Smith Bros. Financial, LLC v. Belsito

Sep 1, 2026

AC48158

Opinion

GUARNIERI, J. Before this court are two applications filed on August 23, 2023: (1) an application for order pendente lite in aid of arbitration and for prejudgment remedies (Docket Entry No. 100.31); and (2) a corresponding application for order pendente lite in aid of arbitration and for disclosure of assets. (Docket Entry No. 100.32.) Having considered the parties’ respective submissions, the evidence presented, and the arguments of the parties, and for the reasons stated herein, the applications are GRANTED.

I

FINDINGS OF FACT

The applicants in the present action, Smith Brothers Financial, LLC, Joseph B. Smith, and Stephen R. Michaels, seek prejudgment remedies and disclosure of assets pursuant to General Statutes §§ 52-422 and 52-278a et seq. The court heard argument and took evidence over the course of a two day hearing commencing on July 2, 2024. Following the close of evidence, the parties submitted posthearing briefing on August 26, 2024 (Docket Entry Nos. 128.00 and 129.00), and further oral argument was heard remotely on September 23, 2024. The court has carefully reviewed the documentary exhibits and evaluated the demeanor and credibility of witnesses. Moreover, having analyzed and weighed the evidence according to the applicable standards of law and having considered the parties’ respective arguments, submissions, and stipulations, the court finds the following facts in connection with the applicants’ application.

The respondent, Samuel P. Belsito, has been a financial advisor since approximately 1999 and has remained duly registered with the Financial Industry Regulatory Authority (FINRA) since that time. In connection with his financial advising, Belsito buys and sells securities for his clients, which requires that he be a registered representative of a securities broker-dealer (broker-dealer or firm). A securities broker-dealer facilitates and oversees the buying and selling of traded securities and ensures regulatory compliance by its registered representatives. Belsito has been a registered representative of the broker-dealer Woodbury Financial Services, LLC (Woodbury), since September 2009. Around the time of being onboarded with Woodbury, Woodbury‘s regional manager introduced Belsito to Smith, who was then another Woodbury registered representative operating out of Glastonbury, Connecticut, and who was looking to add additional Woodbury registered representatives to his business, Smith Brothers Financial Services, LLC (SBF).

The applicant SBF is a domestic limited liability company. The applicants Smith and Michaels are principals of SBF. Between 2017 and 2022, SBF contracted with financial advisors, such as Belsito, who desired to work together, pool resources, share expenses, and ultimately split fees and commissions. To accomplish this, SBF entered into a Sales and Marketing Agreement (SM Agreement) with individual financial advisors. Belsito and the principals of SBF negotiated the terms of the SM Agreement to remove a proposed noncompete provision in favor of adding a nonsolicitation and restrictive covenant provision to the SM Agreement. Following those negotiations, SBF and Belsito entered into the SM Agreement in October 2017. (Plaintiffs’ Ex. 1, p. 3.) Having reviewed the negotiated agreement, Belsito independently decided to affiliate with SBF and enter into the SM Agreement and understood that he could have reviewed the same with counsel before signing.

The relationship with SBF benefited financial planners, including Belsito, by providing them with fully equipped office space, clerical, and administrative (back office) support. More importantly, though, it also provided lead generation and marketing opportunities. SBF was affiliated with Smith Brothers Insurance (SBI), which maintained a substantial client base that was utilized for the benefit of SBF marketing and lead generation activities.¹ Through his affiliation with SBF, Belsito was able to utilize the “Smith Brothers” brand and to receive clients as successor to an affiliated retiring financial planner. Moreover, the SM Agreement entitled contracted financial planners, including Belsito, to share in the fees from his fellow SBF affiliated brokers’ business.

In return for the benefits conferred by SBF, Belsito agreed in the SM Agreement “to pay SBF an annual fee which is based, in part, on the services being provided by SBF, client originations, the number of registered representatives and registered advisors to whom SBF is providing services, and the costs incurred by SBF in providing such services.” (Plaintiffs’ Ex. 1, p. 16, § 3 (A) (i).) Moreover, “SBF is specifically authorized by [Belsito] to direct [Woodbury] as to the allocation and payment of all commissions and fees due to [Belsito] and other registered representatives or registered agents of SBF. . . .” (Id., p. 17, § 3 (B).) Attached to the SM Agreement was a compensation formula; however, “the parties acknowledge that the specifics of the formula and allocation may be amended by SBF from time to time at its discretion.” (Id., p. 17, § 3 (A) (i).) In the SM Agreement, Belsito agreed as well that “[a]s additional consideration for the services to be provided by SBF . . . all rights in and to [Belsito‘s] accounts and customer or client list, as of the effective date and at all times thereafter shall be the property of SBF.” (Id., p. 17, § 3 (C).)

Attached to the SM Agreement was a separate Confidentiality and Non-Solicitation Agreement, also executed by Belsito, addressing the nondisclosure of confidential information. That separate agreement also contained a broad restrictive covenant against soliciting or servicing SBF or SBI “Customers”² or employees. That Confidentiality and Non-Solicitation Agreement, while separately executed, was also incorporated as part of the “responsibilities of [registered representative]” as stated in the SM Agreement. (Plaintiffs’ Ex. 1, p. 17, § 4 (D).)

