United States District Court, D. Colorado
Y. WANG UNITED STATES MAGISTRATE JUDGE.
matter is before the court on Defendant Highwater Wealth
Management, LLC's (“Defendant” or
“Highwater”) Motion for Stay of Discovery (the
“Motion”). [#31, filed July 28, 2017]. The
undersigned considers the Motion pursuant to 28 U.S.C. §
636(b), the Order Referring Case dated March 31, 2017 [#6],
the Case Reassignment dated April 3, 2017 [#8], and the
Memorandum dated July 31, 2017 [#33]. This court concludes
that oral argument will not materially assist in the
resolution of this matter. Accordingly, upon careful review
of the Motion and related briefing, the applicable case law,
and the entire case file, the Motion is DENIED for the
reasons stated herein.
Charles Schwab & Company, Inc. (“Plaintiff”
or “Charles Schwab”) initiated this action by
filing its Complaint on March 30, 2017. [#1]. Plaintiff, a
securities broker/dealer, entered into a custodial
relationship with Highwater, a Registered Investment Advisory
firm (“RIA”), wherein Highwater could offer its
clients the option of having their assets custodied with
Charles Schwab. [Id. at ¶¶ 6-9]. However,
Plaintiff alleges that its former employee Gregory Giuffra
resigned from Charles Schwab and joined Highwater, and in
doing so, illicitly solicited business from Plaintiff's
clients in violation of a non-solicitation agreement with
Charles Schwab. [#1]. Plaintiff alleges that Highwater was
implicit in Mr. Giuffra's illicit acts and even
encouraged them. [#1]. Accordingly, Plaintiff asserts the
following claims against Defendant: (1) tortious interference
with contract (“Claim I”); (2) misappropriation
of trade secrets pursuant to the Defend Trade Secrets Act, 18
U.S.C. § 1831 et seq. (“Claim II”);
(3) misappropriation of trade secrets pursuant to the
Colorado Uniform Trade Secrets Act (“CUTSA”),
Colo. Rev. Stat. § 7-74-101 et seq.
(“Claim III”); (4) unfair competition
(“Claim IV”); and (5) civil conspiracy
(“Claim V”). [#1]. In addition, Plaintiff and Mr.
Giuffra are currently engaged in arbitration before the
Financial Industry Regulatory Authority, Inc. (the
“FINRA Action”). [#3]. Highwater is not a party
to that proceeding. [Id.].
1, 2017, Highwater filed its Answer and asserted
counterclaims for: (1) declaratory relief that the Charles
Schwab agreement not to solicit is a void agreement not to
compete; and (2) tortious interference with contract and
prospective financial advantage. [#16]. Highwater then filed
its Amended Counterclaims, amending its second counterclaim
to tortious interference with prospective business relations
on May 19, 2017. [#19].
undersigned then held a Scheduling Conference on May 30,
2017, setting a pre-trial schedule for this matter that
included September 1 and November 30, 2017, as the deadlines
for fact discovery and expert discovery, respectively. [#22].
On July 28, 2017, Highwater filed the instant Motion,
requesting a stay of discovery through November 2017, pending
the resolution of the arbitration proceedings between
Plaintiff and Mr. Giuffra. [#31]. Defendant also requested an
expedited briefing schedule on the Motion given that fact
discovery is set to close on September 1, 2017. [#32]. The
undersigned granted Highwater's request for an expedited
briefing schedule [#35], and the Motion is currently ripe for
resolution. See [#36; #37]. This court turns to the
Parties' arguments below.
Federal Rules of Civil Procedure do not provide for the stay
of proceedings[.] . . . Instead, Rule 1 instructs that the
rules of procedure ‘shall be construed and administered
to secure the just, speedy, and inexpensive determination of
every action.'” Sutton v. Everest Nat'l
Ins. Co., No. 07 CV 00425 WYD BNB, 2007 WL 1395309, at
*1 (D. Colo. May 9, 2007). Nonetheless, when ruling on a
motion to stay, courts weigh the following factors: (1) the
plaintiff's interests in expeditiously litigating this
action and the potential prejudice to plaintiff of a delay;
(2) the burden on the defendants; (3) the convenience to the
court; (4) the interests of persons not parties to the civil
litigation; and (5) the public interest. String Cheese
Incident, LLC v. Stylus Shows, Inc., No.
1:02-CV-01934-LTB-PAC, 2006 WL 894955, at *2 (D. Colo. Mar.
30, 2006). However, “stays of the normal proceedings of
a court matter should be the exception rather than the rule,
” Christou v. Beatport, LLC, No.
10-CV-02912-CMA-KMT, 2011 WL 650377, at *1 (D. Colo. Feb. 10,
2011), and stays in this District are generally disfavored,
see, e.g., Chavez v. Young Am. Ins. Co.,
No. CIVA 06CV02419PSFBNB, 2007 WL 683973, at *2 (D. Colo.
Mar. 2, 2007).
