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Edward Jones Wins TRO Against Former Employee in Solicitation and Trade Secrets Case
August 24, 2020
Most games have rules. Even if a rule is carved in stone, however, it's usually open to some interpretation, which is why we got umpires, referees, judges, and scorers, who see what we see but make a call that half of us think is right, half of us think is wrong -- and even when we go to the video, the tape shows a play that's too close to call. Then you have professional sports where there is a whole mess of so-called unwritten rules. All of which seems to come into play in a recent effort by Edward Jones to enjoin one of its former employees who joined Ameriprise.
WDVA Complaint
In a Complaint filed in the United States District Court for the Western District of Virginia ("WDVA"), Plaintiff Edward D. Jones & Co., L.P. ("Jones") sought a temporary restraining order ("TRO") and a preliminary injunction against former employee Defendant Samuel "Ed" Clyburn, Jr. The Complaint asserted misappropriation of trade secrets and breach of contract. Edward D. Jones & Co., L.P., Plaintiff, v. Samuel "Ed" Clyburn, Jr. , Defendant (Complaint, WDVA, 20-CV-433 / July 28,2020)
http://www.brokeandbroker.com/PDF/Clyburn%20ComplaintEdJones200728.pdf
In pertinent part, the Complaint alleges that:
2. Mr. Clyburn was employed by Edward Jones. This dispute arises out of Mr. Clyburn's departure from Edward Jones on Friday, June 26, 2020.3. Upon information and belief, while still employed by Edward Jones, Mr. Clyburn secretly, and in violation of his legal, equitable and contractual obligations to Edward Jones, actively and deceptively printed, copied, and/or removed Edward Jones' confidential client information and trade secrets, and took them with him to his new employment at Ameriprise Financial Services, Inc. ("Ameriprise"), a firm in direct competition with Edward Jones.4. Mr. Clyburn is also soliciting Edward Jones' clients in breach of his contractual obligations.
The Employment Agreement
21. Clients consider their financial information to be confidential and expect Edward Jones to take any and all reasonable steps to ensure their confidentiality.22. Paragraph 15 of Mr. Clyburn's Agreement states as follows:
You agree that all records of Edward Jones, whether original, duplicated, computerized, memorized, handwritten, or in any other form, and all information contained in those records, whether generated by Edward Jones or you including, but not limited to Edward Jones' processes, methods, plans, data, operations and the identities, names, addresses and telephone numbers of any account and/or client are confidential, proprietary to Edward Jones and constitute trade secrets of Edward Jones ("Edward Jones Trade Secrets"). Edward Jones Trade Secrets are and shall remain the sole and exclusive property of Edward Jones at all times during your employment with Edward Jones and after the termination of your employment. You shall at no time, while this Agreement is in effect or thereafter, use any Edward Jones Trade Secrets acquired by you during the period of this Agreement in a manner adverse to the interest of Edward Jones . . . It shall constitute a violation of this Agreement for you to provide client information to other than Edward Jones employees who have need to access said information for the purpose of providing investments and services to clients of Edward Jones . . . It shall constitute a breach of this Agreement for you to provide client information to anyone without the express written permission of Edward Jones including, but not limited to, prospective or future employers, for any purpose whatsoever . . . These Edward Jones Trade Secrets, whether provided to you by Edward Jones or by any clients of Edward Jones, are entrusted to you as an employee and representative of Edward Jones. These Edward Jones Trade Secrets are unique, extremely valuable to Edward Jones, and are developed and acquired by great expenditures of time, effort, and cost. You agree that all of said Edward Jones Trade Secrets or any part of them are the sole proprietary information of Edward Jones and shall be treated by you at all times as confidential information of Edward Jones. You further agree that (a) the identity and particular needs of Edward Jones' clients have actual or potential independent economic value because such information is not generally known and is not readily ascertainable by proper means by competitors of Edward Jones or others in the industry; (b) Edward Jones has a proprietary interest in the identity of its clients and all other information about its clients; and (c) documents and information regarding Edward Jones' processes, methods, plans, data, operations, and the identities, names, addresses and telephone numbers of any account and/or client are highly confidential and are protected from disclosure as Trade Secrets or otherwise proprietary and confidential information. You will not use these Edward Jones Trade Secrets or remove any records or duplicates of records containing Edward Jones Trade Secrets from any Edward Jones premises except for the purpose of conducting business on behalf of Edward Jones. You further agree not to divulge or disclose these Edward Jones Trade Secrets to any third-party, either during your employment or at any time thereafter . . . In the event of the termination of your employment with Edward Jones, for any reason whatsoever, you agree to return any original records and any copies whatsoever of documents or any computerized records containing Edward Jones Trade Secrets or any confidential and proprietary information which have been removed from Edward Jones . . . You acknowledge and agree that Edward Jones will suffer great loss and damage if, during your employment with Edward Jones or at any time thereafter, you were to improperly use or disclose Edward Jones Trade Secrets or confidential and proprietary information. . . Therefore, you agree that you must comply with the restrictive covenants of this Agreement. It is understood at the execution of this Agreement, and you acknowledge and agree, that such restrictions protect legitimate protectable interests of Edward Jones with respect to Edward Jones Trade Secrets and that the restrictions are reasonable and necessary to protect such interests, and that such restrictions do not impair or prevent you from earning a living or from working in other areas of the securities industry (e.g., effectuating sales to non-restricted customers).