It is undisputed that SBF was not an entity which was registered with FINRA and, therefore, was not capable of directly receiving income or fee shares related to regulated securities trading activity as described in the SM Agreement. Indeed, as an unregistered entity, SBF did not have clients; it neither provided clients with direct services nor received any direct compensation. However, as the financial advisors contracted with SBF were all registered representatives of Woodbury, they were able to split or share commissions on securities trading facilitated with their mutual broker-dealer, subject to the provisions of their respective Management Representative Contracts with Woodbury. (Defendant‘s Ex. E.) Before this court, Smith credibly testified regarding how he and others at SBF worked with representatives of Woodbury and outside counsel to ensure that the fee split arrangement contemplated by the SM Agreement could be accomplished in a manner approved by Woodbury and in accordance with financial industry regulations.

Belsito acknowledges that Woodbury would have been aware of the fee split arrangement and would have approved of the same. Despite not having personally discussed or shared the SM Agreement with Woodbury, Belsito also agrees that Woodbury was aware of his affiliation with SBF. Indeed, between 2017 and the fall of 2022, the parties operated under the SM Agreement, and Woodbury effectuated the fee splits as directed by Michaels annually, apparently without any question or objection by Belsito. Moreover, Smith credibly testified that Belsito‘s portion of fees to be paid subject to the SM Agreement were all paid in full before October 2022.

Under the SM Agreement, Belsito and other registered representatives were required to utilize a broker-dealer acceptable to SBF. (Plaintiffs’ Ex. 1, p. 17, § 4 (A).) Smith, Michaels, Belsito, and others engaged in a process throughout 2022 that involved investigating and performing due diligence on broker-dealers that were viable alternatives to SBF‘s contracted financial advisors continuing with Woodbury. By the fall of 2022, the members of SBF decided that its contracted financial advisors would need to move their registration from Woodbury to LPL Financial, LLC (LPL). As part of that transition, the financial advisors would inform their clients of their new affiliation with LPL and assist those clients that wished to continue with their SBF financial advisor in transferring their accounts to LPL for further management.

Notwithstanding having been involved in the due diligence process for the LPL transition, Belsito decided in the summer of 2022 that the transition from Woodbury to LPL as broker-dealer was not in his or his clients’ best interests. Approximately two weeks before SBF anticipated initiating the termination of Woodbury and transition to LPL, Belsito submitted a letter to Smith and Michaels dated October 2, 2022, via email informing them that he was terminating his relationship with SBI and SBF and intended to remain as a registered representative of Woodbury. A few weeks after Belsito‘s separation from SBF, the financial advisors associated with SBF transitioned from Woodbury to LPL as their broker-dealer.

Immediately after receiving the termination notice from Belsito, Smith was concerned about the SM Agreement being violated, particularly regarding the restrictive covenant prohibiting the solicitation and servicing of SBI and SBF clients and employees. Shortly after his termination of the SM Agreement, Belsito sent emails to clients he serviced while affiliated with SBF informing them of his separation but claiming that it would result in no changes to their account, as Belsito remained with Woodbury and would continue to serve as their financial advisor. (Plaintiffs’ Exs. 2 and 4; Defendant‘s Ex. L.)

Within days of Belsito‘s separation from SBF, Smith sent out emails to clients serviced by Belsito while he was affiliated with SBF informing them that Belsito was no longer with SBF and that an agent of SBF would be contacting them for the necessary approvals to access their respective accounts to permit them to continue to be serviced by an SBF financial advisor. (Defendant‘s Ex. M.) Moreover, SBF agents provided client information to LPL to initiate transfers of accounts from Woodbury to LPL, in at least some instances without otherwise contacting or alerting the clients. Naturally, this created confusion and uncertainty for the clients, who began calling and emailing Belsito, Michaels, and/or Smith.

On October 31, 2022, an arbitration was commenced with FINRA against Belsito and others by SBF, Michaels, and Smith. In the FINRA arbitration, it is alleged that Belsito breached the SM Agreement and tortiously interfered with SBF‘s business relations.

Smith and Michaels, with the assistance of LPL, were able to track the clients that Belsito serviced while affiliated with SBF to determine how many did not transfer their accounts to LPL. Moreover, through the FINRA arbitration discovery process, the applicants obtained a list from Woodbury of Belsito‘s accounts under management (AUM) as of August 31, 2022. Smith and Michaels cross-referenced the LPL tracking and Woodbury AUM list to reasonably estimate the accounts and clients that Belsito continued to service after separating from SBF.³ SBF then retained James M. Kazmier of CohnReznick LLP to perform an analysis of damages purportedly caused by Belsito‘s separation from SBF and alleged breach of the SM Agreement. (Plaintiffs’ Exs. 10 and 18.)

Kazmier has spent thirty years performing evaluations and offering opinions on business valuation, loss-profit calculations, and other financial issues related to business disputes. Having reviewed the LPL tracking information, the Woodbury AUM report, the FINRA arbitration submission and attachments, and various trade related publications and materials, Kazmier provided an opinion on the calculation of damages using a discounted cash flow method. That method makes calculated assumptions regarding Belsito‘s AUM as of October 2, 2022, retention of clients (based on a respected benchmarking study and historical data from SBF), and the growth projections for returns annually over the next five years for different categories of brokerage accounts. Kazmier‘s opinion also considers the costs saved by an SBF affiliated representative in not having to manage these accounts (utilizing the SBF profits and losses statement from 2023) and adjusts future estimated damages for present value.

