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Bucy v. Edward Jones & Co., L.P.

Supreme Court of Montana

July 30, 2019

ADAM BUCY, Plaintiff and Appellee,
v.
EDWARD JONES & COMPANY, L.P.; JEREMY KIENTZ; DOMINICK FERRANTO, and DOES 1-5, Defendants and Appellants.

          Submitted on Briefs: March 20, 2019

          APPEAL FROM: District Court of the Fourth Judicial District, In and For the County of Missoula, Cause No. DV-16-554 Honorable John W. Larson, Presiding Judge

          For Appellants: Charles E. Hansberry, Jenny M. Jourdonnais, Hansberry & Jourdonnais, PLLC, Missoula, Montana, Simon M. Levy, Julie L. Taylor, Keesal, Young & Logan, San Francisco, California

          For Appellee: Terance P. Perry, Nathan G. Wagner, Datsopoulos, MacDonald & Lind, P.C., Missoula, Montana

          OPINION

          Dirk M. Sandefur Justice

         ¶1 Edward Jones & Company, L.P., Jeremy Kientz, and Nick Ferranto, et al. (collectively Edward Jones), appeal the portion of a judgment of the Montana Fourth Judicial District Court, Missoula County, denying their motion to compel arbitration of post-termination claims asserted against them by former Edward Jones employee Adam Bucy.

         ¶2 We address the following restated issues on appeal:

1. Whether Bucy waived his challenge to the enforceability of the 1998 NASD Form U4 and 2003 arbitration agreements by failing to cross-appeal?
2. Whether the 2003 arbitration agreement was illusory or lacking in mutuality due to Edward Jones' retention of a limited right to seek injunctive relief?
3. Whether the 1998 and 2003 arbitration agreements had an illegal or void object absent an explicit explanation and waiver of Montana constitutional rights?
4. Whether the 1998 and 2003 arbitration agreements were unenforceable in equity as unconscionable?
5. Whether Bucy's post-termination claims were arbitrable within the express scope of the 1998 and 2003 arbitration agreements?

         ¶3 We reverse and remand for further proceedings.

         FACTUAL AND PROCEDURAL BACKGROUND

         ¶4 Adam Bucy worked for Edward Jones for approximately 19 years between 1996 and 2015, primarily as a financial advisor in the Edward Jones branch office in Missoula, Montana. As pertinent, Edward Jones is a Missouri-based investment brokerage engaged in the business of providing securities investment and related financial management and planning services. Edward Jones is a federally registered broker and a registered member of the Financial Industry Regulatory Authority, Inc. (FINRA).

         ¶5 FINRA is a private organization of "investment bankers, dealers, and brokers" with "congressionally delegated self-regulatory authority" to enforce member compliance with federal securities laws[1] and to promulgate and enforce supplemental regulations under the regulatory oversight of the Securities and Exchange Commission (SEC). Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Nat'l Ass'n of Sec. Dealers, Inc., 616 F.2d 1363, 1365-67 (5th Cir. 1980) (citing 15 U.S.C. § 78o). See also Nat'l Ass'n of Sec. Dealers, Inc. v. SEC, 431 F.3d 803, 804 (D.C. Cir. 2005). FINRA is the SEC-approved corporate and legal successor of the National Association of Securities Dealers, Inc. (NASD), under the 1934 Securities and Exchange Act, as amended (1934 Act). NASD formed in 1939 as a "self-regulatory organization" (SRO) under the 1934 Act, as amended in 1938. See 15 U.S.C. §§ 78a, 78o. FINRA formed in 2007 upon the SEC-approved merger of the member regulatory and arbitration functions of the NASD, New York Stock Exchange (NYSE), and NYSE Regulation, Inc. See NASD and NYSE Member Regulation Combine to Form the Financial Industry Regulatory Authority - FINRA, FINRA (July 30, 2007), https://perma.cc/DY33-6EFP. As pertinent here, applicable NASD and FINRA Rules were approved by the SEC pursuant to its regulatory authority under § 19(b)(1) of the 1934 Act, as amended. See 15 U.S.C. § 78s(b)(1), (c); Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119, 1130-32 (9th Cir. 2005).[2]

         ¶6 In 1996, after obtaining a bachelor's degree in finance from the University of Montana, Bucy applied for and obtained employment with Edward Jones as a financial advisor in St. Louis, Missouri. At all times pertinent, Edward Jones was and is a securities broker or brokerage registered with the SEC under the 1934 Act (15 U.S.C. § 78o(a)(1)). As a means of similarly subjecting them to federal securities laws and regulations, the SEC and NASD/FINRA require approved registration (licensing) of broker principals and representatives[3] as a condition of employment with employing member-brokers. See FINRA Rules 0140, 1210; NASD Rules 0115, 1021, and 1031.[4]

