District Court Denied Morgan Stanley Injunction In Non Solicitation Case

August 9, 2019

Getting a temporary restraining order ain't all that big a deal. Courts tend to hand them out with regularity. Getting the TRO transformed into a preliminary or permanent injunction, however, is a more arduous undertaking and for good reason. In a recent non-solicitation dispute, Morgan Stanley secured a TRO against former representative David James Sayler; however, when the brokerage firm tried to persuade a federal court to issue a preliminary injunction, the bench was not so disposed. The Court's Opinion is a primer on what may determine whether Wall Street's employer are granted or denied injunctions against their former employees.

Case In Point

Online FINRA BrokerCheck records disclose that David James Sayler was first registered in 2006 with FINRA member firm Citigroup Global Markets, Inc. and with FINRA member firm Morgan Stanley from June 2009 to June 2019. On July 9, 2019, Morgan Stanley moved for a Temporary Restraining Order ("TRO") in the United States District Court for the District of Oregon ("DOR") against Sayler in an effort, in part, to enjoin him from from using any confidential client information, and from soliciting certain clients. Morgan Stanley Smith Barney LLC, Plaintiff, v. David James Sayler, Defendant (Opinion and Order, DOR,19-CV-01067)  

2017 FAP

As more fully set out in the DOR Opinion/Order, in 2016, Sayler joined a joint production team, the Cedar Ridge Group (the "Group"). Following the 2017 retirement of Group member James Maddux, Maddux entered into Morgan Stanley's Former Advisor Program (the "FAP") under which he received a portion of the revenue derived from his former clients. 

On August 2, 2017, Sayler signed a Memorandum of Understanding (the "2017 Agreement") whereby he served as an advisor for some of the Maddux's FAP-covered clients. As part of the 2017 Agreement, Sayler purportedly agreed that following the termination of his registration with Morgan Stanley he would stop using the account information for Maddux's clients and deliver such information to the firm without retaining any; further, he agreed that:

[F]or a period of one year or the remainder of the Payment Period, whichever is longer, you will not solicit or attempt to solicit, directly or indirectly, any of the Clients who were served by you or any other Active Advisor in connection with this FAP Agreement, or whose names became known to you in connection with this FAP Agreement, while in the employ of Morgan Stanley or as a result of your employment with Morgan Stanley, with respect to securities, commodities, financial futures, insurance, tax advantages investments, mutual funds, or any other line of business in which Morgan Stanley or any of its affiliates is engaged. 

Page 4 of the DOR Opinion and Order

2019 FAP

In April 2019, Sayler became dissatisfied with his participation in the Group and left, but he remained as a financial advisor with Morgan Stanley; and, thereafter, he entered into a Morgan Stanley Wealth Management Former Advisor Program Joint Active Advisor Agreement (the "2019 Agreement") with two other advisors. After leaving the Group, Sayler alleged that Morgan Stanley Branch Manager Ray Cox gave him permission to send out "Thank You" cards to 60 Group clients in which he expressed his appreciation for the clients' trust and confidence (and included his Morgan Stanley business card). Allegedly, the 2019 Agreement furthered the goal of protecting Maddux's retirement income and included confidentiality and non-solicitation provisions identical to the 2017 Agreement -- and also extended some of the restrictions, for example:

[A]ll files, papers, memoranda, letters, facsimile, electronic or other communication whether original, duplicated, computerized, memorized, handwritten or in any other form, and all information derived therefrom relating to the business of Morgan Stanley, including but not limited to the names, addresses, telephone, email or any other identifying numbers and financial information of any Client Accounts (hereinafter collectively "Confidential and Proprietary Information and Records") are confidential and the sole and exclusive property of Morgan Stanley. Each Joint Producer agrees and understands that Confidential and Proprietary Information and Records whether provided to him or her by Morgan Stanley or by Client Accounts is entrusted to Joint Producer as an employee and representative of Morgan Stanley. Each Joint Producer agrees that the Confidential and Proprietary Information and Records in his or her possession are and remain the property of Morgan Stanley and, as such, are not to be removed from or used outside of any Morgan Stanley offices except as authorized by Morgan Stanley. In addition, each Joint Producer agrees to return immediately all Confidential and Proprietary Information and Records in his or her possession or control should his or her employment terminates [sic] for any reason and at any time. Each Joint Producer further agrees not to divulge or disclose Confidential and Proprietary Information and Records or any other confidential information relating to any other client to any person or entity outside Morgan Stanley including but not limited to a competitor of Morgan Stanley either during my employment or at any time thereafter. 