In light of those considerations and calculations, Kazmier‘s opinion is that SBF has not earned and will not earn a total of $1,355,000 in net profits between October 2022 through the end of 2027 as a result of Belsito‘s termination of the SM Agreement.

II

CONTROLLING LAW

This action is before the court by virtue of the applicants’ applications for a prejudgment remedy and disclosure of assets pursuant to §§ 52-422 and 52-278a et seq. Section 52-422 provides that, “[a]t any time before an award is rendered pursuant to an arbitration under this chapter, the superior court for the judicial district in which one of the parties resides or, in a controversy concerning land, for the judicial district in which the land is situated or, when said court is not in session, any judge thereof, upon application of any party to the arbitration, may make forthwith such order or decree, issue such process and direct such proceedings as may be necessary to protect the rights of the parties pending the rendering of the award and to secure the satisfaction thereof when rendered and confirmed.”

“Under § 52-422, a trial court is empowered to grant injunctive relief during an ongoing arbitration proceeding only when such relief is ‘necessary’ to protect the rights of a party prior to the rendering of an award. Conversely, if such relief is not ‘necessary’ to protect a party‘s rights during the pendency of the arbitration proceeding, the trial court is not authorized to grant relief under § 52-422.” New England Pipe Corp. v. Northeast Corridor Foundation, 271 Conn. 329, 336, 857 A.2d 348 (2004). “The fact that the legislature has authorized judicial intervention under § 52-422 only in extraordinary circumstances is fully consistent with, if not mandated by, the strong public policy favoring arbitration.” Id., 337.

“A threshold determination for the court before considering an application for prejudgment relief ancillary to a pending arbitration is whether the prejudgment relief requested ‘may be necessary’ to protect the rights of a party to the pending arbitration.” Metal Management, Inc. v. Schiavone, 514 F. Supp. 2d 227, 235 (D. Conn. 2007). “In New England Pipe Corp. v. Northeast Corridor Foundation, [supra, 271 Conn. 336–37], the Connecticut Supreme Court defined necessary under § 52-422 as [something] that cannot be done without: that must be done or had: absolutely required: essential, indispensable . . . . In other words, [u]nless a party to an arbitration proceeding affirmatively can establish that its rights will be lost irretrievably in the absence of judicial intervention the court should not intervene.” (Citation omitted; emphasis omitted; internal quotation marks omitted.) Awosogba v. Mendelson, United States District Court, Docket No. 3:21-CV-00501 (KAD) (D. Conn. December 1, 2021).

“[T]he burden is on the party seeking judicial relief to establish ‘that its rights will be lost irretrievably in the absence of judicial intervention,’ not on the opposing party to establish the sufficiency or availability of appropriate or adequate remedies. Accordingly, the court believes that the burden of proof on this threshold issue lies with [the] [p]laintiff.” Yankwitt v. Silver, Golub & Teitell, LLP, Superior Court, judicial district of Stamford-Norwalk, Docket No. CV-14-5014245-S (November 19, 2014) (Povodator, J.) (59 Conn. L. Rptr. 237, 238).

General Statutes §§ 52-278a through 52-278n govern prejudgment remedies. Section 52-278a (d) defines “prejudgment remedy” in relevant part as “any remedy or combination of remedies that enables a person by way of attachment, foreign attachment, garnishment or replevin to deprive the defendant in a civil action of, or affect the use, possession or enjoyment by such defendant of, his property prior to final judgment . . . .”

“The purpose of a prejudgment remedy of attachment is security for the satisfaction of the plaintiff‘s judgment, should he obtain one. . . . It is primarily designed to forestall any dissipation of assets by the defendant and to bring [those assets] into the custody of the law to be held as security for the satisfaction of such judgment as the plaintiff may recover . . . . The adjudication made by the court on [an] application for a prejudgment remedy is not part of the proceedings ultimately to decide the validity and merits of the plaintiff‘s cause of action. It is independent of and collateral thereto . . . .” (Emphasis omitted; internal quotation marks omitted.) Marlin Broadcasting, LLC v. Law Office of Kent Avery, LLC, 101 Conn. App. 638, 646–47, 922 A.2d 1131 (2007).

“A prejudgment remedy is available upon a finding by the court that there is probable cause that a judgment in the amount of the prejudgment remedy sought, or in an amount greater than the amount of the prejudgment remedy sought, taking into account any defenses, counterclaims or setoffs, will be rendered in the matter in favor of the plaintiff . . . . Proof of probable cause as a condition of obtaining a prejudgment remedy is not as demanding as proof by a fair preponderance of the evidence.” (Citation omitted; internal quotation marks omitted.) Valencis v. Nyberg, 160 Conn. App. 777, 782, 125 A.3d 1026 (2015). “The legal idea of probable cause is a bona fide belief in the existence of facts essential under the law for the action and such as would warrant a [person] of ordinary caution, prudence and judgment, under the circumstances, in entertaining it. . . . Probable cause is a flexible common sense standard. It does not demand that a belief be correct or more likely true than false.” (Internal quotation marks omitted.) Spilke v. Spilke, 116 Conn. App. 590, 594 n.6, 976 A.2d 69, cert. denied, 294 Conn. 918, 984 A.2d 68 (2009).

