Morgan Stanley Rep Dodges E*Trade Injunction Against Prospect Outreach
Online discount brokerage E*Trade Financial Corporation failed this month, despite winning in two previous similar instances, in its attempt to get a court to slap a former employee who jumped to Morgan Stanley with an injunction limiting him from contacting prospective clients.
In the two other cases, federal courts recently issued such injunctions against two former E*Trade financial consultants who had moved to Morgan Stanley, FA-IQ previously reported.
But a California federal magistrate based her ruling on a California state law and denied E*Trade its request for an injunction against Julius Agbonbhase to bar him from allegedly using its confidential information to solicit its clients. Agbonbhase, also a financial consultant, had worked in Cupertino for E*Trade and now works for Morgan Stanley in San Jose.
E*trade has also initiated a Finra arbitration proceeding against Agbonbhase.
E*Trade asked the federal court to issue the injunction to stop Agbonbhase from using its allegedly confidential information, as defined by its non-solicitation and nondisclosure agreements with him. E*Trade wanted the injunction to apply until Finra issued a ruling in its case against Agbonbhase.
E*Trade argued that it is entitled to a preliminary injunction because it had and would suffer irreparable harm because of Agbonbhase’s conduct, according to the order issued May 2 by U.S. Magistrate Susan van Keulen.
E*Trade also argued that it was likely to succeed with its breach of duty, loyalty and contract claims against Agbonbhase, van Keulen wrote to explain her ruling, adding that Agbonbhase argued that no preliminary injunction was warranted because the California Business & Professions Code barred E*Trade from enforcing its non-compete agreements.
With her ruling, van Keulen sided with Agbonbhase. The California state law states explicitly that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” she writes. E*Trade failed to show it would succeed on its claim that Agbonbhase violated his nondisclosure agreements “by using allegedly confidential E*TRADE information to solicit clients to Morgan Stanley,” van Keulen concludes.
She made it clear E*Trade was litigating in California where its rules apply.
“Given the strong public policy in California in favor of an individual’s ability to practice his profession without restraint, the burden of the injunction sought by E*TRADE on Agbonbhase would far outweigh the benefit to E*TRADE of inhibiting Agbonbhase from contacting clients he worked for at E*TRADE, particularly where Agbonbhase had preexisting relationships with many of those clients and their contact information is readily available through public sources,” van Keulen writes.
The discount brokerage has won the injunctions it sought in cases E*Trade filed in other federal courts — but not ones in California — against two other former employees who moved to Morgan Stanley.
A federal judge in Illinois issued an injunction against Heather Pospisil, a former E*Trade financial consultant who worked in Chicago for the online brokerage and moved to Morgan Stanley’s Phoenix office in August 2018. Once at the wirehouse, Pospisil allegedly solicited E*Trade’s clients and siphoned assets that had been under its management, and therefore needed to be stopped with an injunction, the discount brokerage alleged.
The court agreed.
“[I]f Pospisil is not enjoined, it is not clear how many clients will follow suit in the future. Specifically, because Pospisil has now used E*Trade’s confidential information to solicit clients away, there is no way to ‘unring’ the bell, as the clients cannot be forced to return to E*Trade. The court finds that E*Trade has made a sufficient showing of an inadequate remedy at law and a likelihood of irreparable harm absent an injunction,” wrote Judge Ronald Guzman of the United States District Court for the Northern District of Illinois in his order granting E*Trade’s request for injunctive relief against Pospisil.
Another federal judge in Arizona issued an injunction against Lance Eaton, a financial consultant for E*Trade who left the discount brokerage before Pospisil in 2017 for Morgan Stanley’s Phoenix office.
That injunction barred Eaton from soliciting E*Trade clients and required him to return his former employer’s confidential information.
For this story, Morgan Stanley spokespersons, Agbonbhase’s lawyer, and E*Trade’s counsel all did not respond to requests for comment.