FINRA Arbitration Clause Did Not Apply to Trade Secret Misappropriation Claims

The California Court of Appeal recently addressed the issue of the interpretation of arbitration clauses in the context of claims for misappropriation of trade secrets in the case of Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal.App.4th 606 (1st Dist. 2009).

In Valentine, respondent John Valentine was the founder and president of Valentine Capital Asset Management, Inc. (“VCAM”) and Valentine Wealth Management, Inc. (“VWM”), neither of which was a member of the Financial Industry Regulatory Authority (“FINRA”). John Valentine was subject to FINRA rules and regulations through his affiliation with FINRA member Geneos Wealth Management, Inc., but not through his affiliation with VCAM and VWM. Appellants Agahi, Luippold and Ortale worked as employees of VCAM and VWM. In their capacity as employees of VCAM and VWM, Agahi, Luippold and Ortale were given business leads, and they were responsible for following up on the leads, developing a client relationship, and providing services to those clients. Agahi resigned from VCAM and VWM to form a competing firm, which added Luippold and Ortale as employees. The competing firm was also not a member of FINRA. The three defendants allegedly brought VCAM and VWM client databases with them to the competing firm. Valentine allegedly discovered that Agahi had e-mailed VCAM and VWM’s client database to Ortale, and that files and e-mails had been deleted from Agahi’s work computer prior to his departure. Valentine also allegedly discovered that Agahi was attempting to persuade clients of the Valentine companies to move their assets to Agahi and his competing firm. Valentine sued Agahi, Luippold and Ortale for misappropriation of trade secrets, intentional interference with contractual relations, intentional interference with prospective economic advantage, trade libel, slander, and common law and statutory unfair competition.

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