Morgan Stanley Withdraws TRO Claim Against Big Michigan Team
In a heartening move for big brokerage teams worried about the legal consequences of changing firms, Morgan Stanley has withdrawn its motion for a restraining order and preliminary injunction against an eight-person Michigan team filed last week.
The firm’s retreat in U.S. District Court in Eastern Michigan on Monday means that the team led by Patrick T. O’Neil that was allegedly managing $337 million of customer assets can inform former clients about their decision to set up as independent brokers affiliated with Raymond James Financial Services, said Bernard J. Fuhs, a lawyer at the Detroit law firm of Butzel Long who is co-counsel for the team.
Morgan Stanley agreed to proceed with its breach-of-contract and other claims in a slower-moving Finra arbitration process.
The change of heart followed the brokers’ court argument that Morgan Stanley provided no evidence that they stole trade secrets, improperly solicited clients, leaked their plans to move at a firm-sponsored client/prospect dinner or took data from the firm’s Farmington Hills branch the day they resigned.
They said Morgan Stanley also waived its right to enforce employment agreements protecting confidentiality and trade secrets, despite its November departure from the Protocol for Broker Recruiting, because it had for years failed to enforce the contracts while it was encouraging brokers to join under the pact’s protection.
O’Neill transferred most of his 450 household accounts with him after he joined Morgan Stanley from UBS Financial Services in 2008, the response said.
Morgan Stanley also failed to introduce the employment contracts as evidence, the brokers’ lawyers said, failed to respond to the lawyers before filing for the restraining order and included an affidavit from the team’s branch manager that assumed they were taking client data when in fact they were removing personal property, including a blood sugar monitor, soup cans, snacks and space heaters.
“We are happy with the result,” said Fuhs, who rerpresents the brokers along with lawyers from Elenoff Grossman & Schole LLP in New York.
A Morgan Stanley spokeswoman declined to comment.
“This action serves as nothing more than a thinly veiled attempt…to wrongfully (i) smear Defendants’ reputation and case them substantial damage, (ii) stifle and subvert cleints’ freedom of choice in financial advisor, (iii) covert client relationships that were largely developed by Defendants’ years (even decades) before they joined Plaintiff and (iv) bully and scare employees nationwide into remaining with Plaintiff,” O’Neill’s lawyers wrote in an introduction to their court filing.
The case reverses Morgan Stanley’s stretch of winning at least four TRO and preliminary injunction orders that handicap brokers’ attempts to jump-start their businesses. Most of the cases involved lower-revenue advisors who made obvious mistakes in taking client-contact information and who joined independent firms that could not afford to defend them, lawyers have said.
In the Michigan case, it appears to be Morgan Stanley that had the weak set of facts and that the brokers prepared well for their move.
“If [advisors] obtain good counsel, they are less likely to be named in a lawsuit, and in the event that they are, they are in the best position to defend themselves,” Ellenoff Grossman partner David Gehn wrote in an e-mail. He conceded that his advice may sound self-serving, but concluded that Judge Sean F. Cox’s decision was “a prime illustration” of the value of strong legal advice.
In another victory for brokers that may say more about venue than legal argument, a Texas county judge last month denied Morgan Stanley’s filing for a TRO against two brokers who joined Ameriprise.