Opinion
No. 3:21-cv-512-BJB-RSE
2021-08-16
J.P. MORGAN SECURITIES LLC, Plaintiffs v. Matthew S. KITTELL, Defendant
Dustin E. Meek, Tachau Meek PLC, Louisville, KY, Leonard Weintraub, Paduano & Weintraub, New York, NY, for Plaintiffs. Kevin M. Norris, Smith & Smith, Louisville, KY, for Defendant.
Dustin E. Meek, Tachau Meek PLC, Louisville, KY, Leonard Weintraub, Paduano & Weintraub, New York, NY, for Plaintiffs.
Kevin M. Norris, Smith & Smith, Louisville, KY, for Defendant.
Opinion and Order
Benjamin Beaton, District Judge May litigants stipulate to the entry of a preliminary injunction or temporary restraining order? The notion of an adverse party agreeing to be enjoined sounds faintly oxymoronic. After all, the whole premise of a temporary injunction is that the Court's intervention is the only way to prevent one party from harming the other. If the parties have already agreed they'll stop doing whatever causes the harm, why would they need the Court to order an "extraordinary remedy," Winter v. NRDC , 555 U.S. 7, 24, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008), merely to further solemnize an already enforceable contract?
Yet at least some caselaw recognizes this unusual "stipulated" variant of a temporary injunction. See, e.g., Ontel Prod. Corp. v. Doe 1-10 , No. 20-13118, 2021 WL 1084971, at *2 (E.D. Mich. Feb. 8, 2021). And a defendant conceivably could resist a plaintiff's litigation position while conceding, at the outset of a case, the appropriateness of interim relief—though doing so could cede much of the defendant's legal position. Absent factual and legal findings that satisfy that requirements for a temporary injunction, however, a district court may not issue an injunction. See, e.g. , Fed. R. Civ. P. 52(a)(2). The familiar four-factor test for any temporary injunction requires a court to consider whether the plaintiff would likely succeed on the merits and suffer irreparable harm absent relief, on the one hand, and whether the injunction would unduly harm the defendant and serve the public interest, on the other. See, e.g., Winter , 555 U.S. at 20, 129 S.Ct. 365. No matter how convenient and agreeable, therefore, federal courts may not dispense unsupported injunctions on the parties’ request; these orders require articulated judicial findings of law and fact. See Six Clinics Holding Corp. II v. Cafcomp Systems , 119 F.3d 393, 399 (6th Cir. 1997).
A. The Proposed Stipulated Injunctions. Here JPMorgan sued and sought a temporary restraining order to enforce a non-solicitation agreement against its former employee, Matthew Kittell. TRO Motion (DN 3) at 6. Despite Kittell's apparent agreement to post-employment restrictions, see Carrico Decl. Exhibits A–B (DNs 3-3 and 3-4), he allegedly started soliciting JPMorgan clients as soon as he left for a new firm. TRO Motion at 2–3. And poaching customers in violation of a noncompete agreement can, according to the Sixth Circuit, amount to irreparable harm sufficient to trigger injunctive relief. See, e.g., Certified Restoration Dry Cleaning Network, L.L.C. v. Tenke Corp. , 511 F.3d 535, 550 (6th Cir. 2007).
JPMorgan requested the TRO to preserve the status quo and its client base until it could arbitrate its claims against Kittell. The parties agreed to do so before a private tribunal operating under the aegis of the Financial Industry Regulatory Authority. "FINRA" is a private corporation that serves as a so-called "self-regulatory organization" which, among many other activities, supervises broker-dealers. See 15 U.S.C. § 78s. JPMorgan is a member of FINRA, and Kittell maintains his securities licenses through FINRA. Weintraub Decl. (DN 3-8) at 1. No one, thus far, has objected to arbitrating this dispute before FINRA.
So far, so good. Courts may and do grant injunctive relief to prevent harm and preserve the status quo in disputes the parties have agreed to arbitrate. See, e.g., Performance Unlimited v. Questar Publishers , 52 F.3d 1373, 1380 (6th Cir. 1995).
An hour before the hearing on the TRO motion, however, the parties filed a "proposed stipulated preliminary injunction" for the Court's signature. DN 12. Helpfully and efficiently, the proposed stipulation would—if granted—have obviated the need for an expedited hearing and findings under Federal Rules of Civil Procedure 52 and 65. But unhelpfully and inefficiently, perhaps, the Federal Rules do not authorize district courts to issue injunctions on demand. Indeed, the Sixth Circuit has cast doubt on the propriety of a "stipulated injunction." Coal. to Defend Affirmative Action v. Granholm , 473 F.3d 237, 245 (6th Cir. 2006). Regardless of the parties’ agreement, a temporary injunction must find support in judicial findings that satisfy the four-part balancing test for such extraordinary relief. In Coalition to Defend Affirmative Action , the Sixth Circuit rejected an agreed injunction that, as the court described it, "does not contain any discussion of the federal-law grounds for granting an injunction," "does not contain any evidentiary findings concerning the need for immediate relief," and "does not address the four factors for granting a preliminary injunction." Id. at 244.