         ¶7 In 1998, Bucy applied for NASD registration as a representative of Edward Jones. He submitted a signed NASD Form U4 (Uniform Application for Securities Industry Registration) for registration in association with Edward Jones. See NASD Rule 1013(a)(1)-(2).[5] At the time, NASD Rules applied to all NASD broker-members and associated persons and imposed on associated persons the "same duties and obligations" under the Rules as members. NASD Rule 0115.[6] In pertinent part, NASD regulations prescribed a comprehensive Code of Arbitration Procedure "for the arbitration of any dispute, claim, or controversy arising out of or in connection with the business of any [NASD] member or arising out of the employment or termination of employment of associated person(s) with any member . . . between or among members and associated persons." NASD Rule 10101(b).[7] In pertinent part, the Rules then generally required arbitration of any:

dispute [or] claim . . . between or among members and/or associated persons . . . arising in connection with the business of such member(s) or in connection with the activities of such associated person(s), or arising out of the employment or termination of employment of such associated person(s). . . .

         NASD Rule 10201(a).[8] In accordance with NASD Rules 0115, 10101(b), and 10201(a)(2), Bucy's Form U4 included the following standard arbitration agreement:

I agree to arbitrate any dispute, claim or controversy that may arise between me and my firm . . . that is required to be arbitrated under the rules, constitutions, or by-laws of [NYSE and NASD] as may be amended from time to time and that any arbitration award rendered against me may be entered as a [judgment] in any court of competent jurisdiction.

See also NASD Rule 1013(a)(1)-(2).

         ¶8 In 2003, Bucy relocated to work in the newly opened Edward Jones branch office in Missoula. Incident to the transfer, Bucy voluntarily executed a new employment agreement with Edward Jones to work as a registered "investment representative." Bucy expressly agreed:

that any dispute, claim or controversy arising under this Agreement or as a result of [his] employment with Edward Jones between [he] and Edward Jones or any present or former employee, agent, officer, director . . . of Edward Jones shall be resolved by arbitration and without resort to litigation in court. Any arbitration proceedings shall be conducted in accordance with the rules then in effect of the Boards of Directors of the [NYSE] or the [NASD]. This agreement to arbitrate disputes shall survive the termination of your employment with Edward Jones.
You agree to . . . strictly adhere to the rules and regulations of the SEC, NASD, NYSE and state securities regulators, and all other applicable rules and regulations.

         Directly above the signature line, the agreement further prominently stated in bold script:

THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

         ¶9 In the spring of 2015, after twelve years as a successful financial advisor in Missoula, [9] Bucy became "disaffected by" the "culture" at Edward Jones and "began looking for new employment." Between April and June 2015, he was negotiating with LPL Financial (LPL), a "Boston-based financial planning" firm, to work as a registered LPL representative and financial advisor in the Missoula area. Bucy alleges that, at some point, Edward Jones "intercepted [his] emails or phone calls and learned" of his intent to leave for new employment with a "competing financial planning business." He further asserts, and Edward Jones denies, that Edward Jones then had developed a "corporate pattern and practice of blackballing 'breakaway' brokers" to prevent them from working for competitors. On or about May 28, 2015, one of Bucy's Edward Jones clients filed a complaint with FINRA alleging that Bucy conducted an unauthorized transaction on the client's account. Bucy alleges that Edward Jones encouraged the client to file the complaint upon learning of his intent to leave the firm.

         ¶10 The client complaint immediately triggered an internal review by Edward Jones and a separate licensing investigation by FINRA. Incident to its internal review, Edward Jones contacted and communicated with several of Bucy's existing Edward Jones clients, some of whom later testified that Edward Jones personnel told them that Bucy had given them bad advice and mishandled their accounts. While the Edward Jones review and FINRA investigation were pending, Bucy's negotiations with LPL Financial came to a successful conclusion in late June, resulting in his execution of a written contract, on July 19, 2015, for prospective employment with LPL. Bucy subsequently informed Edward Jones of his intent to resign, effective July 31, 2015.

         ¶11 On July 30, 2015, the day before the effective date of Bucy's resignation, a second Edward Jones client filed a FINRA complaint against him. As with the first client complaint, Bucy alleges that Edward Jones encouraged the client to file the complaint. On July 31, 2015, Bucy resigned from Edward Jones to take new employment with LPL Financial. Edward Jones subsequently circulated an internal memo notifying staff of Bucy's "voluntary" termination and that he had accepted a job at another financial services firm.

         ¶12 Upon the termination of employment of a registered representative, FINRA regulations require former employers to file an electronic FINRA Form U5 terminating the representative's FINRA registration with that member-broker. See FINRA Bylaws, Article V, Section 3(a). The web-based electronic Form U5 prompts the reporting member to report the manner of termination, whether "Deceased," "Discharged," "Permitted to Resign," "Voluntary," or "Other." If the member-broker reports the manner of termination as "Permitted to Resign," "Discharged," or "Other," the form requires the member to "provide" further "explanation" of the reason for ...


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