Key Inv. Servs. v. John Min Sul

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KEY INVESTMENT SERVICES, LLC, Plaintiff, v. JOHN MIN SUL, et al., Defendants.

No. 23-CV-1157

United States District Court, W.D. Washington, Seattle

August 7, 2023

ORDER GRANTING PLAINTIFF KEY INVESTMENT SERVICES MOTION FOR TEMPORARY RESTRAINING ORDER

Barbara Jacobs Rothstein, U.S. District Court Judge

I. INTRODUCTION

Pending before the Court is Plaintiff's Motion for Temporary Restraining Order, which was filed together with a Complaint for injunctive relief, alleging that its prior employees took Plaintiff's confidential client list and trade secret information and are using this information to solicit Plaintiff's clients in violation of their express contractual agreements with Plaintiff. Compl., ECF No. 1; Mot. ECF No. 3. Plaintiff seeks temporary relief to preserve the status quo pending arbitration between the parties before the Financial Industry Regulatory Authority (“FINRA”) Dispute Resolution. Mot. 1-2. Having reviewed the parties' briefs,^[1] the relevant legal authorities and heard the arguments of counsel, the Court GRANTS the motion. The reasoning for the Court's decision follows.

II. BACKGROUND

Plaintiff, Key Investment Services, LLC (“Key”) employed Defendants, John Min Sul and Angela Saladis, as financial advisors who are registered representatives licensed with FINRA. Compl. ¶¶ 1-3, 11. Mr. Sul and Ms. Saladis formed a new company, Defendant Platform Wealth, and resigned their employment with Key on June 15, 2023. Id. ¶¶ 11, 19, 23, 25. Thereafter, Key alleges that Mr. Sul and Ms. Saladis have been soliciting Key clients to move their accounts to Platform Wealth. Id. ¶¶ 22-30.

During their employment with Key, both Mr. Sul and Ms. Saladis signed agreements- including employment offer letters, and individual registration agreements-in which they agreed to not solicit clients, with some exceptions,^[2] for the period of one year following termination of employment. Id. ¶¶ 12, 13. Defendants both also signed Trade Secret Agreements. Id. ¶ 15. Key sent letters to Mr. Sul and Ms. Saladis on the day after they resigned, reminding them of their contractual obligations not to solicit clients and requesting that they immediately return and refrain from disclosing Key's trade secrets. Id. ¶ 20. Key believes that Mr. Sul and Ms. Saladis have Key's client contact information on their cell phones, and despite having been asked to delete it, they have not done so. Id. ¶ 21.^[3] Several of Key's clients that had been serviced by Mr. Sul and Ms. Saladis while they were with Key have transferred their accounts to Platform Wealth, and more clients continue to transfer their accounts every day. Id. ¶ 26.

Key asserts six causes of action:

• Defend Trade Secrets Act - 18 U.S.C. § 1832 (“DTSA”) against all Defendants

• Misappropriation of Trade Secrets - Ohio Uniform Trade Secrets Act (“OUTSA”), ORC § 1333.62, et seq. against all Defendants

• Breach of Contract against Mr. Sul and Ms. Saladis

• Breach of the Duty of Good Faith and Fair Dealing against Mr. Sul and Ms. Saladis

• Intentional Interference with Contractual Relations against Platform Wealth

• Intentional Interference with Business Relations or Prospective Business Advantage against Platform Wealth

Key seeks injunctive relief to compel Defendants to return its trade secret protected client list and refrain from soliciting Key's clients. Key specifically moves for a temporary restraining order: (1) prohibiting Defendants from using and/or disclosing Key's confidential customer information to any third party; (2) prohibiting Defendants from soliciting any of Key's clients or potential clients with whom they interacted, became acquainted, or learned of through access to Key's trade secret information, subject to the limitations set forth in the “Non-Solicitation of Key Clients” provision in their signed agreements; and (3) requiring the individual Defendants, John Min Sul and Angela Saladis, to provide their cell phones to a third party expert to remove all information they have taken from Key regarding all Key's clients, except for clients who are Defendant's immediate family. Mot. 2. Key also seeks a stay pending the outcome of the FINRA arbitration. Id.

III. LEGAL STANDARD

Federal Rule of Civil Procedure (“FRCP”) 65(b) empowers federal district courts to issue temporary restraining orders (“TRO”). Fed.R.Civ.P. 65(b); see also Local Rules W.D. Wash. LCR 65(b).^[4]

To obtain a TRO, the movant must “meet the standards for issuing a preliminary injunction.” Navigant Consulting, Inc. v. Milliman, Inc., No. 18-1154, 2018 WL 3751983, at *3 (W.D. Wash. Aug. 8, 2018). This includes the requirement that the movant show that (1) it is likely to succeed on the merits of its claims, (2) it is likely to suffer irreparable harm in the absence of preliminary relief, (3) the balance of equities tips in its favor, and (4) an injunction is in the public interest. Id. (citing Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 20 (2008)). The Ninth Circuit employs a “sliding scale” approach, according to which these elements are balanced, “so that a stronger showing of one element may offset a weaker showing of another.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011).

