Judge Denies Morgan Stanley’s TRO Claim Against Illinois Team
A federal judge on Wednesday denied Morgan Stanley’s claim for a temporary restraining order against a team of six advisors who jumped to Stifel Nicolaus in Bourbonnais, Illinois, according to a lawyer for the team.
Judge Joan B. Gottschall found Morgan Stanley “did not meet, among other things, its burden of demonstrating a likelihood of success on the merits,” according to Gary Blackman, a partner at Levenfeld Pearlstein in Chicago who is representing the team.
Blackman declined to comment further on the decision, which was announced Wednesday morning in U.S. District Court in the Northern District of Illinois but had not yet been published online.
While the decision does not permit the brokers to solicit their clients, it essentially finds that the brokers’ actions likely had not violated the terms of their employment agreements, said Thomas B. Lewis, a lawyer in New Jersey who has worked on a number of TRO cases.
“It’s actually a big victory for the advisors,” said Lewis, who was not involved in this case. “The message that it sends loud and clear to Morgan Stanley is that the evidence they presented in this application was not good enough.”
In a victory for the firm, however, Judge Gottschall granted Morgan Stanley’s request to expedite its discovery and seek depositions from the six defendants, according to a person familiar with the firm’s legal strategy. The depositions would be used as the firm presses for a preliminary injunction, a second restraining order that the firm can seek after both sides have had more time to make their arguments.
The firm may also continue to pursue damage claims in the Financial Industry Regulatory Authority’s arbitration forum.
Last Wednesday, Morgan Stanley filed suit against the six brokers, who it said collectively oversaw $660 million in customer assets and generated $4.2 million in annual revenue. The firm claims the brokers took client contact information that is proprietary to the firm, and had been soliciting clients to move their assets in violation of the brokers’ employment contracts.
In asking Judge Gottschall to deny the TRO, the brokers had argued that there is “no competent evidence” of any wrongdoing. They denied taking any information or soliciting clients to move in violation of their agreements.
The brokers said the firm had failed to provide an affidavit from a single client to support their assertions. They also attacked Morgan Stanley’s decision to withdraw from the Protocol for Broker recruiting last year as being a “proverbial bait and switch.” The firm had encouraged them to solicit their clients from their former firm when they joined in 2007, and they assumed that the same rules would apply when they left the firm.
If Morgan Stanley were granted the TRO, the effects would have been “cataclysmic” for the brokers, who are “hard working financial advisors working in small community where reputations still count and news travels fast,” according to the opposition motion.
The brokers—Zachary Birkey, Ronald Ouwenga, Brian Thomas, Myron Hendrix, Michael Bruner, and Jeff Schimmelpfennig—ranged in age from 55 to 75, and earned between $145,000 and $350,000, they said in the opposition filing.
“Given that [Morgan Stanley] cannot come close to alleging any bad act by any Defendant, the balance of the harms clearly favors Defendants,” they argued.
Morgan Stanley initiated a flurry of courthouse requests for restraining orders shortly after it withdrew last November from the Protocol for Broker Recruiting, but in recent months had eased its litigation stance until the complaint filed on Wednesday.