed damages are 8 speculative is that his earnings at MSSB were premised, in part, on client portfolios, the performance of 9 which is uncertain. See Doc. 47-1 at 27, id. at 27 n.36. As MSSB explains, “Plaintiff’s compensation 10 was derived, at least in part, on the size of the portfolios he managed. But Morgan Stanley customers 11 can add or remove assets as they wish, and their reasons for doing so are infinitely varied and not 12 necessarily dependent on the service of the FA.” Id. at 27 n.36. Plaintiff asserts MSSB’s use of the Non-Solicit Clause violated the UCL and interfered with his 13 14 MSSB client relationships. Doc. 56 at 24. Plaintiff relies primarily on his own declaration testimony to 15 support his claim that any of his client relationships actually were disrupted by the Non-Solicit Clause. 26 16 See id. Plaintiff also points to Nolte’s report as proof that his damages are not speculative. Even 17 18 19 20 21 22 23 24 25 26 MSSB moves to strike portions of Plaintiff’s declaration on the ground they are inconsistent with his deposition testimony. See Doc. 66-3 at 41-44. Although MSSB does not invoke or reference the rule, MSSB’s motion to strike is governed by the so-called “sham affidavit rule.” That “general rule” provides “that a party cannot create an issue of fact by an affidavit contradicting his prior deposition testimony.” Yeager v. Bowlin, 693 F.3d 1076, 1080 (9th Cir. 2012) (citation and quotation marks omitted). Thus, the “sham affidavit rule prevents ‘a party who has been examined at length on deposition’ from ‘rais[ing] an issue of fact simply by submitting an affidavit contradicting his own prior testimony,’ which ‘would greatly diminish the utility of summary judgment as a procedure for screening out sham issues of fact.’” Id. (quoting Kennedy v. Allied Mut. Ins. Co., 952 F.2d 262, 266 (9th Cir. 1991)). Because the sham affidavit rule must be applied cautiously, the Court “must make a factual determination that the contradiction is a sham, and the ‘inconsistency between a party’s deposition testimony and subsequent affidavit must be clear and unambiguous to justify striking the affidavit.’” Id. (quoting Van Asdale v. Int’l Game Tech., 577 F.3d 989, 998-99 (9th Cir. 2009) (emphasis added)). Accordingly, a party whose declaration is being challenged as a sham “may explain or attempt to resolve contradictions with an explanation that is sufficiently reasonable.” Yeager, 693 F.3d at 1081 (discussing Cleveland v. Policy Mgmt. Sys. Corp., 526 U.S. 795, 806-07 (1999)). “[T]he non-moving party is not precluded from elaborating upon, explaining or clarifying prior testimony elicited by opposing counsel on deposition and minor inconsistencies that result from an honest discrepancy, a mistake, or newly discovered evidence afford no basis for excluding an opposition affidavit.” Van Asdale, 577 F.3d at 999 (citation and quotation marks omitted). Here, Plaintiff’s deposition testimony is not clearly and unambiguously inconsistent with his declaration testimony. 31 1 assuming MSSB’s use of the Non-Solicit Clause actually disrupted his client relationships, Plaintiff still 2 bears the burden of proving that he suffered economic harm as a result of that disruption. See Korea 3 Supply, 29 Cal.4th at 1165; Pardi v. Kaiser Found. Hospitals, 389 F.3d 840, 852 (9th Cir. 2004). ) “The 4 law precludes recovery for overly speculative expectancies by initially requiring proof the business 5 relationship contained ‘the probability of future economic benefit to the plaintiff.’” Westside Ctr., 42 6 Cal. App. 4th at 803 (quoting Youst, 43 Cal.3d at 71) (emphasis in original). Thus, “as a matter of law, a 7 threshold causation requirement exists for maintaining a cause of action for either [negligent or 8 intentional interference], namely, proof that it is reasonably probable that the lost economic advantage 9 would have been realized but for the defendant'’ interference.” N. Am. Chem. Co. v. Superior Court, 59 10 Cal. App. 4th 767, 786 (1997); see also Youst, 43 Cal.3d at 71. The Ninth Circuit has interpreted this to 11 mean that but for the defendant’s interference, the plaintiff more likely than not would have obtained the 12 future economic benefit the plaintiff’s claimed damages. See Pardi, 389 F.3d at 852. 