Whose Client Is It? Morgan Stanley Wins TRO Against Janney Jumpers
Morgan Stanley has convinced a judge to temporarily prevent a team of Connecticut brokers from soliciting certain of their former clients from their new home at Janney Montgomery Scott, fueling arguments that client business belongs to employers rather than to individual brokers.
The New York wirehouse rushed to seek a temporary restraining order against veteran brokers June Strunk and Shane O’Brien last Wednesday, a day after the brokers left the firm’s Mystic office to open a satellite branch in the city for Philadelphia-based Janney.
On Friday, U.S. District Court Judge Warren W. Eginton granted the order, saying Morgan Stanley has met its burden of showing, among other things, that it “will suffer immediate and irreparable injury, loss and damage” if brokers are not prohibited from soliciting certain clients pending further court arguments.
The order specifically restrains Strunk and O’Brien, who had been at predecessor firms of Morgan Stanley since the mid-1990s, from contacting clients who were covered by a “Former Financial Advisor Program” (FFAP) agreement they had signed in 2014 governing accounts inherited from a broker who retired. It also orders them to return client data in their possession.
“The consequences of the temporary restraining order have already been ‘drastic,’” the brokers wrote in a request for an emergency motion filed on Monday seeking to expedite further hearings.
Morgan Stanley, which is seeking $1.5 million in damages and has simultaneously filed an arbitration claim seeking a permanent injunction with the Financial Industry Regulatory Authority, did not say in its filings what percentage of the brokers’ book was governed by the agreement. A Morgan Stanley spokeswoman declined to comment.
Both Morgan Stanley and Janney are members of the Broker Protocol, which permits brokers jumping among signatories to take rudimentary client contact information with them when jumping among signatory firms.
Strunk, who was branch manager at Morgan Stanley’s Mystic, Conn., office, did not return a call for comment on Monday. A spokesman for Janney declined to comment.
Strunk and O’Brien managed about $350 million of customer assets, Janney said in a press release. Morgan Stanley alleges in court filings that they managed “in excess of $300 million” and had trailing 12-month production of $1.8 million.
In court filings, Strunk characterized Morgan Stanley’s allegations that the retired broker’s accounts had not been truly transferred to her team as “absurd,” saying it ignores “the reality of how the clients were truly serviced.”
Strunk and Laurel Butler, the retired broker, had shared the accounts for eight years prior to Butler’s retirement and terms of the Protocol for Broker Recruiting should trump the FFAP, she said in a statement filed with the court.
“Morgan Stanley did nothing more than renumbering a production number, but I continued servicing exactly the same clients and accounts that I had already been servicing for years,” she wrote.
Strunk and O’Brien argued in their request for an emergency hearing that the court did not give them “adequate notice” for responding to Morgan Stanley’s TRO request.
“Defendants are now unjustly prevented from communicating with a great many of their financial services clients, who rely on Defendants for guidance in their personal financial lives and on whom Defendants in turn rely as the lifeblood of their business.”
The restraining order is effective until at least May 31 when a hearing for a preliminary injunction has been scheduled.