IV. DISCUSSION

A. Applicable Law

As a preliminary matter, Key asserts that Ohio law applies to its state-law claims. Mot. 10. Defendants also cite to Ohio law in their brief, but at the hearing, Defendants disputed that Ohio law should apply to all claims and asserted that Washington law may apply.

“In a federal question action where the federal court is exercising supplemental jurisdiction over state claims, the federal court applies the choice-of-law rules of the forum state.” MRO Commc'ns, Inc. v. Am. Tel. & Tel. Co., 197 F.3d 1276, 1282 (9th Cir. 1999) (quoting Paracor Fin., Inc. v. Gen. Elec. Cap. Corp., 96 F.3d 1151, 1164 (9th Cir. 1996)). Washington choice-of-law rules generally enforce choice-of-law provisions. Brown v. MHN Gov't Servs., Inc., 178 Wash.2d 258, 263 (2013); McKee v. AT&T Corp., 164 Wash.2d 372, 384 (2008) (citing Erwin v. Cotter Health Ctrs., 161 Wash.2d 676, 695-96 (2007)). Further, the parties' chosen choice-of-law provision will only be disregarded if all three of the following conditions are met: “(1) without the choice-of-law provision, Washington law would apply; (2) the chosen state's law violates a fundamental public policy of Washington; and (3) Washington's interest in the determination of the issue materially outweighs the chosen state's interest.” Id. (citing Erwin, 161 Wash.2d at 694-95).

Here, the parties' agreements expressly provide that Ohio state law governs non-solicitation and confidentiality of trade secrets. See Range Decl., Ex. 2, ECF No. 5-2 (“This Non-Solicitation of Key Customers provision shall be interpreted in accordance with Ohio law.”); Ex. 6, ECF No. 5-6 (“The validity, interpretation, and performance of this Agreement shall be construed under the laws of Ohio.”). While the parties have not had a full opportunity to argue their positions on the choice of law, at this point in the litigation, the Court will apply the choice of law provision contained in the parties' agreements. Both parties cite Ohio law in their briefs. The courts of both Ohio and Washington adopted the Restatement of the Law (Second) Conflict of Laws § 187(2) to determine whether the parties' contractual choice of law clause is valid. Erwin, 161 Wash.2d at 694; Schulke Radio Prods., Ltd. v. Midwestern Broad. Co., 6 Ohio St.3d 436, 453 N.E.2d 683, 686 (Ohio 1983).

Defendants have not disputed the validity of the contracts^[5] or that the choice of law clause applies to the contractual claims.^[6]

B. Temporary Restraining Order

The parties seriously dispute whether Key has met its burden to demonstrate that it is likely to succeed on the merits of its claims. Key has provided evidence demonstrating that Defendants are likely soliciting Key's customers and likely retained customer lists that allow them to do so. See, e.g., Range Decl. Exs. 10, 12, ECF Nos. 5-10, 5-11 (letters from Key clients averring being contacted by Mr. Sul and invited to move accounts over to Platform Wealth); Hammontree Decl. ¶ 3, ECF No. 6 (“We began making calls to these clients immediately upon these Advisors' departure and as of July 17, 2023, 22 households with a total of 46 accounts told me, or my team, that they had already been contacted by Sul and/or Saladis and told of their new business.”); Id. ¶ 4 (“16 accounts under my purview have moved to Platform Wealth without any contact whatsoever from Key Investment Services.”); Range Decl. ¶ 11 (“Both Advisors embarked on a telephone campaign to contact accounts they had serviced at KIS. Both Sul and Saladis made calls to KIS clients shortly before or after terminating their employment.”).

Defendants do not dispute that Mr. Sul communicated with Key's two clients who provided sworn declarations, but argue that the conversations were mischaracterized, and since both clients decided to stay with Key, there was no harm. Defendants assert that clients are free to move their accounts to continue to work with a trusted advisor, and that choice is protected by FINRA Rule 2140. Mr. Sul avers that he did not solicit clients and provides statements from clients who represent that “John Sul and Angie Saladis did not solicit me to open an account with them and did not ask me to transfer my accounts away from Key Investments.” Sul Decl. ¶ 8, Exs. pp. 6-72. ECF No. 18; Butterfield Decl. Ex. 2, ECF No. 15-2. Key suggests that the unsworn client statements provided by Defendants appear to be form statements that were a part of the account-opening package of forms that clients were given to sign.

Ms Saladis does not aver that she did not...