FORT LAUDERDALE, FL (July 13, 2009) – Victory in the courtroom for three former Merrill Lynch employees sued by the financial giant. Merrill Lynch claims the trio took confidential information when they left, but defense attorney Richard Epstein , senior partner and co-chair of the litigation department at Greenspoon Marder, P.A. , argued that Merrill Lynch is a victim of its own recruiting practices, punitive pay cuts and, in the end, would still have had the accounts it says it lost if it had not grossly overreacted.
Peter Weitz and Steven Weitz resigned as financial advisors with Merrill Lynch on May 29. Eugene Morgia left the firm when his position as commercial banking and liquidity specialist was eliminated on March 20, as a result of the Bank of America merger. The trio left Merrill Lynch’s Coral Springs, Fla. office to establish a South Florida office for New York-based boutique wealth management firm Fusion Analytics Investment Partners.
On June 10, Merrill Lynch alleged in a complaint filed in federal court in Fort Lauderdale, Fla. and with the Financial Industry Regulatory Authority (FINRA) that Weitz, Weitz and Morgia violated their non-compete agreement, misappropriated trade secrets by taking client information and, by suggesting that their former clients have their accounts maintained with Merrill Lynch’s BroadcortAdvisors division, misled those clients about their departure from Merrill Lynch.
However, on July 2, FINRA denied Merrill Lynch’s request for a permanent injunction, which would have prohibited Weitz and Weitz from contacting any clients formerly serviced at Merrill Lynch. Morgia was removed from the complaint in an earlier federal court stipulation, when claims against him were proven to be groundless.
Epstein argued for the defense that Merrill Lynch did not show a legitimate business interest in justifying restrictive covenants against Weitz and Weitz, due to the following:
In 2004, Merrill Lynch was one of the original financial firms that formed “The Protocol for Broker Recruiting.” The Protocol allows a financial advisor moving between member firms to take client contact information, as long as a copy of that information accompanies a written resignation. Once employed by the competing signatory firm, the advisor can actively solicit those clients notwithstanding a non-compete agreement with the former firm. Merrill Lynch sued Weitz, Weitz and Morgia nonetheless, as Fusion Analytics is not a “Protocol” firm.
In creating “The Protocol” and encouraging other major financial firms to adopt it as an industry standard, Merrill Lynch effectively acknowledged that client contacts are not trade secrets and that a departing financial advisor’s clients are not protectable interests under the Florida law that governs the enforceability of such employment agreements.
The clients that Merrill Lynch claims it would lose to Fusion Analytics would, had Merrill Lynch not sued, actually still have had their accounts with Merrill Lynch’s BroadcortAdvisor Division. Merrill Lynch markets BroadcortAdvisor to independent broker dealers and investment advisors like Fusion Analytics. Fusion Analytics advised each former Merrill Lynch client of Weitz’ and Weitz’ move, while suggesting a seamless transition of their Merrill Lynch account to BroadcortAdvisor.
Earlier this year, Merrill Lynch unilaterally changed the compensation plan for its longtime brokers, including Weitz and Weitz. The plan dramatically cut the payout for Merrill Lynch’s most loyal brokers, which effectively forces out some of Merrill Lynch’s most consistently producing brokers. At the same time, Merrill Lynch is actively recruiting brokers with non-compete agreements from competing firms with promises of huge sign-on bonuses.
“These are people who have produced year in and year out; nevertheless, Merrill Lynch instituted a punitive pay plan,” said Epstein. “Merrill Lynch then pursued them in court, while not suing others who did precisely the same thing but moved, instead, to a ‘Protocol’ firm. Consider this fair warning that everybody in the industry needs to play by the same rules. You can’t claim privileges that you deny others.”
About Greenspoon Marder Greenspoon Marder LLP is a full-service law firm with over 240 attorneys and more than 20 office locations across the United States. With operations from Miami to New York and from Denver to Los Angeles, our firm attracts some of the nation’s top talent in key markets and innovation hubs. Our core practice areas include Real Estate, Litigation, and Transactional Services, complemented by the capabilities of a full-service firm. Greenspoon Marder has upheld a spot on The American Lawyer’s Am Law 200 as one of the top law firms in the U.S. since 2015, and our goal is to provide exceptional client service by developing a thorough understanding of each client’s business needs and objectives in order to provide strategic, cost-effective solutions.
MEDIA CONTACT
Natalie Villanueva, Director of Marketing[email protected]
This Greenspoon Marder LLP Client Alert is issued for informational purposes only and is not intended to be construed or used as general legal advice nor a solicitation of any type. Please contact the author(s) or your Greenspoon Marder LLP contact if you have any questions regarding the currency of this information. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer’s legal qualifications and experience.