In addition, for a period of one (1) year following any Joint Producer's termination of employment for any reason, each departing Joint Producer agrees not to solicit any Client Accounts or retain any information regarding any such Client Accounts, including, but not limited to, a list of Morgan Stanley client names and/or client contact information. For purposes of this provision, the term "solicit" includes initiation of any contact with clients for the purpose of conducting business with or transferring accounts to any other person or firm that does business in any line of business in which Morgan Stanley or any of its affiliates is engaged. Each Joint Producer understands and agrees that the above referenced confidentiality and non-solicitation restrictions will survive termination of the JP Arrangement. 

Pages 5 - 6 of the DOR Opinion and Order


On June 13, 2019, Sayler resigned from Morgan Stanley for a position with UBS Financial Services, Inc., and:

[I]n the days before his resignation, Sayler printed over 170 pages worth of Morgan Stanley documents, which Morgan Stanley believes included client information that Sayler took with him when he departed. Cox Decl. Sayler maintains that these documents were print-outs of research on the portfolio of equities held by the Group and that printing those documents and delivering them to one of the other Group members were part of his regular duties. Sayler Decl. Cox, the Medford Branch Manager for Morgan Stanley, has submitted printer logs showing that Sayler printed an additional twenty pages from his calendar three days before he resigned and that he printed a thirteen-page spreadsheet of all the clients he serviced at Morgan Stanley as of May 29, 2019, sorted by the amount of assets in each account. Second Cox. Decl. Cox affirms that there was no reason for Sayler to print those documents shortly before he departed and Cox was not aware that any of those documents were returned to Morgan Stanley. Id. Sayler denies that he took any documents from Morgan Stanley. Sayler Decl. 

In the days following Sayler's resignation, Morgan Stanley financial advisors began contacting Sayler's clients to inform them of Sayler's departure. Sevcik Decl.; Smith Decl.; Stone Decl. The advisors learned that Sayler had already contacted the clients in question and asked them to transfer their accounts to UBS. Id. Some of the comments made by the clients led the advisors to believe that Sayler had solicited them to follow him to UBS before he resigned from Morgan Stanley. Sevcik Decl. One client was contacted "almost immediately" after Sayler resigned and indicated that he was already aware of Sayler's departure and was considering whether to remain with Morgan Stanley or follow Sayler. Stone Decl. The specific clients are not identified, but the Morgan Stanley advisors all believed that Sayler's solicitation of former clients was a violation of the 2017 Agreement and the 2019 Agreement. Sevcik Decl.; Smith Decl.; Stone Decl. Sayler denies that he solicited any of Maddux's former clients. Sayler Decl. Sayler affirms that many of his Morgan Stanley clients sought him out and asked that he continue to service their accounts. Id

Pages 7 - 8 of the DOR Opinion and Order

2019 TRO

After Morgan Stanley filed its lawsuit on July 9, 2019:

[O]n July 10, 2019, this Court issued a TRO enjoining Sayler from using any confidential Morgan Stanley client information and directing Sayler to return any confidential client information in his possession to Morgan Stanley. Sayler was also enjoined from directly soliciting any Morgan Stanley clients covered by the 2017 and 2019 Agreements, although he was permitted to accept and service any Morgan Stanley clients who sought out or requested his services

The issuance of the TRO triggered an accelerated arbitration schedule. At oral argument on the preliminary injunction, counsel advised the Court that this matter was scheduled for FINRA arbitration beginning on July 24, 2019.

