Merrill Takes Fired Ohio Broker to Court in Non-Solicitation Dispute
Merrill Lynch is standing by the Protocol for Broker Recruiting, but that’s not stopping it from going after brokers it believes are violating the terms of their non-solicitation agreements and contacting former clients.
Merrill on Wednesday sued Jason Hostetler, a Canton, Ohio, broker it fired in April and his colleague, Tina Marie Migge, who left a month later, claiming that they took confidential data and have been using it to contact former clients to encourage them to move assets to their new investment advisory firm, Stratos Wealth Advisors. The complaint, filed in the Northern District of Ohio for the Eastern Division, alleges breach of contract, misappropriation of trade secrets, and for Migge, violation of duty of loyalty.
Merrill has asked the court to issue a temporary restraining order blocking Hostetler and Migge—who it said oversaw $138 million in client assets and generated $1.15 million in annualized commissions—from soliciting their former clients and from using or destroying any client info, while it pursues an injunction and damage claims in arbitration.
To date, 140 clients with $26.5 million in assets have requested to move their accounts, according to the complaint.
“Not only is Merrill Lynch losing certain clients, and the revenues generated from those clients’ accounts, but other financial advisors will be induced to solicit clients when they transfer firms if they believe it gives them a competitive advantage and there are no repercussions for their actions,” Merrill states in its complaint.
A lawyer for Hostetler and Migge, Scott Matasar of Matasar Jacobs in Cleveland, denied in an interview that the two took any client information or that they had improperly solicited any former clients. Merrill Lynch wanted to take advantage of the fact that it fired Hostetler to deprive him of the protections of the Protocol for Broker Recruiting, which would have allowed him to take limited client information with him and solicit his clients, Matasar said. Both Merrill and Stratos are signatories to the agreement.
“Merrill Lynch terminated my client while he was in his car on his way to an appointment and deprived him of his ability to follow Protocol procedures,” Matasar said. “The lawsuit is nothing more than a blatant attempt at restrictive trade.”
A Merrill Lynch spokesman declined to comment on the complaint or Matasar’s statement.
Merrill and Wells Fargo have remained in the Protocol despite exits by Morgan Stanley and UBS Financial Services last year, but both Merrill and Wells have brought cases against brokers they said have tested the limits of the agreement.
Neither Hostetler nor Migge, who spent all of their 13 and 18-year careers with Merrill respectively, returned calls for comment. At Merrill, the two were part of a five-person team, PHH wealth management.
Merrill fired Hostetler April 6 over “conduct inconsistent with Firm standards regarding personal trading,” according to BrokerCheck, which shows one other mark related to an impaired driving conviction from before Hostetler joined the industry. Migge left voluntarily to join Stratos May 14, according to the complaint.
Merrill’s complaint makes no mention of the Protocol but cites several documents of client “trade secrets” it said it believes Migge removed when she left, including a document printed two days before her resignation titled “AllClientsandProspects.xls” and a 21-page document with client account numbers, names and assets that it says Merrill personnel could not locate after she left “despite diligent efforts.”
Merrill also claims that “soon after Migge resigned” former clients requested to move their accounts. At least one client reported to Merrill that Hostetler and Migge had contacted her and attempted to secure a meeting by “pretending” they were still employed with the firm, according to the complaint.
The complaint also highlights snide remarks Hostetler made about his former partner, Kirk Hunter, and claims Hostetler defamed Hunter by telling clients that he “spends more time on the golf course than in the office managing their accounts.” Hunter did not return a call for comment at his Merrill office.