13 As noted, Plaintiff only points to his declaration and Nolte’s report to support his assertion that 14 the Non-Solicit Clause caused him economic harm. With regard to his declaration, Plaintiff only points 15 to paragraphs 28 and 29 to support the assertion that MSSB’s use of the Non-Solicit Clause caused him 16 economic harm. See Doc. 56 at 24-26 (citing Couch Decl. at ¶¶ 28-29). Neither of these portions of 17 Plaintiff’s declaration even purports to provide any specific evidence of economic harm that Plaintiff 18 suffered as a result of his alleged compliance with the Non-Solicit Clause. 19 That leaves Nolte’s report, which Plaintiff argues proves that his damages are not speculative. 20 See Doc. 56 at 23-24. But Nolte’s report makes no mention of the Non-Solicit Clause and thus does not 21 22 In the latter, he stated that he did not communicate with the clients he served while at MSSB for “many months” after his 23 24 25 termination. Couch Decl. at ¶ 28. Plaintiff does not explain in his declaration whether and when he re-initiated contact with his clients. See id. In his deposition, Plaintiff acknowledged that at least a few of his MSSB clients transferred with him to his new firm, Couch Depo. at 194:1-13, but Plaintiff did not testify as to when those clients transferred. Nonetheless, it is undisputed that he transferred those clients “months after [he] was terminated.” See UMF #39. Plaintiff’s deposition testimony therefore is plausibly consistent with his declaration testimony that he did not communicate with or move his MSSB clients for “many months” after his termination. Accordingly, the Court DENIES MSSB’s motion to strike Plaintiff’s testimony contained in paragraphs 28 and 29 of his declaration. 32 1 attempt to show a causal nexus between Plaintiff’s compliance with the Clause and his claimed 2 damages. It does not explain or discuss any specific client account that was disrupted because of the 3 Non-Solicit Clause and Plaintiff’s compliance with it. The report only attempts to establish what 4 Plaintiff would have earned from MSSB but for his termination. See, e.g., Nolte Report at 9, Table 4.A 5 (“‘But-For’ Earnings”). 6 Plaintiff provides no explanation of how Nolte’s report or his declaration provide evidence of a 7 causal nexus between the Non-Solicit Clause and his economic damages. For instance, Plaintiff does not 8 provide any evidence of a client account that went south, was lost, or otherwise was disrupted during the 9 “many months” in which he did not interact with his clients. Nor does he provide any evidence of a 10 transaction that would have transpired but for his compliance with the Non-Solicit Clause. Plaintiff does 11 no more than assert that he was terminated, he abided by Non-Solicit Clause, and he then suffered 12 economic harm. This is not evidence of a cause and effect relationship between the Non-Solicit Clause 13 and Plaintiff’s damages. See Franklin v. Dynamic Details, Inc., 116 Cal. App. 4th 375, 393-94 (2004) 14 (“With respect to causation, ‘[m]ore than post hoc, ergo propter hoc must be demonstrated.’”) (citation 15 omitted). Simply put, Plaintiff has failed to present any evidence showing that the Non-Solicit Clause 16 caused him to suffer economic harm. As the record currently stands, Plaintiff’s claimed damages are 17 linked only to his termination, which the Court concludes was entirely lawful, and therefore cannot 18 provide Plaintiff a foundation for his interference claims. 