Arbitration Panel Awards Morgan Stanley Slivers in TRO Case
Morgan Stanley received a significantly lower arbitration award than it requested in a case involving one of the first brokers it sued for allegedly taking confidential client information to his new job after it exited the Protocol for Broker Recruiting.
The wirehouse had sought $1.04 million from John L. Fitzgerald, a broker in Vineland, N.J., who left it after 11 years in December 2017 to affiliate as an independent broker with Commonwealth Financial Network. The amount included almost $938,200 Morgan Stanley claimed for Fitzgerald’s alleged breach of his employment contracts and his fiduciary duty to the firm.
A three-person arbitration panel in Philadelphia last month ordered him to pay a total of $39,465, just $5,500 of which represented the compensatory damages Morgan Stanley sought. The bulk of the award, $33,252, covered attorneys’ fees Morgan Stanley claimed under New Jersey’s Trade Secrets Act, according to the award decision.
As is customary, the three-person arbitration panel did not explain the reasons for its decision.
Morgan Stanley said the award justifies its claims that Fitzgerald breached contractual and other legal obligations, but a customer of Fitzgerald’s said the award should encourage advisers in their battles with firms over who deserves credit for creating customer loyalty.
“The fact that John stands up for what he thinks is right and took on tremendous risk to do so is it exactly why I work with him,” Jim Terway wrote in an email to AdvisorHub. “When an advisor makes a move that was ultimately just as beneficial to myself, as the client, and a company such as Morgan Stanley gets in the way of it, it makes you wonder if these big companies were ever interested in my needs or financial plan. It’s important that others in John’s situation know that fighting the good fight can be won.”
Terway said his family began working with Fitzgerald in 2010, when the broker was given responsibility for his grandmother’s accounts.
A Morgan Stanley spokeswoman did not respond to Terway’s comment, but said the arbitration decision follows a significant restraining order victory it obtained in January.
“A federal court previously ordered Mr. Fitzgerald to return client information he had taken and to stop soliciting Morgan Stanley clients, and Mr. Fitzgerald ultimately consented to a Permanent Injunctive Order against him,” she wrote. “Morgan Stanley expects departing advisors to honor their legal and contractual obligations, including not to take or misuse client information, and will take appropriate steps when necessary to ensure that they do.”
In its arbitration complaint, Morgan Stanley sought to have Fitzgerald return all of its data within 24 hours, enjoin him from using the data to contact former customers and require him to pay the firm commissions and other compensation he and client associates derived from the alleged unlawful conduct.
The arbitrators executed a stipulated permanent injunctive order that the court had ordered, according to the award document. It did not provide details of the order.
Leonard Weintraub and Anthony Paduano, the lawyers who represented Fitzgerald, did not respond to requests for comment on the award or on terms of the injunction.
The arbitrators denied Morgan Stanley’s requests for return of compensation from Fitzgerald, and also turned down in its entirety his counterclaim seeking compensatory and consequential damages, attorneys’ fees and a declaration that he was not liable to Morgan Stanley in any respect. It also assessed hearing fees of $9,450 for nine sessions to him, while assessing Morgan Stanley $2,500 as a Finra-required injunctive relief surcharge.
“It’s all done and I’m happy,” Fitzgerald said when reached at his office on Wednesday. “We’re moving forward.”