Pages 8 - 9 of the DOR Opinion and Order 

Motion for Preliminary Injunction

In framing the competing arguments before it to convert the TRO into a preliminary injunction, the Court offers this overview:

In this case, there is a stark disagreement over the scope of those Agreements and over Sayler's conduct before and after his resignation. All parties appear to agree that they forbid Sayler from removing or retaining client information and further asserts that he serviced only a fraction of the Maddux accounts during his time with Morgan Stanley. Sayler Decl. 

Morgan Stanley argues that the Agreements, and particularly the Joint Production Agreement incorporated into the 2019 Agreement, covered all the 173-035 Accounts. Those accounts, Morgan Stanley contends, constituted a substantial portion of the accounts Sayler serviced with Morgan Stanley. Second Cox. Decl. 

The Court notes that, although he denies taking documents or soliciting former Maddux clients, Sayler does not clearly deny that he retained Morgan Stanley client information, nor does he clearly deny that he has solicited his clients to transfer their accounts to UBS. With respect to the former Maddux clients, Sayler's declaration is contradicted by the declarations of his former Morgan Stanley colleagues, who affirm that they have spoken with clients solicited by Sayler, both before and after his departure, and that they believe those solicitations to have been in violation of the FAP Agreements.

Pages 9 - 10 of the DOR Opinion and Order 

Four-Point Test

In deliberating over the parties' various arguments, DOR reiterated that:

[A] plaintiff seeking a preliminary injunction generally must show that: (1) the plaintiff is likely to succeed on the merits; (2) the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in favor of the plaintiff; and (4) an injunction is in the public interest. . . 

Page 2 of the DOR Opinion and Order 

Irreparable Harm

Accordingly, the Court initially considers whether the mere solicitation of Morgan Stanley clients rises to the level of "irreparable harm," and concludes that the firm failed to sufficiently allege such a circumstance. In part, DOR muses that the firm's assertion of irreparable harm may be little more than "mere speculation about the possibility of Morgan Stanley suffering such a harm absent an injunction; and, further, that the firm may well be "perfectly capable of calculating damages resulting from a violation of the non-solicitation and confidentiality clauses. Page 11 of the DOR Opinion and Order. As such, the Court found that:

[O]n the present record, and without more information about the client accounts being solicited or harm done to Morgan Stanley's reputation and relationship with those clients, the Court cannot justify keeping an injunction in place. If Sayler is found to have violated the 2017 and 2019 Agreements by soliciting covered client accounts, the loss to Morgan Stanley is likely more financial than reputational. Such harms can be redressed by damages, as is contemplated by the Agreements themselves and are not, therefore, irreparable. 

Page 13 of the DOR Opinion and Order 

Balancing the Equities

Turning to the additional prongs in the "irreparable harm" test, DOH allows that there is some evidence that Sayler retained some Morgan Stanley client information and also solicited the firm's clients. Deeming Morgan Stanley a "substantial player in its market," however, the Court also doubts that a TRO in Morgan Stanley's favor would drive Sayler's employer, UBS, out of business or even put the him out of work. In more succinct terms:

Furthermore, the TRO issued in this case required Sayler to surrender any Morgan Stanley client information in his possession and to refrain from actively soliciting Morgan Stanley customers. It did not forbid Sayler from working as a financial advisor, nor did it prevent him from servicing any Morgan Stanley customers he solicited before the TRO was issued, or from servicing the accounts of any Morgan Stanley customer who requested his services. On this record, the Court finds that the balance of equities weighs in favor of Morgan Stanley. 

Page 14 of the DOR Opinion and Order 

Denied and Dissolved

As to the "public issue" prong, DOH concludes that there is no strong favor for either Sayler or Morgan Stanley. In taking into consideration the "irreparable harm" test and its findings, the Court concluded that:

[T]here are serious questions going to the merits of this case and the balance of equities tips slightly in Morgan Stanley's favor. However, Morgan Stanley has failed to clearly establish that it will suffer irreparable harm in the absence of further injunctive relief. Accordingly, the motion for continuing injunctive relief is DENIED and the previously issued injunction is dissolved. 

Page 15 of the DOR Opinion and Order 

District Court Denied Morgan Stanley Injunction In Non Solicitation Case
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