Rubin Fortunato Often at the Center of Big Securities Litigation, Trends

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December 15, 2010

The Paoli-based boutique Employment Law firm of Rubin Fortunato & Harbison P.C. has again prevailed on behalf of a client in an arbitration claim before the Financial Industry Regulatory Authority (FINRA). While the forum and claim in this matter are unique when it comes to the law, both are something in which this relatively small, suburban Philadelphia law firm has become incredibly well-versed. And both are indicative of larger corporate litigation trends in the current economic climate.

Last month, in the matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated vs. William A. Claridge, Martin A. Coleman III, Patrick G. Lewis, et al., FINRA Dispute Resolution Arbitration Number 09-03424, an arbitration panel awarded global financial services firm Merrill Lynch $552,875 in compensatory damages and $400,000 in punitive damages and assessed all forum fees against competitor Morgan Stanley for the raiding of Merrill Lynch’s Bozeman, Montana office.

The Merrill Lynch trial team was led by Rubin Fortunato partner Jason E. Murtagh, Esq., who has extensive experience in court, both at the trial and appellate level, and in arbitrations. He has represented clients at trial in individual and class action lawsuits throughout the United States and last year, at just 34 years old, garnered a major win for a client before the United States Supreme Court.


FINRA, the largest independent regulatory authority for the securities industry in the U.S., oversees 4,700 brokerage firms, 167,000 branch offices and 637,000 registered representatives. In disputes, FINRA mandates a private resolution system which includes arbitration hearings, which are very much like traditional court proceedings in that there are opening and closing statements, witnesses, and rebuttals. However, unlike judicial courts, the proceedings and documents are not open to the public. Arbitration panels are made up of professionals (such as lawyers and experts in the securities field) and general members of the public.


In the past, when a broker left firm “A” for firm “B,” he/she would need to comply with various legal and contractual provisions, such as respecting confidentiality of data and not soliciting customers for a certain period of time. Recognizing, however, that the customer has certain rights, as well – the desire to do business with a particular broker, for example – in 2004 several major brokerage firms adopted the “Protocol for Broker Recruiting.” This afforded the firms certain protections when a broker left while allowing the departing broker to let customers know about the move to a new firm.

Specifically, the Protocol says a broker who leaves and joins another Protocol firm can take basic customer contact information (name, address, e-mail, telephone) with them, but cannot tell customers that they are changing firms or solicit them to follow before they leave. Under normal circumstances, as long as a broker complies with the elements of the Protocol, he or she will not be subject to claims as a result of the departure. Since 2004, the Protocol has been adopted by most securities firms.

One issue that is exempted from the Protocol, however, is corporate raiding. If a firm hires so many employees from a competing office at once as to greatly impact the financial stability of that office, the firm that suffered the losses can bring a claim for raiding, which is similar to the common-law claim of unfair competition.


In May of 2009, Morgan Stanley hired five of the six Financial Advisors and two of the three Client Associates that staffed Merrill Lynch’s Bozeman, MT office (including the office manager). In June of 2009, Merrill Lynch filed an arbitration claim against Morgan Stanley and the individual advisors. An evidentiary hearing was held in Bozeman, Montana over several days in September of 2010. During the hearing, attorney Jason Murtagh and his team successfully argued that the actions of Morgan Stanley constituted a raid of the Merrill Lynch office.


Obviously, for securities firms, claims of this nature are significant. But not simply because of the money at stake.

Since the Protocol for Broker Recruiting was adopted back in 2004, legal claims before FINRA have decreased exponentially. Most claims that do arise settle quietly in mediation, and arbitration panels who once heard a multitude of claims on a regular basis will now pass down just a handful of decisions in an entire calendar year.

Therefore, the fact that a claim is even heard is noteworthy, and the disputes that do make it before a panel are often high stakes, like in this matter.

But beyond the securities industry, today’s economy has seen similar high-stakes claims in other industries find their way to litigation as companies work harder than ever to grab their share of the market.

Specifically, the claim of unfair competition, or raiding, can be a potential issue anytime a competitor hires a substantial number of a company’s employees, especially if the company can demonstrate that the employees were either key employees or that the departing employees had access to and took trade secrets, such as customer lists, with them when they left.

Mr. Murtagh’s firm has seen this in a number of matters in a number of different types of companies involving trade secrets issues, including:

  • A case involving a former employee who walked out with a folder of confidential documents at the end of each day for over a month until he had assembled an entire box of confidential trade secrets at home
  • Another case involving an employee who hid documents in a computer program and e-mailed them to a family member (something later discovered by Murtagh’s team with the use of computer forensics)
  • A case in which employees spent several hours late one night loading their cars with boxes of documents – something Murtagh and the firm discovered after obtaining security camera footage from the garage where the employees had parked their cars

And, indeed, no sector remains untouched: manufacturing, retail, pharmaceutical, even food. One of the most widely publicized cases happened earlier this year, when an executive with Bimbo Bakeries, the company who makes Thomas’ English muffins, was barred by a court from taking a job with rival company Hostess because of “suspicious conduct” involving files accessed from his laptop. As the executive was one of just a handful of individuals with the secret recipe for the muffins and their trademark “nooks and crannies,” the court favored the company’s right to guard its secrets against the executive’s right to switch jobs.

So what can a company do to protect itself from being on either side of such a dispute? Certainly, taking a very close look at employee manuals and employment contracts to ensure they contain certain rights and protections that the courts will look to in such a dispute is one of the most important steps a business can take to avoid litigation. That is, any business, not just a mega muffin manufacturer, so says Rubin Fortunato & Harbison Managing Partner Mark Harbison.

“Absolutely any business with a unique process, customer list or other data that is critical to doing business can find itself in a legal dispute,” says Harbison. “The issues are the same whether the business is as big as Merrill Lynch or as small as a barber shop.”


Jason E. Murtagh was assisted by attorneys Beth E. Delaney, Gregg W. Marsano, and D. Ciana Williams, all of whom came to the firm from larger international firms.

Rubin Fortunato has built a national employment law practice based in suburban Philadelphia, PA, representing both corporations and individuals in virtually all areas related to employment law.

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