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Charles Schwab & Co., Inc. v. Highwater Wealth Management, LLC

United States District Court, D. Colorado

September 14, 2017

CHARLES SCHWAB & CO., INC., Plaintiff,



         This matter is before the court on Plaintiff Charles Schwab & Co., Inc.'s (“Plaintiff” or “Schwab”) Motion to Dismiss (or “Motion”). [#23, filed June 2, 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 June 7, 2017 [#26]. 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, I respectfully RECOMMEND that the Motion to Dismiss be DENIED for the reasons stated herein.


         Plaintiff initiated this action by filing its Complaint on March 30, 2017. [#1]. Plaintiff, a securities broker/dealer, entered into a custodial relationship-the Investment Manager Service Agreement (“IMSA”)-with Highwater, a Registered Investment Advisory firm (“RIA”), wherein Highwater could offer its clients the option of having their assets custodied with Schwab. [Id. at ¶¶ 6-9]. However, Plaintiff alleges that its former employee Gregory Giuffra resigned from Schwab and joined Highwater, and, in doing so, illicitly solicited business from Plaintiff's clients in violation of a non-solicitation agreement (the “Agreement”) with Schwab. [#1]. Plaintiff alleges that Highwater was complicit in Mr. Giuffra's illicit acts and even encouraged them. [#1]. Accordingly, Plaintiff asserts the following claims against Defendant: (1) tortious interference with contract; (2) misappropriation of trade secrets pursuant to the Defend Trade Secrets Act, 18 U.S.C. § 1831 et seq.; (3) misappropriation of trade secrets pursuant to the Colorado Uniform Trade Secrets Act (“CUTSA”), Colo. Rev. Stat. § 7-74-101 et seq.; (4) unfair competition; and (5) civil conspiracy. [#1]. Presently, Plaintiff and Mr. Giuffra are engaged in arbitration before the Financial Industry Regulatory Authority, Inc. (the “FINRA Action”) that is set to commence in December 2017. [#3, #47]. Highwater is not a party to that proceeding. [#3].

         On May 1, 2017, Highwater filed its Answer and asserted counterclaims for: (1) declaratory relief that the Agreement is a void agreement not to compete; and (2) tortious interference with contract and prospective financial advantage. [#16]. Highwater then filed its First Amended Counterclaims (“FAC”), amending its second counterclaim to tortious interference with prospective business relations (“Counterclaim II”)-the subject of the instant Motion to Dismiss-on May 19, 2017. [#19].

         As relevant here, the FAC alleges that, on June 2, 2016, Schwab informed Highwater that it was terminating the IMSA effective September 7, 2016-the same date Plaintiff would close Highwater's Investment Manager Master Account with Schwab. [Id. at ¶ 26]. The June 2 correspondence also informed Highwater that Plaintiff “would no longer accept and process any new account opening documentation for Highwater clients or accept or process documentation to link existing Schwab accounts.” [Id. at ¶ 28]. Schwab then informed Highwater's clients of the IMSA termination and provided Highwater's clients a list of modifications to their accounts, including new pricing guidelines. [Id. at ¶ 29]. Highwater alleges that Plaintiff sent the IMSA Termination Letter “to over 200 [Highwater] customers.” [Id. at ¶ 30].

         Highwater contends that Schwab “intentionally attempted to portray [it] in a negative light and create an appearance of impropriety by Highwater when Schwab sent the IMSA Termination Letters.” [Id. at ¶ 46]. Highwater further alleges that Schwab employees made “false and disparaging statements regarding Highwater's products and business” to Highwater clients. [Id. at ¶ 47]. According to Highwater, Schwab intended to steer Highwater's clients away from continuing their business relationship with Highwater to instead conduct business with Schwab, and that Highwater had to make “concessions” to customers when their accounts were moved out of Schwab. [Id. at ¶¶ 49-59]. Moreover, Schwab initiated this action to recover from Highwater what it cannot recover from Mr. Giuffra in the FINRA Action-“a permanent restraint on any customer contact and an improper de facto extension of the restrictive covenants contained in the Agreement.” [Id. at ¶ 25 (emphasis in original)].