The proposed stipulation here arguably fares even worse. Far from supporting the findings necessary for an injunction, the parties’ agreement would undermine them. For it contains plenty of dis agreement. Kittell does not agree that JPMorgan is likely to succeed on the merits and suffer irreparable harm. Quite the opposite: he "does not agree to or admit any liability or acknowledge any alleged wrongdoing" and asks the Court not to "make any findings of fact or any determination as to liability, or whether Defendant violated his agreements with JPMorgan." Stipulated Preliminary Injunction (DN 12) at 2. How could the Court do this? A temporary injunction must rest on findings regarding the likelihood that Kittell "violated his agreements," the harm caused by the "alleged wrongdoing," and the effects of an injunction on JPMorgan, Matthew Kittell, and the public interest.
So the proposed stipulated injunction is neither fish nor fowl: it is not a legal concession that the required elements for injunctive relief are satisfied, nor does it offer a factual basis for the Court to find those elements satisfied. Federal Rule 52(a) expressly requires trial courts to "state the findings and conclusions that support its action" in "granting or refusing an interlocutory injunction." And the Sixth Circuit has repeatedly addressed this "requir[ement]" that a district court "make specific findings concerning each of the four factors." Six Clinics , 119 F.3d at 399 ; see also United States v. Sch. Dist. of Ferndale, Mich. , 577 F.2d 1339, 1352 (6th Cir. 1978) (vacating preliminary injunction in part because the district court "failed to make an express finding as to probability of success on the merits").
Relying on these precedents, the Sixth Circuit in Coalition to Defend Affirmative Action made plain that a "stipulated" injunction, "[h]owever the injunction is labeled ," must satisfy the four-part test. 473 F.3d at 244–45 (emphasis added). The parties here have not squared their request with this adverse precedent or pointed to any other binding or persuasive authority that would allow a district court to expand the scope of its remedial authority simply because both sides would prefer a particular injunction. See Arborjet, Inc. v. Rainbow Treecare Sci. Advancements, Inc. , 794 F.3d 168, 173 (1st Cir. 2015) (Souter, J.) (rejecting a stipulated injunction because the district court "made no finding of likelihood of success, stipulation or no stipulation").
"Why all the fuss over an agreed order?", the parties could be forgiven for asking. The risk of immediate appeal and reversal, for one. See 28 U.S.C. § 1292(a)(1) ; In re Eagle-Picher Industries , 963 F.2d 855, 858 (6th Cir. 1992) ("district court's findings of fact underlying its decision to grant a preliminary injunction are reviewed for clear error, and the legal conclusions underpinning its decision are reviewed de novo "). The inherent risk and impropriety of expanding the remedial authority of a court of limited jurisdiction, for another.
As a practical matter, moreover, requests for emergency interlocutory relief disrupt the orderly flow of litigation on a micro and a macro level. District courts must accelerate their consideration in many respects, see Fed. R. Civ. P. 65(b)(2)–(4), which often necessitates hasty decision-making and opinion-writing to preserve the status quo, see Six Clinics , 119 F.3d at 400 ; Dobbs, Should Security Be Required as a Pre-Condition to Provisional Injunctive Relief? , 52 N.C. L. Rev. 1091, 1111 (1974) ("Procedure in provisional relief cases, far from providing a rational process for development of, and reflection upon, law and fact, forces immediate decisions without the light of fact or the delineation of policy."). Courts of Appeals, too, must often review decisions on an accelerated basis and abbreviated record. But don't shed any tears for us judges; the people actually aggrieved by expedited injunction practice are the many other litigants whose pending cases stall while other disputes jump line. And of course the easier it becomes to obtain an interlocutory injunction, the more such requests the courts can anticipate, further increasing the disruption caused by a class of non -disputes in which judges’ involvement may be entirely unnecessary.
Worse still is the predicament faced by any third parties who might not have agreed to (or even been aware of) a "proposed stipulated injunction," yet find themselves bound by it after learning of a court order enjoining those "in active concert or participation with" the parties or their agents. Fed. R. Civ. P. 65(d)(2)(A). Indeed, the injunction proposed here would not apply to only the parties before the Court, but also "all those acting in concert with Kittell." Stipulated Preliminary Injunction at 1. This potential agency problem should (at a minimum) give courts pause before finding that the benefits of a stipulated temporary injunction outweigh its harms and serve the "public interest." See Coalition to Defend Affirmative Action , 473 F.3d at 245.