III

ANALYSIS

A

Judicial Intervention is Necessary Pursuant To General Statutes § 52-422

As a threshold matter, the applicants have met their burden of presenting sufficient evidence to support that judicial intervention is necessary pursuant to § 52-422 and New England Pipe Corp. v. Northeast Corridor Foundation, supra, 271 Conn. 336–37.⁴

Regarding the “as may be necessary” provision of § 52-422, the Connecticut Supreme Court‘s decision in New England Pipe Corp. provides the applicable meaning of this provision to be applied:

“The term ‘necessary’ is not defined either in § 52-422 or elsewhere in chapter 909 of the General Statutes, which is entitled ‘Arbitration Proceedings.’ See generally General Statutes §§ 52-408 through 52-424. ‘In the absence of a statutory definition, words and phrases in a particular statute are to be construed according to their common usage. E.g., Verna v. Commissioner of Revenue Services, 261 Conn. 102, 109–10, 801 A.2d 769 (2002); see General Statutes § 1-1 (a). ‘To ascertain that usage, we look to the dictionary definition of the term. E.g., State v. Rivera, 250 Conn. 188, 200 n.12, 736 A.2d 790 (1999).’ State v. Sandoval, 263 Conn. 524, 552, 821 A.2d 247 (2003). Webster‘s Third New International Dictionary defines the term ‘necessary’ as ‘[something] that cannot be done without: that must be done or had: absolutely required: essential, indispensable . . . .‘” (Footnote omitted.) New England Pipe Corp. v. Northeast Corridor Foundation, supra, 271 Conn. 336–37.

The Connecticut Supreme Court then applied that standard and concluded that judicial intervention was not “‘absolutely required‘” to protect the plaintiff‘s rights during the pendency of the arbitration proceeding in that case, which was related to an interlocutory discovery dispute regarding expert witnesses. Id., 337; id. (“On the contrary, the parties’ disagreement regarding the disclosure of experts was nothing more than a run-of-the-mill discovery dispute . . . . In such circumstances, there simply is no basis on which to conclude that the injunctive relief sought by the plaintiff pursuant to § 52-422 was essential or indispensable to safeguard its rights regarding such disclosure.“).

Regarding the application of the standard, this court finds persuasive the court‘s reasoning in Metal Management, Inc. v. Schiavone, supra, 514 F. Supp. 2d 227. Before the federal District Court in Metal Management, Inc., was the defendant‘s motion, pursuant to rule 12 (b) (6) of the Federal Rules of Civil Procedure, to dismiss the plaintiffs’ application for a prejudgment remedy and order pendente lite. Id., 230. There, an arbitration was pending between the parties related to an asset purchase agreement they had entered into. Id., 230–31. The plaintiffs subsequently made application to the District Court pursuant to § 52-422 seeking a prejudgment remedy against the defendant. Id., 231.

The defendant moved to dismiss the application, claiming that the District Court lacked jurisdiction to consider it. Id. The defendant argued, inter alia, that § 52-422 and New England Pipe Corp. v. Northeast Corridor Foundation, supra, 271 Conn. 329, essentially precluded the plaintiffs’ application for want of necessity. Id., 235. The District Court first turned to New England Pipe Corp. for the meaning of “necessary” as used in § 52-422. In distinguishing the case before it from New England Pipe Corp., the court noted that “[a] prejudgment remedy protects a vastly different set of rights with a lesser level of interference than interlocutory review of a run-of-the-mill discovery dispute.” Id. The court continued: “A prejudgment remedy does not interfere with the arbitral process but merely ensures that there will be assets available to satisfy any judgment the arbitrators themselves may render.⁵ . . . Such a protection of the plaintiffs’ rights is necessary as defined by New England Pipe [Corp.] in that their ability to collect on a potential award may very well be lost irretrievably and would certainly be jeopardized absent a prejudgment remedy.” (Citation omitted; footnote added; internal quotation marks omitted.) Id.

“A strong argument can be made that a prejudgment remedy may indeed be necessary. In the ordinary course of business, as an ongoing concern companies routinely incur actual and contingent liabilities that can impair or otherwise [affect] its [creditors‘] ability to recover a debt owed. A prejudgment remedy simply enables a creditor to get in line at the time its contingent claim arises. If its claim never ripens, the lien is of no practical effect; however, if the claim ripens, the priority of that creditor‘s right of recovery is preserved.” Id., 235. The court continued to describe how a prejudgment remedy is tantamount to a Uniform Commercial Code security interest, which permits the plaintiff to preserve a level of priority relative to other potential creditors of the defendant. Id., 236.

