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THE BROKER PROTOCOL: NEW TREND EMERGING AS COURTS ALLOW BROKERS TO SERVICE FORMER CLIENTS?

By Sara Sabzerou, Law Clerk of Shustak Reynolds & Partners, P.C. posted on Tuesday, October 13, 2020.

Just last month, Florida federal Judge Tom Barber shot down Wells Fargo’s motion for an emergency temporary restraining order (“TRO”) against their former brokers, Brady Pedler and Joseph Santana. Wells Fargo claimed the firm would suffer “irreparable harm” due to Pedler and Santana’s solicitation of former clients to their new employer, RBC Wealth Management. Pedler and Santana managed $306 million in assets during their time at Wells. This ruling followed a similar result in Michigan, where Judge Janet Neff denied J.P. Morgan’s emergency TRO motion against a former broker who left to join Ameriprise Financial.

In its complaint, Wells Fargo asserted that Pedler and Santana violated their employment contracts as well as account inheritance agreements with a retired advisor by emailing marketing materials about RBC while they were still employed by Wells.

Wells Fargo Advisors and RBC Wealth are members of the Protocol for Broker Recruiting (“the Protocol”), which allows advisors to take five categories of basic client-contact information with them when moving from one signatory firm to another. Essentially, the Protocol provides protection for departing brokers and prevents costly litigation while furthering “clients’ interests in privacy and freedom of choice in connection with the movement of their [brokers] between firms.” But the Protocol does not override all contractual obligations, Wells Fargo’s lawyers argued.

Wells Fargo alleged its former brokers violated the Protocol by stealing confidential information and soliciting clients before resigning from Wells Fargo and moving to RBC. Wells cited several instances in its complaint where clients were allegedly contacted to move their accounts prior to the brokers’ resignation from the firm. Wells alleged the brokers’ conduct not only violated the Protocol, but also breached their employment contracts with Wells, violated fiduciary duties owed to Wells, and violated the Florida Uniform Trade Secrets Act.

In the past, judges have allowed TROs against brokers from Protocol signatory firms who have failed to comply with the Broker Protocol. Examples of cases include Merrill Lynch v. Michael Carr, Jeffrey Hogue et al. and Morgan Stanley v. O’Brien. In both instances, judges granted TROs to Merrill Lynch and Morgan Stanley against former brokers who allegedly violated Protocol in soliciting clients. In these cases, along with many others, judges were quick to grant TROs based on the reasoning that brokers wrongfully obtained client information, encouraged former clients to move their assets over to their new firms, and violated their employment contracts. However, the current rulings from Judge Barber and Judge Neff may suggest a new hesitancy by courts to award injunctive relief to large firms like Morgan Stanley and Wells Fargo.

Judge Barber opined that the TROs Wells Fargo seeks are “extreme remedies.” Without any input from the former brokers themselves, Judge Barber nor Judge Neff saw a compelling need to grant the TROs. The judges had a difficult time understanding why financial giants like Wells Fargo and J.P. Morgan could claim they suffered “irreparable harm” after one or two brokers in their army of advisors left the firms. In addition, Judge Barber reasoned that Wells Fargo failed to establish the imminency and severity of their injury. Time will tell if these cases are outliers, or whether it is becoming more difficult for powerful financial entities to obtain TROs against former employees who have jumped ship. 

We greatly appreciate Sara Sabzerou's contribution to our firm!  Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.  We routinely represent broker-dealers and financial advisors in arbitrations, financial advisor transitions, broker protocol disputes and related matters.  Please contact us today for a confidential, complimentary consultation.

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