B. Expedited FINRA Arbitration. These concerns bring us back to the beginning: why tread such a torturous judicial path when the parties could just agree to a standstill pending arbitration? Here the answer is clear, if ultimately unavailing. A FINRA rule allows for expedited review of an arbitration request if a judge first enters a "temporary injunctive order." FINRA Rules § 13804(b). Absent this threshold judicial determination, the parties report that they might not arbitrate for a year or more, by which time the non-solicitation period may have lapsed. See Exhibit A (DN 3-3) at ¶ 8(a). And FINRA, according to the parties, lacks authority to award or impose temporary—rather than permanent—injunctive relief of the sort that would protect JPMorgan's interest in enforcing its contractual rights against former employees poaching customers. On this understanding of FINRA procedure, apparently, parties with no intention of litigating their underlying dispute nevertheless come to federal court, on an expedited basis, just so they can accelerate a private arbitration process run by their own self-regulatory organization. " ‘Curiouser and curiouser!’, cried Alice."
Why should FINRA's tail wag the dog of federal-court jurisdiction? The Court is unaware of any reason, much less authority, indicating that the desire to fast-track private arbitration, however efficient, would justify the expansion of a federal judge's remedial authority. Surely if FINRA Rules create such an issue for members such as JPMorgan and licensees like Kittell, that complaint would properly be heard by FINRA's own leadership, not a U.S. District Court. It would be extraordinary indeed for a federal judge to issue a temporary injunction just to satisfy a preferred procedural threshold for expedited private arbitration. Just not "extraordinary" in the sense that earns you a TRO. See Winter , 555 U.S. at 24, 129 S.Ct. 365. Such an injunction is a last-resort mechanism to preserve the status quo when no other relief is available, not a first step to gain entry to a different tribunal.
The Court therefore rejects the parties’ undoubtedly well-intended invitation to streamline this dispute by entering a stipulated injunction. Given the apparent lack of any basis to accept the parties’ stipulated preliminary injunction, DN 12, or the similar stipulated TRO submitted after the hearing, DN 13, the Court declines to enter either proposed agreed order, both of which appear to be beyond the circumscribed authority of a federal district court.
C. JPMorgan's Original TRO Request. Ironically, the Court's rejection of those stipulations may get the parties where they wanted to go all along. Absent the stipulations, the Court is left with JPMorgan's unrebutted and unopposed request for a temporary restraining order. See TRO Motion (DN 3) and Notice of Filings to Defendant (DN 6). This motion and its supporting affidavits satisfy each of the prerequisites for a TRO. Kittell's use of confidential information to solicit JPMorgan clients appears to violate his noncompete provision, giving JPMorgan a substantial likelihood of success on the merits. The loss of such customers is a type of harm the Sixth Circuit has recognized as irreparable absent an injunction. The burden to Kittell is limited if he is in fact bound by his employment agreement. And the public interest is generally served by enforcing valid contracts. All of this suffices to restrain, at least temporarily, the alleged violation of a non-compete agreement. See, e.g., Basicomputer Corp. v. Scott , 973 F.2d 507, 511 (6th Cir. 1992).
The Court therefore grants the motion for a temporary restraining order (DN 3) insofar as it bars Kittell from soliciting JPMorgan's clients who were not among those the Defendant brought to JPMorgan in 2013, see Carrico Decl. ¶ 17 (describing Kittell's preexisting clients identified in Attachment A to the 2013 Non-Solicitation Agreement), and from using JPMorgan's confidential client information in violation of the confidentiality clause of Kittell's employment contract, see Exhibit A at ¶ 7. Consistent with Rule 65, the temporary restraining order shall remain in effect for 14 days from the entry of this order absent a request by the Defendant and a decision by this Court to dissolve the injunction under Fed. R. Civ. P. 65(b)(4).
The Court sets a telephonic status conference in two weeks (August 30 at 10:30 a.m.) to address whether the temporary restraining order should be extended, at JPMorgan's request, under Fed. R. Civ. P. 65(b)(2). Or the parties may instead wish to inform the Court that the commencement of arbitration under FINRA Rules, or a motion to compel arbitration, or a standstill agreement among the parties has forestalled or mooted their need for judicial relief.
As to the issue of a bond, the Sixth Circuit has recognized that "the district court possesses discretion over whether to require the posting of security" in connection with the entry of a TRO. ARH v. Coventry Health & Life Ins. Co. , 714 F.3d 424, 431 (6th Cir. 2013) (quotation marks omitted). At this point, the Court lacks any basis on which to assess the appropriateness or amount of a bond in this case. In advance of the August 30 status conference, the Court orders counsel to confer about the necessity of a bond and come prepared to address this and any other necessary modifications to this order.