Although Metal Management, Inc., and much of the decisional law applying § 52-422 focuses on the necessity of protecting the rights of a party in the arbitration, it must be noted that § 52-422 also specifically references the court‘s authority to issue orders as necessary to “secure the satisfaction [of an arbitration award] when rendered and confirmed.” In this respect, the clear language of the statute contemplates a court‘s making such orders as may be necessary following a hearing on an application for a prejudgment remedy to protect a party‘s interest in satisfying a potential arbitral award.⁶

Moreover, regarding the necessity of a prejudgment remedy pursuant to § 52-422, other courts have considered whether the respective arbitration process entails a procedure to seek the same relief as being requested from the court. See, e.g., Yankwitt v. Silver, Golub & Teitell, LLP, supra, 59 Conn. L. Rptr. 237; Savanna Investors, LLC v. Vaughn, Superior Court, judicial district of Stamford-Norwalk, Docket No. X08-CV-08-4012896-S (July 30, 2008) (Jennings, J.) (46 Conn. L. Rptr. 369); see also Awosogba v. Mendelson, supra, United States District Court, Docket No. 3:21-CV-00501 (KAD).

The respondent argues that the FINRA Code of Arbitration Procedure rules, which permit parties to raise preliminary matters and make motions, are a sufficient alternative to the application in this case. This court is not persuaded. The FINRA rules relied on by the respondent; (FINRA Rules 13500, 13501, 13503); are contained in part V of the FINRA Code of Arbitration Procedure, titled “Prehearing Procedures and Discovery.” Rules 13500 and 13501 relate to the scheduling of initial and subsequent prehearing conferences to address preliminary matters, including outstanding motions. Rule 13503 describes motion procedures in a FINRA arbitration matter. None of the rules referenced by the respondent purport to give the FINRA arbitration panel the authority to order an attachment and/or garnishment such as the applicant seeks in this case, nor does the respondent cite to any authority which purports to evidence a FINRA arbitration panel exercising such authority.⁷ Indeed, at oral argument, the respondent conceded that there is no express rule that would permit FINRA to issue an order akin to the prejudgment remedy sought by the applicants in this action.

Moreover, while the delay in making the application in this case between October 31, 2022, when the FINRA arbitration was initiated, and August 23, 2023, may weigh against the applicant, it is not enough to defeat the necessity of the application. The delay bears more on the degree to which the applicants could potentially be secured regarding an anticipated arbitral award and less on whether that security is necessary. Although the respondent faults the applicants for the delayed progression of this case, the court notes that the applicants did not consent to the respondent‘s first motion for a continuance. (Docket Entry No. 107.00.) The respondent‘s motion to dismiss was filed on October 6, 2023, and opposed by the applicants two weeks later on October 20, 2023: The motion was decided by the court on February 5, 2024 (Docket Entry No. 108.10), and the hearing on the application was noticed on March 26, 2024, to be held on July 3, 2024, when it was held. Therefore, little if any delay of the progression of this application can be found to be the result of the applicants’ failure to exercise diligence in evaluating the implications of Belsito‘s separation from SBF and pursuing this application accordingly.

B

General Statutes §§ 52-278a through 52-278n, Prejudgment Remedy

The claims asserted by the applicants in the application for a prejudgment remedy (Docket Entry No. 100.31), which are asserted against the respondent in the FINRA arbitration, sound in breach of contract and interference with business relations. “The elements of a breach of contract claim are the formation of an agreement, performance by one party, breach of the agreement by the other party, and damages.” (Internal quotation marks omitted.) CCT Communications, Inc. v. Zone Telecom, Inc., 327 Conn. 114, 133, 172 A.3d 1228 (2017). “[I]n order to recover for breach of contract, a plaintiff must prove that he or she sustained damages as a direct and proximate result of the defendant‘s breach.” Warning Lights & Scaffold Service, Inc. v. O & G Industries, Inc., 102 Conn. App. 267, 271, 925 A.2d 359 (2007).

“The general rule in breach of contract cases is that the award of damages is designed to place the injured party, so far as can be done by money, in the same position as that which he would have been in had the contract been performed. . . . The Restatement (Second) of Contracts divides a [plaintiff‘s] recovery into two components: (1) direct damages, composed of the loss in value to him of the other party‘s performance caused by its failure or deficiency . . . plus, (2) any other loss, including incidental or consequential loss, caused by the breach . . . . Traditionally, consequential damages include any loss that may fairly and reasonably be considered [as] arising naturally, i.e., according to the usual course of things, from such breach of contract itself.” (Citations omitted; internal quotation marks omitted.) Sullivan v. Thorndike, 104 Conn. App. 297, 303–304, 934 A.2d 827 (2007), cert. denied, 285 Conn. 907, 942 A.2d 415 (2008), and cert. denied, 285 Conn. 908, 942 A.2d 416 (2008).

The applicants have presented sufficient evidence to support a probable cause finding of the formation of an agreement between the parties. Specifically, the evidence supports that SBF and Belsito entered into the SM Agreement in October 2017, after the terms were negotiated between Belsito and Smith. Among the terms of the SM Agreement was Belsito‘s agreement that, “[a]s additional consideration for the services to be provided by SBF . . . all rights in and to [Belsito‘s] accounts and customer or client list, as of the effective date and at all times thereafter shall be the property of SBF.” (Plaintiffs’ Ex. 1, p. 17, § 3 (C).) Moreover, attached to and referenced in the SM Agreement was the nondisclosure of confidential information as well as restrictive covenants against soliciting or servicing SBF or SBI customers or employees. The parties operated under this SM Agreement for nearly five years without issue.

