In Valentine Capital Asset Management, Inc. v. Agahi, 174 Cal. App. 4th 606, the California Court of Appeals, First District, recently looked at the issue of whether an associated person of a FINRA member could be compelled to arbitrate his company’s trade secret and unfair competition claims against former employees who were also associated persons of a FINRA member. The court held that although John Valentine, the President and Founder of Valentine Capital Asset Management, Inc., was a person associated with a FINRA member, arbitration could not be compelled because his company was not a FINRA member, the new competing company created by his former employees was not a FINRA member, and the business activities in question were not activities that any of the parties took as persons associated with FINRA members. The mere fact that parties happened to have been FINRA associated persons was not sufficient to support mandatory arbitration.
Non-FINRA member companies should keep this case in mind in considering whether to enter into arbitration agreements with their employees. It should not be assumed that an employee’s association with a FINRA member will be sufficient to compel arbitration in the event of a trade secret dispute.