Morgan Stanley Prevails in Skirmish with Breakaway Broker
Morgan Stanley has chalked up another legal victory in its bid to restrain departing brokers from taking client information or soliciting former clients.
John Fitzgerald, a former Morgan Stanley broker who left last week to start his own firm, on Wednesday agreed to an order that restricts him from contacting clients of the wirehouse and requires him to to return client information and relevant emails to his former firm, according to a filing Wednesday afternoon in U.S. District Court in New Jersey.
A draft of the restraining order that was prepared by a Morgan Stanley lawyer for approval by U.S. District Judge Renee Bumb at her order notes that Fitzgerald can respond to Morgan Stanley customers whom he knew if they initiate contact with him. But he was ordered to keep a contemporaneous log of all inquiries from customers he formerly serviced or whose name he learned by virtue of his nine-year employment at the firm’s Vineland, N.J. office.
Fitzgerald had argued in the quick back-and-forth legal battle sparked when he gave notice on Friday that the “barebones” client information in his possession met terms of the Protocol for Broker Recruiting. A lawyer for Morgan Stanley on Tuesday rebutted that the firm had dropped out of the Protocol and that Fitzgerald’s independent firm and the broker-dealers it affiliates with were not Protocol members when he left.
Morgan Stanley’s victory as it proceeds to seek a long-term injunction before a Financial Industry Regulatory Authority panel is the second signal it has sent since leaving the Protocol on November 3 that it will aggressively seek to keep brokers and rival firms from soliciting its clients.
It has taken the stance at a time when it and other big firms have reduced recruiting of experienced brokers with large “books” of clients.
“Morgan Stanley has sent the message that if you take information, we will take action,” said Matt Baum, a lawyer with Ellenoff Grossman & Schole in New York, which is not involved in the case. “You can be certain this is going to be used to persuade other courts in like-kind situations.”
Fitzgerald, who has been ordered to post a $25,000 bond with the court, had argued that the clients he was contacting were rightfully his to solicit because he had sourced them without Morgan Stanley’s assistance.
The 37-year-old broker, who has affiliated with independent broker-dealer Commonwealth Financial and is using Fidelity Investments’ National Financial Services as a custodian for advisory assets, joined Morgan Stanley as a sales assistant in 2008 from Merrill Lynch and signed an employment agreement subjecting him to a one-year non-solicit clause in 2010 when he became a broker, according to papers he filed with the court in Camden, N.J.
Fitzgerald and his lawyer, Anthony Paduano, did not return requests for comment. A spokeswoman for Morgan Stanley declined to comment.