The applicants have presented sufficient evidence to support a probable cause finding that the respondent breached the agreement with SBF. The evidence presented supports probable cause findings that it was Belsito‘s intention, upon terminating his relationship with SBF, to continue to service the customers that he was servicing prior to terminating the SM Agreement with SBF without regard to whether doing so was in violation of his agreement with SBF. Belsito‘s emails to clients were explicit that there would be no change to their accounts and that he would remain their financial advisor. Moreover, Belsito acknowledged continuing to serve as financial advisor to hundreds of “Customers,” as that term is defined in the SM Agreement. See footnote 3 of this opinion. At the time of his termination of the SM Agreement, Belsito testified, he understood that he was rightly subject to its terms, including that he was restrained from soliciting or providing “Services” to any “Customer,” as those terms are defined in the restrictive covenant, and that he nevertheless continued to do just that by providing services to as many of the same clients as he serviced while affiliated with SBF as possible.

The respondent has, moreover, failed to provide sufficient evidence or legal bases in support of his defenses to overcome the applicants’ probable cause for the prejudgment remedy sought. While Belsito offered a number of reasons why he believed his conduct complied with the SM Agreement or, alternatively, why the SM Agreement‘s terms were unlawful or inapplicable, the court does not find those arguments factually credible or legally sufficient at this procedural juncture.

First, the respondent argues that, because SBF was not registered with FINRA during the relevant period and could not lawfully receive payments from financial planners related to security related commissions, the SM Agreement is illegal and unenforceable pursuant to the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. and FINRA Rule 2040.⁸ This argument fails to overcome the applicant‘s probable cause showing. In the SM Agreement, Belsito explicitly authorized SBF to direct Woodbury as to the allocation of the payment of all commissions and fees due to Belsito; (Plaintiffs’ Ex. 1, p. 17, § 3 (B)); and acknowledged that the formula and allocation of fees contemplated in the SM Agreement may be amended by SBF from time to time at its discretion. (Id., p. 17, § 3 (A).) Additionally, in support of a probable cause finding, the court credits Smith‘s testimony describing how he and others at SBF worked with representatives of Woodbury and outside counsel on these provisions and their practical implications to ensure that the fee split arrangement contemplated by the SM Agreement could be accomplished in a manner approved by Woodbury and in accordance with financial industry regulations The result was Woodbury effectuating the fee splits for all SBF financial planners, including Belsito, at the direction of Michaels.

Indeed, the logical and reasonable explanation for the conduct of the parties over the five year period from 2017 through 2022 is that there was an understanding that the formula and allocation described in the SM Agreement was, in fact, amended so as to comply with applicable FINRA regulation and meet the approval of Woodbury, which resulted in the associated fee splits being paid directly to the respective registered representatives in lieu of being paid to SBF (unlawfully) and then paid over to the respective financial planners. Although Belsito claims that he had a separate agreement with Smith and Michaels, which formed the basis of commission or fee sharing from 2017 through 2022, the respondent provides no corroboration for this assertion, and the court finds that it is not credible to overcome probable cause in support of the application.

Next, the parties agree, and it is beyond contest, that a client or customer of a financial planner is free to choose any firm or planner with which they wish to do business.⁹ Belsito claims that this fact supports his continuing to work with his clients following his termination of the SM Agreement. Put another way, Belsito claims that his understanding, including with regard to the SM Agreement, is that a client‘s choice of financial planner is determinative. If the court were to accept that logic, the restrictive covenant negotiated and entered into by the parties would be meaningless, as the wishes of the client would take precedence over any obligations the SM Agreement may impose upon Belsito. This explanation is without merit. Belsito‘s argument ignores that the SM Agreement does not impose contractual obligations or constraints on the clients but, rather, on him as the financial planner party to the agreement. Indeed, clients may choose to work with any financial planner that they wish, but it does not follow that a financial planner is required to accept and service any and every client who wishes to work with him.

Relatedly, the court rejects the respondent‘s claim that the Confidentiality and Non-Solicitation Agreement incorporated into the SM Agreement was unlawful and, therefore, defeats probable cause for this application. “A covenant that restricts the activities of an employee following the termination of his employment is valid and enforceable if the restraint is reasonable. . . . There are five criteria by which the reasonableness of a restrictive covenant must be evaluated: (1) the length of time the restriction is to be in effect; (2) the geographic area covered by the restriction; (3) the degree of protection afforded to the party in whose favor the covenant is made; (4) the restrictions on the employee‘s ability to pursue his occupation; and (5) the extent of interference with the public‘s interests. . . . The five prong test of Scott [v. General Iron & Welding Co., 171 Conn. 132, 137, 368 A.2d 111 (1976)] is disjunctive, rather than conjunctive; a finding of unreasonableness in any one of the criteria is enough to render the covenant unenforceable.” (Internal quotation marks omitted.) DeLeo v. Equale & Cirone, LLP, 202 Conn. App. 650, 672, 246 A.3d 988, cert. denied, 336 Conn. 927, 247 A.3d 577 (2021).

