Indiana Judge’s Denial of “Retaliatory” Edward Jones Filing Makes Waves
A federal judge’s wide-ranging rejection of Edward D. Jones & Co.’s arguments for a temporary restraining order and preliminary injunction against a broker who joined an independent broker-dealer could be useful in other client-solicitation cases, lawyers said.
The heart of the judge’s order turned on a distinction between informing clients of a move and actually soliciting them to follow.
“[F]inancial advisors can most assuredly be prohibited from ‘soliciting’ clients when doing so contravenes their employment agreements, but they should not be foreclosed from issuing good-faith communications to clients notifying them that he or she has a left a firm,” Barker wrote. “Such a restriction infringes on the rights of consumers more than it protects the plaintiff-employers.”
The 28-page ruling does not set precedent in other jurisdictions but is a “major loss” for Jones and “holds a certain degree of credibility and persuasiveness” for citation purposes, said Thomas B. Lewis, a lawyer at Stevens & Lee in Princeton, N.J., who was not involved in the Indiana case.
“Edward Jones is disappointed,” company spokesman Alex Reed said in an e-mail, noting that the firm continues to seek damages and a restraining order against broker John Kerr in a Financial Industry Regulatory Authority arbitration proceeding.
Kerr worked at Jones for all of his 20-year brokerage career before moving in August to independent broker-dealer Thurston Springer Financial. Jones sued him in September.
Without the court-ordered injunction, Finra arbitration cases cannot proceed under expedited schedules that are important to client account retention in the initial days of a broker’s departure.
Judge Barker’s denials turned on some fact-specific issues. Jones relied on affidavits from the manager who replaced Kerr and from the Westfield, Indiana, branch office administrator with whom he “was at odds” as evidence of his solicitations. The judge dismissed the affidavits as “second-hand assertions” from officials with “second-hand knowledge.”
She also credited Kerr’s argument that the majority of clients who followed him moved because they were more loyal to him than the firm. “[M]any of the allegedly solicited individuals were Mr. Kerr’s friends and family before they ever were Edward Jones’s clients,” she wrote.
Jones also failed to address Kerr’s assertions that as a certified financial planner he had a fiduciary duty to inform clients of material changes regarding their assets, and that he provided account transfer information only at their request, the judge ruled.
But she reserved much of her sting to Jones’s “apparent inconsistency” in seeking a court-ordered remedy when it encourages its recruits to send the same kind of affiliation announcements he used. She also noted that Jones sent Kerr’s clients a “Finra notice” informing them of his departure the day he left, suggesting they call him if they had questions.
“These glaring insufficiencies in Edward Jones’s request for injunctive relief suggest that its intention in bringing this lawsuit was less about vindicating or recovering from or preventing its loss of client relationships…and more to ‘teach him a lesson’ for having left,” the judge wrote.
Lawyers said many firms have similar policies to those criticized by the judge.
“I think the judge believes that Edward Jones was truly attempting to pull a fast one on the court system,” said James Heavey, the lawyer at Barton LLP in New York who represented Kerr.
Yes!! So good to see a judge rule this way and Mr. Kerr be able to get this partially behind him.
I couldn’t imagine being held hostage while clients couldn’t move with him to his new BD.
Nearly every time there is a breakaway advisor and a TRO, I find it so hypocritical. If the tables were turned, the gaining firm would never turn away the new business that the transferring planner brings with him/her.
The firms have done it for decades, while turning a blind eye to the lies the brokers who “inherit” the accounts tell. For a business built on one’s word of honor (hundreds of millions of dollars worth of shares trade every day, verbally) there doesn’t seem to be much gentlemanliness displayed when someone leaves a firm. Pity.
Bravo Mr Kerr. Jones has been a bully so many times before, hope this protects the client better in the future!
STANDING OVATION !!!!
This is long overdue. It’s about time that EDJ be thwarted in its scorched earth abuse of FA’s who leave in a legal fashion. They have been abusing and taking wanton advantage of our legal system in pursuit of punitive bullying FA’s for DECADES. This judge has seen through their caustic motives and bravely set the record straight. Judge Sarah Evans Barker in a Federal Court has more courage to do the right thing than any industry arbitration proceeding to date. Can’t wait to see the class action suits naming EDJ that follow.
It’s about time. I remember when I left my prior broker-dealer the claws came out with a vengeance in pursuit of my client relationships, However, at the same time the BD I left was announcing two brokers with 100 million in assets who left their prior BD to come to the one I just left.
I wish the judge would have just called it what it is with these broker-dealers: It’s not about preserving client relationships, it’s about keeping the assets.