         On June 2, 2017, Schwab filed the instant Motion to Dismiss. [#23]. Plaintiff moves to dismiss Counterclaim II, because Highwater fails to allege that Schwab improperly interfered with a prospective business relationship or that Highwater suffered any damages as a result of any improper interference. [Id. at 7]. Highwater has filed a Response and Plaintiff a Reply. [#28; #29]. The Motion is now ripe for Recommendation.


         Under Rule 12(b)(6) a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a motion under Rule 12(b)(6), the court must “accept as true all well-pleaded factual allegations . . . and view these allegations in the light most favorable to the plaintiff.” Casanova v. Ulibarri, 595 F.3d 1120, 1124 (10th Cir. 2010) (quoting Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009)). The court may also consider materials outside the complaint without converting a motion to dismiss to one for summary judgment if the documents are central to the plaintiff's claims, referred to in the complaint, and the parties do not dispute their authenticity. See Cty. of Santa Fe, N.M. v. Public Serv. Co. of N.M., 311 F.3d 1031, 1035 (10th Cir. 2002).[1]

         To survive a Rule 12(b)(6) motion, a plaintiff may not rely on mere labels or conclusions, “and a formulaic recitation of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Rather, “a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009); see also Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (explaining that plausibility refers “to the scope of the allegations in a complaint, ” and that the allegations must be sufficient to nudge a plaintiff's claim(s) “across the line from conceivable to plausible.”). The duty of the court is to “determine whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).


         Under Colorado law, to maintain a claim for tortious interference with prospective business relations (“tortious interference”), Highwater must allege that Schwab induced or caused a third party not to enter into or continue its business relation with Highwater, or prevented Highwater from acquiring or continuing the prospective relation. See Harris Grp., Inc. v. Robinson, 209 P.3d 1188, 1196 (Colo.App. 2009) (quoting Restatement (Second) of Torts § 766). Highwater need not prove the existence of an underlying contract; rather, it must demonstrate “intentional and improper interference such that a particular contract is prevented from being formed.” Shell v. Am. Family Rights Ass'n, 899 F.Supp.2d 1035, 1060 (D. Colo. 2012) (citing Id. at 1195-96). “However, a protected relationship exists only if there is a reasonable likelihood or probability that a contract would have resulted; there must be something beyond a mere hope.” Klein v. Grynberg, 44 F.3d 1497, 1506 (10th Cir. 1995); see also Campfield v. State Farm Mut. Auto. Ins. Co., 532 F.3d 1111, 1122 (10th Cir. 2008) (noting a plaintiff “must show that there was a reasonable likelihood that a contract would have resulted but for the wrongful interference.”).

         Here, Schwab moves to dismiss Counterclaim II because Highwater fails to allege any improper interference by Schwab that caused Highwater damages. First, regarding the IMSA Termination Letter, Schwab argues for dismissal because (1) Highwater provides only conclusory allegations that Schwab intended to “steer customers away from Highwater, ” as the IMSA Termination Letter contained no false statements about Highwater; (2) Schwab was contractually entitled to terminate the IMSA and cannot be liable for exercising its contractual rights; and (3) there are no allegations that the IMSA Termination Letter caused damages. See [#23 at 7-10; #29 at 3-4]. Second, as to the allegation that Schwab immediately terminated the processing of any new accounts for clients of Highwater, this allegation fails because it is conclusory, ignores the plain language of Schwab's rights under the IMSA, and fails to allege damages, i.e., this did not prevent Highwater clients from entering new contracts with Highwater. [#23 at 10-11]. Finally, as to any allegedly false statements Schwab made to Highwater's clients, Schwab argues that Highwater fails to allege how the one proffered false statement (‚Äúthat Highwater did not owe its customers ...

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