In the procedural posture of this case, the court finds that the evidence adduced at the hearing established probable cause that the Confidentiality and Non-Solicitation Agreement is enforceable for purposes of the application before the court. The agreement includes a three year term limitation and relates only to “Customers” of SBF and SBI, as those terms are defined therein. (Plaintiffs’ Ex. 1, pp. 28–29.) Probable cause supports the reasonableness of the temporal scope and limited application to a specific group to which the limitation applies. A legally recognizable business interest exists in SBF‘s protection of its clientele against appropriation by Belsito; see New Haven Tobacco Co. v. Perrelli, 18 Conn. App. 531, 537, 559 A.2d 715, cert. denied, 212 Conn. 809, 564 A.2d 1071 (1989); and this agreement limits Belsito‘s ability to pursue his occupation only so far as preventing him from soliciting or servicing those SBF and SBI “Customers.” Belsito remains a registered representative of Woodbury and able to continue to engage in the full scope of client services, but for those Customers described in the confidentiality and nonsolicitation agreement.¹⁰

Finally, Belsito testified at length about the time, effort, and expense that goes into developing a book of business in his industry, particularly, courting potential clients to convert leads to customers. Belsito‘s argument is essentially that the resources that he put into building his business suggest that he would not have intended to have them form a part of the consideration he provided under the SM Agreement. Relatedly, he claims that, because they were his clients, he could not possibly have violated the SM Agreement by soliciting or servicing his own existing clients. Besides being contrary to the clear terms of the SM Agreement, these arguments also fail to take into account that Belsito was receiving commission splits from other financial planners under contract with SBF. It is reasonable to expect that other SBF affiliated planners spent comparable resources in building and maintaining their own respective books of business, which formed consideration for their own acceptance of the SM Agreement, and from which other SBF affiliates, like Belsito, received a benefit.

Although Belsito also claims that his fiduciary obligations to a client requires that he continue to service a client past the termination of the SM Agreement, that argument does not support maintaining service for those clients indefinitely. There is a difference between taking timely action to protect a client‘s interests while they transition to a new planner versus maintaining the relationship perpetually under the guise of the client‘s best interests.

The applicants have also presented sufficient evidence to support a probable cause finding that they suffered damages as a proximate result of the respondent‘s breach of the SM Agreement supporting the prejudgment remedy sought. In this regard, the court credits the testimony of Kazmier, described previously. Having reviewed the LPL tracking information, the Woodbury AUM report, the FINRA arbitration submission and attachments, and various trade related publications and materials, Kazmier provided an opinion on the calculation of damages, which made calculated assumptions regarding Belsito‘s AUM as of October 2, 2022, retention of clients, and the growth projections for returns annually over the next five years for different categories of brokerage accounts. Kazmier‘s opinion takes into account the costs saved by an SBF affiliated representative in not having to manage these accounts and adjusts future estimated damages for present value. In light of those considerations and calculations, the court credits Kazmier‘s opinion and finds that there is sufficient evidence to support a probable cause finding that SBF has not earned and will not earn a total of $1,355,000 in net profits between October 2022 through the end of 2027 as a result of Belsito‘s termination of the SM Agreement.

The respondent argues that damages cannot be awarded by the FINRA panel through the pending arbitration because Smith and Michaels are no longer registered representatives of Woodbury and, therefore, cannot receive commissions from Woodbury. This argument is unavailing. The court‘s inquiry at this procedural posture is whether the evidence presented supports a probable cause finding that the applicants sustained damages as a proximate result of the respondent‘s breach of contract. The evidence presented by the applicants and credited by this court includes the loss of profits associated with fees that have not and will not be earned by an SBF registered representative and subject to the commission and fee sharing arrangement described in the SM Agreement as a proximate result of Belsito‘s separation from SBF.

However, the court does not find that evidence has been presented to support a probable cause finding for attorney‘s fees of $150,000 as the applicants have requested. In this regard, the applicants point only to the Application for Order Pendente Lite in Aid of Arbitration; (Docket Entry No. 100.31); and the Affidavit in Support of the Application. (Docket Entry No. 100.35.) No evidence was presented at the hearing regarding the basis for the expected attorney‘s fees, nor any foundation to support the knowledge of the affiant (who summarily affirms the statements in the application) of future attorney‘s fees incurred through the applicant‘s continued representation in the arbitration.

IV

CONCLUSION

For the reasons discussed herein, the court holds that sufficient evidence was presented for the applicants to meet their burden of establishing that an order of the court is necessary to protect the rights of the parties pending the rendering of the arbitration award and to secure the satisfaction thereof when rendered and confirmed. Moreover, the applicants have presented sufficient evidence to support probable cause to sustain the applicants’ claim and support that a judgment in the amount of $1,355,000, considering the claims of defenses, counterclaims or setoffs offered by the respondent, will be rendered in this matter in favor of the applicants.

Therefore, the application for prejudgment remedy in the amount of $1,355,000 is GRANTED, and it is hereby ordered that the plaintiff may attach the property, real or personal, of the respondent, SAMUEL P. BELSITO, sufficient to secure such sum; and to garnish and/or attach any accounts receivable of the respondent, SAMUEL P. BELSITO, his agents, trustees, or debtors, sufficient to secure said sum.

Moreover, it is ORDERED that the respondent, SAMUEL P. BELSITO, disclose the existence, location, and extent of his interest in any and all property, real or personal, tangible and intangible, of any type and nature, and any and all debts owing to him, sufficient to satisfy the prejudgment remedy granted herein. Said disclosure shall be by sworn affidavit transmitted or deposition taken, within thirty (30) days of this order, at the option of the respondent, SAMUEL P. BELSITO.