19 Because Plaintiff bears the ultimate burden of proof on his interference claims, see Korea 20 Supply, 29 Cal.4th at 1165, the Court can grant MSSB summary judgment based on its argument that 21 Plaintiff has no evidence to support the claims. See Soremekun, 509 F.3d at 984 (citing Celotex, 477 22 U.S. at 323). Plaintiff’s failure to establish the causation element of its interference claims means those 23 claims cannot survive summary judgment. See id.; Liberty Lobby, 477 U.S. at 250-52; Dynamic Details, 24 116 Cal. App. 4th at 394. Accordingly, the Court GRANTS MSSB’s motion for summary judgment on 25 33 1 Plaintiff’s interference claims in MSSB’s favor and against Plaintiff. 27 2 B. MSSB’s Motion to Permanently Enjoin the FINRA Arbitration Proceedings.28 MSSB requests that the Court permanently enjoin Plaintiff’s FINRA arbitration proceedings. 3 4 Doc. 51 at 11. MSSB asserts the Court should do so because Plaintiff has waived his right to arbitrate 5 his claims before the FINRA panel. Id. Neither of the parties sufficiently briefed the dispositive threshold issue in this case: can the 6 7 Court permanently enjoin Plaintiff’s FINRA proceedings on the ground Plaintiff waived his arbitration 8 rights? In fact, neither party identified the appropriate standard for permanent injunctions in their briefs, 9 though the briefs do touch on the standard for preliminary injunctions.29 The parties correctly observe that “[a] plaintiff seeking a preliminary injunction must establish 10 11 that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of 12 preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public 13 interest.” Winter v. Nat. Res. Defense Council, Inc., 129 S.Ct. 365, 374 (2008) (citations omitted). But, 14 the standard for permanent injunctive relief is distinct, at least in part. “Under ‘well-established principles of equity,’ a plaintiff seeking permanent injunctive relief” 15 16 27 As noted, MSSB alternatively moves for a preliminary injunction against the FINRA arbitration proceedings while its 17 motion for summary judgment is pending. Because the Court has ruled on that motion, the Court DENIES AS MOOT MSSB’s motion for a preliminary injunction. 18 19 20 21 22 23 24 25 28 MSSB styles its motion as a motion to “permanently stay” the FINRA arbitration proceedings, but makes clear in its briefs that it seeks a permanent injunction of those proceedings. See, e.g., Doc. 51 at 11. The cases on which MSSB relies to support its assertion that the Court can grant its motion to permanently enjoin the FINRA proceedings—Alascom, Inc. v. ITT N. Elec. Co., 727 F.2d 1419 (9th Cir. 1984), Int’l Ass’n of Machinists & Aerospace Workers, AFL CIO v. Aloha Airlines, Inc., 776 F.2d 812 (9th Cir. 1985), and Se. Res. Recovery Facility Auth. v. Montenay Int’l Corp., 973 F.2d 711 (9th Cir. 1992)—are distinguishable and do not support MSSB’s position. Alascom involved a plaintiff’s motion for stay of arbitration, not a permanent injunction of it. 727 F.2d at 1420. In addition, the stay granted in Alascom is premised on the existence of a valid, enforceable arbitration clause, and MSSB’s motion to enjoin the FINRA arbitration is premised on its assertion that Plaintiff has waived his arbitration rights (i.e., that he cannot enforce the Arbitration Clause). See Guifu Li v. A Perfect Franchise, Inc., No. 5:10-cv-1189-LHK, 2011 WL 2293221, at *5 (N.D. Cal. June 8, 2011). The sole sentence from Aloha Airlines on which MSSB relies is from the Ninth Circuit’s discussion of whether it had jurisdiction. See 776 F.2d at 814-15. In addition, that case arose in the context of a party’s motion to compel arbitration. Finally, Montenay concerns California law and discusses California cases with procedural postures not applicable here. 29 The Court could deny MSSB’s motion for a permanent injunction on this ground alone. See Anhing Corp. v. Thuan Phong Co., Ltd., No. CV 13-5167 BRO (MANx), 2015 WL 4517846, at *14 n.7 (C.D. Cal. July 24, 2015) (“To the extent Defendant requests Plaintiff be enjoined from using the term ‘M–THO,’ the Court DENIES this request. Defendant has not articulated a legal basis for the request, nor has Defendant addressed the factors applicable to permanent injunctions.”). 34 1 must show: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. 