Court Grants Morgan Stanley TRO Against Janney Broker
(Updated based on court filing on May 9 to note the TRO will remain in effect until the resolution of an arbitration proceeding.)
A federal judge in Pennsylvania granted Morgan Stanley’s request to temporarily restrain an advisor who moved to Janney Montgomery Scott two weeks ago from soliciting her former clients.
Morgan Stanley sought the TRO and a preliminary injunction to chill the Allentown broker’s efforts to rebuild her business at Janney while it simultaneously moved for an expedited Finra arbitration hearing.
Large brokerage firms for years rushed to courts for restraining orders after experienced brokers resigned, but curtailed the expensive legal practice more than a decade ago by forming the Protocol for Broker Recruiting that permits advisors joining signatory firms to bring rudimentary client-contact information with them to new employers.
However, Morgan Stanley and UBS in late 2018 withdrew from the Protocol in an attempt to give experienced brokers second thoughts about leaving.
David A. Gehn, an employment lawyer at Ellenoff Grossman Schole LLP in New York who is not involved in the case, called the TRO a “strong” win for Morgan Stanley.
“It effectively causes a chill now because if Janney accepts and completes client transfer paperwork on an account, they’re in a gray zone,” he said.
In its initial filing with the district court in Philadelphia, Morgan Stanley filed affidavits from two of Knight’s former colleagues saying that customer files were missing from its Allentown office and that three clients had been solicited by her to move their accounts.
Janney denied the allegations, but had not expected the TRO to be granted so quickly. “The judge entered the temporary order before we had the opportunity to file a response,” said Brad DelMuto,, a spokesman for the Philadelphia-based firm.
Morgan Stanley “offered no credible evidence” that Knight took client information, her lawyers wrote in court filings. She also denied soliciting any clients or taking contact information, but said she had told some clients whose contact information she obtained from public sources about her move.
In a response affidavit, she said that if the judge proceeds with granting an injunction it would be “devastating” to her business.
“I fear that clients would perceive a Court order enjoining me as a ruling that I have engaged in wrongdoing,” she said. “Morgan Stanley would have unfettered access to my clients for weeks, or longer, and during that time would be permitted to try to persuade clients they should no longer work with me.”