Morgan Stanley Says Fleeing Michigan Team Leaked Plans at Client Dinner
(Updates sixth paragraph to say that Morgan Stanley accused former employees of taking duffel bags, not large boxes, from their offices.)
Morgan Stanley has trotted out a potentially damning detail in its latest attempt to convince a federal judge to bar recently departed brokers from using allegedly “confidential” information to contact former clients in violation of employment and code-of-conduct agreements.
Members of an eight-person team in Farmington Hills, Mich., that managed almost $337 million of assets leaked their plans to join Raymond James Financial Services at a dinner seminar for clients and prospects the night before they left on February 16, according to a complaint filed Tuesday morning in federal court in the Eastern District of Michigan by Morgan Stanley Smith Barney.
“Despite the certainty of their resignations the next morning, Defendants nonetheless used the Morgan Stanley marketing event to advise clients that they were leaving Morgan Stanley the next day and to solicit them to transfer their accounts to their new employer,” said the complaint, labeling the alleged solicitations “particularly egregious” conduct.
As in previous attempts to win temporary restraining orders or injunctions since leaving the Protocol for Broker Recruiting in November, Morgan Stanley also accused the team’s four brokers, led by 36-year brokerage industry veteran Patrick T. O’Neill, of using “trade secrets” owned by the firm in violation of confidentiality and unfair competition provisions in their employment contracts.
What distinguishes the new lawsuit from at least six others that Morgan Stanley has filed since leaving the Protocol for Broker Recruiting in November is the higher revenue of the Michigan team—it generated $2.997 million of revenue in the previous 12 months, according to an affidavit filed with the court from Farmington Hills branch manager Chad Kasprzak— and details of the team’s alleged absconding with confidential data.
In addition to the alleged solicitations at the seminar, which included presentations from a wholesaler for Ivy Investments and a local certified public accountant, Kasprzak’s affidavit asserts that the O’Neill team engaged in “voluminous” use of an office printer two weeks before resigning and that associates carried two duffel bags from the office to their car the morning the team resigned.
Morgan Stanley has prevailed in obtaining four restraining orders and is waiting for decisions in two others.
The firm is not known to have challenged the move of a large broker in the Northeast, a sign that brokers can still change firms without the protections of the Protocol if they are scrupulous in their preparations, work in advance to understand local laws and give clients access to cell-phone and other contact information well in advance of their resignations.
If O’Neill and his team did leak word of the team’s plans at the “Women in the Know” seminar on February 15, his lawyers will have a tough time defending them, some experts said.
“The pre-solicitation of clients—if it happened—is a clear breach of the duty of loyalty and would eviscerate any good-faith arguments you would have, either under Protocol or under a different strategy,” said James E. Heavey, a partner at Barton LLC in New York. “What [brokers] have to understand is that there has to be a new approach to how they leave a firm and communicate with clients.”
David Gehn, a New York-based lawyer at Ellenoff, Grossman & Schole who is representing O’Neil and his team, did not respond to e-mailed and telephone requests for comment.
In a letter filed by Morgan Stanley as an exhibit to the lawsuit, Gehn told the firm’s local lawyers at Saretsky Hart Michaels & Gould in Birmingham, Mich., that they provided no detail to support the firm’s belief that confidential data had been taken. Lawyers at Saretsky Hart did not respond to requests for comment left at their office.
Janice Lo, a broker on the O’Neill team who joined Morgan Stanley in 2014, declined to comment and said that the senior broker was not immediately available to comment. Lo was in charge of the O’Neill team’s largest account, according to an exhibit filed with the court.
Morgan Stanley in the past has defended its aggressive pursuit of former brokers in court with the repeated assertion that it “expects all former employees to comply with their legal and contractual obligations.” A spokeswoman said the firm did not want to comment at all on the litigation against the O’Neill team, which continues to market itself as Family Legacy Wealth Partners.
Scott Curtis, president of Raymond James Financial Services, did not respond to a request for comment about the degree of support the firm will give to the new independent broker team.