2 3 4 Cottonwood Environ. Law. Ctr. v. U.S. Forest Serv., 789 F.3d 1075, 1088 (9th Cir. 2015) (citing eBay, 5 Inc. v. MercExchange, LLC, 547 U.S. 388, 391 (9th Cir. 2006)). “The standard for a preliminary 6 injunction is essentially the same as for a permanent injunction with the exception that the plaintiff must 7 show a likelihood of success on the merits rather than actual success.” Amoco Prod. Co. v. Gambell, 480 8 U.S. 531, 546 n.12 (1987). Thus, to obtain a permanent injunction, MSSB must establish actual success 9 on the merits. See Garcia v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015) (“Because [the plaintiff] 10 seeks a mandatory injunction, she must establish that the law and facts clearly favor her position, not 11 12 simply that she is likely to succeed.”) (emphasis in original). “[W]hich raises the question, the merits of what?” Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1111 (11th Cir. 2004). 13 14 15 16 MSSB’s only argument concerning the merits is in the context of their motion for a preliminary injunction, in which it “submits that it is likely to succeed on the merits of its argument that Plaintiff has waived his right to compel arbitration.” Doc. 51 at 17. But MSSB’s argument that Plaintiff has waived his arbitration rights is not a claim; it is essentially an affirmative defense.30 MSSB has not provided any 17 authority suggesting that the Court can grant any injunctive relief where, as here, it is not sought by a 18 party as a remedy for its underlying claim(s). See Citigroup Global Markets, Inc. v. VCG Special 19 Opportunities Master Fund, Ltd., 598 F.3d 30, 34 (2d Cir. 2010) (“the standard articulated by these 20 three Supreme Court cases requires a preliminary injunction movant to demonstrate that it is more likely 21 than not to succeed on its underlying claims”) (emphasis added and citations omitted). 22 The Court concludes that, as a matter of law, MSSB cannot demonstrate success on the merits of 23 24 25 30 This would not be the case if, for instance, MSSB brought a separate action or a counterclaim for declaratory relief that MSSB cannot be compelled to arbitrate Plaintiff’s claims because he waived his arbitration rights and sought injunctive relief as a remedy for the claim. See Goldman Sachs & Co. v. City of Reno, 747 F.3d 733 (9th Cir. 2014). 35 1 any underlying claim because MSSB has no underlying claim on which it could succeed. See League of 2 Wilderness Defenders/Blue Mountains Biodiversity Project v. Connaughton, 752 F.3d 760 (9th Cir. 3 2014) (“We first analyze whether the LOWD plaintiffs are likely to succeed on the merits of any of their 4 claims”); see also Alliances for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1138 (9th Cir. 2011) 5 (explaining that “likelihood of success on the merits” pertains to whether party is likely “to prevail on 6 the merits of the underlying claims”). MSSB therefore is not entitled to any injunctive relief against the 7 FINRA arbitration proceedings. Accordingly, the Court DENIES its motion to permanently enjoin those 8 proceedings or any other arbitration proceedings arising from Plaintiff’s claims against MSSB.31 V. CONCLUSION AND ORDER 9 10 For the foregoing reasons, the Court: 11 1. GRANTS MSSB’s motion for summary judgment in its entirety in MSSB’s favor and against 12 Plaintiff; 13 2. DENIES AS MOOT MSSB’s motion for a preliminary injunction (Doc. 51); 14 3. DENIES MSSB’s motion to permanently enjoin the FINRA arbitration and any further 15 arbitration proceedings arising from Plaintiff’s claims against MSSB (Doc. 51); 16 4. DENIES MSSB’s request for attorney’s fees and costs associated with the motion; and 17 5. DIRECTS the Clerk of Court to CLOSE this case. 18 IT IS SO ORDERED. 19 Dated: /s/ Lawrence J. O’Neill August 6, 2015 UNITED STATES DISTRICT JUDGE 20 21 22 23 24 25 31 Although the Court denies as moot MSSB’s motion for a preliminary injunction, see supra n. 27, that motion would fail for the same reasons as does MSSB’s motion for a permanent injunction. 36

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