Seattle Broker Prevails in Quashing Morgan Stanley TRO Suit
Just 24 hours after Morgan Stanley asked a federal court last week to stop Kevin Clouse from soliciting his former team’s clients, the broker who argued that he bore no ill will to his erstwhile colleagues prevailed.
Morgan Stanley failed to establish it would suffer irreparable harm without the “extraordinary remedy” of having a temporary restraining order imposed on Clouse, who had worked with his senior Morgan Stanley partner on a three-person team for more than 12 years, Seattle District Judge Richard A. Jones ruled on Friday.
A Morgan Stanley spokeswoman did not respond to a request for comment on the decision.
Lawyers who represent brokers in employment cases said the defeat is unlikely to stop the growing wave of TRO requests being made by Morgan Stanley, Merrill Lynch and other large firms when a big producer leaves because they want to send a message to brokers left behind regardless of whether they succeed in individual cases.
“It works, because moving a book of business and repapering accounts is more than a full-time job,” said Erwin Shustak a San Diego-based plaintiffs’ attorney at Shustak, Reynolds & Partners P.C. “If you have to spend one-third of your time with lawyers at great expense it cuts into your onboarding time.”
Clouse, who joined RBC Wealth Management’s Kirkland, Washington, office on January 30, did not return a request for comment. His lawyers declined to comment.
In his response to Morgan Stanley’s February 10 motion for the TRO, he denied the firm’s assertion that his senior partner Kevin Magnuson, who was on a trip to Southeast Asia when he resigned, nurtured and lead-managed most of the team’s relationships.
Clouse originated relationships with about 40% of the team’s approximately 310 clients and had been sales assistant to a former Smith Barney broker from whom Magnuson inherited many clients, according to court filings.
Advisors who follow the rules of the Broker Protocol, which governs the client information they can take with them to another firm that has signed the agreement, usually succeed in TRO suit defenses, Shustak said.
Clouse, who an RBC spokeswoman said produced around $700,000 last year, was “conservative” in compiling his Broker Protocol list, taking and contacting the names of 105 of the team’s 310 clients, his Seattle-based lawyers James Sanders and William Miller wrote in his response to the TRO motion.
“The Protocol allows him to contact more, but he bears continued goodwill toward his former team-mates, and wanted to avoid just the kind of dispute Morgan Stanley has now started,” they wrote.
Many TRO cases come down to an argument over whether team agreements or the Broker Protocol rules customer-contact behavior, Shustak said. Clouse argued in his court filing that the 2015 partnership papers that credited him with one-third of the team’s revenue but gave Magnuson lead-advisor status was “one-sided.”
“[He] felt he had to sign the sign the agreement if he wanted to keep his job,” his lawyers wrote.
Prior to joining Magnuson in 2004, first as a sales assistant and by 2006 as a broker, Clouse worked for another Smith Barney broker who sold his book to Magnuson, according to his declaration. Clouse had worked at Morgan Stanley and its Smith Barney predecessor since 1999.
The third partner of the Magnuson team was Magnuson’s daughter, according to Morgan Stanley’s filings.