SO ORDERED.

Notes

At all relevant times, Smith served as the president and CEO of SBI, while also contemporaneously acting as the managing member of SBF.

The Confidentiality and Non-Solicitation Agreement, which was attached to the SM Agreement, defined “Customer” with respect to the restrictive covenant in § 2 (c) as “any person, party or entity for or to whom SBF or any registered representative who has a Marketing and Services Agreement with SBF sold any product or performed any service during the term of the Services Agreement or any time within the three year period prior to the date the Services Agreement is Terminated.”

Exhibit B.1 in the report of James M. Kazmier (Plaintiffs’ Exs. 10 and 18), discussed in this opinion, listed 336 client accounts that were identified by SBF and Woodbury as having remained with Belsito after August 1, 2022. Of those 336 client accounts, Belsito testified that he had not serviced approximately thirty of them after October 2022, and that another approximately twenty-five others had been serviced after October 2022 but are no longer active clients. The remaining names are client accounts which have continued to be serviced by Belsito to the present. Notwithstanding whether the client remained with Belsito after October 2022, Belsito may still have received compensation from Woodbury relating to prior services provided to a client.

The applicants argue that, in denying the respondent‘s motion to dismiss, the court has already made the findings sufficient to demonstrate that a prejudgment remedy may be necessary under § 52-422 in this case. However, the applicants’ argument ignores that the standard being applied by the court in resolving a motion to dismiss is “whether, on the face of the record, the court is without jurisdiction.” (Internal quotation marks omitted.) . Moreover, in adjudicating a motion to dismiss, “every presumption favoring jurisdiction should be indulged.” (Emphasis omitted; internal quotation marks omitted.)
In the court‘s memorandum of decision denying the respondent‘s motion to dismiss, the court held that the statutory requirements of § 52-422 have been sufficiently alleged to overcome the claim of a lack of jurisdiction. (Docket Entry No. 108.10.) In that regard, and in response to the respondent‘s arguments, the court noted that the FINRA rules punishing a broker for failing to satisfy an arbitration award serve a different purpose than a prejudgment attachment. , pp. 3–4. On the basis of the pleadings and applicable legal standards for deciding a motion to dismiss, the court did not purport to weigh evidence and argument on whether the applicants met their burden of establishing the necessity of the relief sought following the evidentiary hearing they requested.
Indeed, this was clearly the understanding and expectation of the applicants as well. In their memorandum of law in opposition to the motion to dismiss (Docket Entry No. 110.00, p. 6), the applicants argued, inter alia, that, when a pending arbitration exists, pendente lite relief is necessary and grants the trial court subject matter jurisdiction and entitles the movant to an evidentiary hearing. (Docket Entry No. 110.00, p. 7.) The applicants further argue that “Belsito wants to litigate the necessity of provisional relief [in his motion to dismiss], but he must wait to do so until the evidentiary hearing.”

This is consistent with decisional law in the United States Court of Appeals for the Second Circuit, which supports that provisional remedies sought during the pendency of an arbitration are not contrary to the spirit of the arbitration. See, e.g., ; see also , cert. denied, .

At oral argument, the respondent suggested that for an order to be necessary to secure or protect a party‘s interest in satisfying a potential arbitral award would require some evidence relating to the respondent‘s encumbering or liquidating his assets. However, the respondent offers no legal authority in support of that claim, nor do the standards associated with §§ 52-422 or 52-278a et seq. impose such requirements on an applicant. See .

Regarding the respondent‘s claim that rule 13209 prohibits this application, this court refers to Judge Sheridan‘s reasoning in his Memorandum of Decision (Docket Entry No. 108.10) and again adopts the sound and thorough reasoning of Judge Kravitz in , in rejecting that argument.

Because the court does not find evidence of sharing of commissions with SBF, and that the allocation and payment of commissions and fees under the SM Agreement was adjusted to address this very issue, the court does not reach the question of whether SBF‘s activities rendered it a “broker,” which was required to be registered to receive such payments pursuant to FINRA Rule 2040 and 15 U.S.C. § 78c (a) (4) (A) (2024).

To the extent the respondent also argues that FINRA Rule 2140 supports his claim that a client‘s choice of financial planner is determinative, that reliance is also misplaced. FINRA Rule 2140 is titled “Interfering With the Transfer of Customer Accounts in the Context of Employment Disputes.” That rule proscribes a FINRA registered person or entity from interfering with a customer‘s request to transfer his or her account in connection with the change of employment of the customer‘s registered representative. There is nothing in rule 2140 that requires or suggests that a registered representative must service any customer who wishes to retain his or her service, nor that any contractual restriction on the registered representative‘s service of clients is invalid or unlawful. Moreover, as the uncontested evidence presented establishes, Belsito was not an employee of SBF and, therefore, did not change employment from SBF to another employer so as to implicate FINRA Rule 2140.

As the court has already rejected the respondent‘s argument that client choice, and FINRA rules protecting client choice, overcome contractual restrictions on a financial advisor, the court correspondingly rejects the respondent‘s claim predicated on those arguments that the restrictive covenant at issue places an unreasonable burden on the public such as to defeat probable cause for the application before the court.