Whether the FINRA Action May Have Preclusive Effect
estoppel, or issue preclusion, is designed to prevent
needless relitigation and bring about some finality to
litigation[, ]” and “bars a party from
relitigating an issue once it has suffered an adverse
determination on the issue, even if the issue arises when the
party is pursuing or defending against a different
claim.” Moss v. Kopp, 559 F.3d 1155, 1161
(10th Cir. 2009) (internal citations and footnote omitted).
In according preclusive effect to the issue(s) adjudicated in
a state proceeding, a federal court must look to the
preclusion doctrines of the state where the adjudication
occurred-Colorado in this case. See Salguero v. City of
Clovis, 366 F.3d 1168, 1173 (10th Cir. 2004) (quoting
Univ. of Tenn. v. Elliot, 478 U.S. 788, 798 (1986)).
Under Colorado law, issue preclusion applies when four
elements are met: “(1) the issue is identical to an
issue actually litigated and necessarily adjudicated in the
prior action; (2) the party against whom estoppel is sought
was either a party to the prior action or in privity with a
previous party; (3) a final judgment was entered on the
merits in the prior proceeding; and (4) the party against
whom estoppel is sought had a full and fair opportunity to
litigate the issues in the prior proceeding.”
Concerning Application for Water Rights of Sedalia Water
& Sanitation Dist. in Douglas Cty., 343 P.3d 16, 22
(Colo. 2015). If these elements are satisfied, a non-party to
the underlying action may still raise issue
preclusion-offensive nonmutual issue preclusion applies when
a nonmutual plaintiff seeks to preclude the defendant from
relitigating an unsuccessful issue from a prior proceeding;
defensive nonmutual issue preclusion applies when a nonmutual
defendant raises the doctrine against a plaintiff that
unsuccessfully litigated an issue in a prior proceeding.
See Cent. Bank Denver, N.A. v. Mehaffy, Rider, Windholz
& Wilson, 940 P.2d 1097, 1101-03 (Colo.App. 1997);
see also Dodge v. Cotter Corp., 203 F.3d 1190, 1198
(10th Cir. 2000). Issue preclusion may also apply to an
arbitration award. See Union Ins. Co. v.
Hottenstein, 83 P.3d 1196, 1202 (Colo.App. 2003).
first argues for a stay because the arbitrators' decision
in the FINRA Action may dispose of Plaintiff's claims in
this matter. [#31 at 5]. Highwater contends that
Plaintiff's claims in the FINRA Action are nearly
identical to its claims against Highwater. [Id. at
5-6]. For example, Plaintiff asserts the following claims
against Mr. Giuffra in the FINRA Action: (1) breach of
contract; (2) misappropriation of trade secrets; (3) breach
of duty of loyalty; and (4) unfair competition. [#31-1 at 2].
According to Highwater, should the arbitrators rule in favor
of Mr. Giuffra, Plaintiff's identical claims against
Highwater must similarly fail. [#31 at 5-6; #37 at 3-6].
Specifically, if the arbitrators find that Mr. Giuffra either
did not violate the non-solicitation agreement with Plaintiff
or that the non-solicitation agreement is unenforceable,
“then Highwater cannot be liable for tortious
interference with that Agreement or a conspiracy to injure
[Charles] Schwab.” [#31 at 5]. Similarly, if the
arbitrators find that Mr. Giuffra did not misappropriate
trade secrets, “then Highwater is absolved of any
wrongdoing, ” including any injunctive relief against
Highwater that Plaintiff also seeks against Mr. Giuffra in
the FINRA Action. [Id.].
response, Charles Schwab asserts that the FINRA Action will
carry no preclusive effect on this matter, because Highwater
is not a party to the FINRA Action. [#36 at 8]. Relatedly,
Highwater's counterclaim for tortious interference is not
at issue in the FINRA Action. [Id. at 10-11]. And,
as to narrowing any issues in this matter, Plaintiff asserts
that the FINRA Action award will contain no reasoned
explanation of the arbitrators' decision pursuant to
FINRA Rule 13904(g); thus, the Parties will have no basis for
determining how and/or why the arbitrators reached their
ultimate decision. [Id. at 12].
appears undisputed that that the FINRA Action may
have preclusive effect on this matter. First, the FINRA
Action will necessarily adjudicate whether: (1) Mr. Giuffra
violated the non-solicitation agreement; (2) the
non-solicitation agreement is enforceable; (3) Mr. Giuffra
misappropriated trade secrets; and (4) Mr. Giuffra's acts
constituted unfair competition. See generally
[#31-1]. Here, Plaintiff's claims assert liability
against Highwater on the basis that it conspired with Mr.
Giuffra and was implicit in Mr. Giuffra's illicit
actions-the basis for the FINRA Action. Compare [#1]
with [#31-1]. Nor is it fatal that the arbitrators
will provide no explanation of their award, as they will
still be required to actually and necessarily adjudicate the
issues just identified in order to issue the arbitration
award. See In re: Larry Ivan Behrends, Debtor. Virginia
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