23. In signing the Agreement, Mr. Clyburn also agreed not to solicit Edward Jones' customers for a period of one year following termination of his employment.24. Paragraph 15 of the Financial Advisor Employment Agreement states as follows:
Furthermore, you agree for a period of one year following the termination of your employment, that you will not solicit by mail, phone, electronic communication, personal meeting, or any other means, either directly or indirectly, any clients of Edward Jones with whom you had direct contact during your employment with Edward Jones or about whom you have information or knowledge of confidential information or Edward Jones Trade Secrets, provided that the foregoing provision shall not apply to clients with whom you did securities and/or insurance business before you became an employee of Edward Jones. Your agreement not to solicit means that you shall not, during your employment with Edward Jones, and for a period of one year thereafter, initiate any contact or communication of any kind whatsoever for the purpose of inviting, encouraging or requesting any Edward Jones client to transfer from Edward Jones to you or to your new employer, to open a new account with you or with your new employer or to otherwise discontinue his/her/its patronage and business relationship with Edward Jones. . . . You acknowledge and agree that Edward Jones will suffer great loss and damage if, during your employment with Edward Jones or at any time thereafter, you were to improperly use . . . your contacts and relationships with any customers of Edward Jones. Therefore, you agree that you must comply with the restrictive covenants of this Agreement. It is understood at the execution of this Agreement, and you acknowledge and agree, that such restrictions protect legitimate protectable interests of Edward Jones with respect to Edward Jones Trade Secrets and that the restrictions are reasonable and necessary to protect such interests, and that such restrictions do not impair or prevent you from earning a living or from working in other areas of the securities industry (e.g., effectuating sales to non-restricted customers).
The Move to Ameriprise
In arguing its case for a TRO and subsequent injunction, Jones alleged in part the following facts:
36. Mr. Clyburn worked from home in the months before his resignation, giving him complete and unfettered access to Edward Jones confidential Client information. Exhibit B, at ¶ 11.37. On the day he resigned, Mr. Clyburn left a file folder with a list of Clients who had a required minimum distribution. The list contained confidential Edward Jones Client information, including Client names, contact information, and account balances. Exhibit B, at ¶ 13.38. Upon information and belief, Mr. Clyburn had the list with him at his home prior to his resignation.39. In addition, Ameriprise instructs incoming recruits to compile client information from their former firm and input it onto a thumb drive, some other storage device, or into a third party cloud-based system ("Transition Safe") before the recruit's resignation. Customarily, the information includes, at a minimum, client identities, addresses, telephone numbers, and email addresses.40. Once the financial advisor resigns from his former firm and joins Ameriprise, the client information becomes accessible to Ameriprise.41. Ameriprise and the financial advisor then utilize the client information to begin immediately contacting clients from the financial advisor's former firm in an effort to convince them to transfer their accounts to Ameriprise.42. Upon information and belief, Mr. Clyburn and Ameriprise utilized the same or a similar strategy during Mr. Clyburn's transition.43. As a result, Mr. Clyburn was able to begin immediately contacting Edward Jones clients after his resignation in an effort to convince them to transfer to Ameriprise.44. To date, Mr. Clyburn has contacted, via telephone, at least 23 Edward Jones clients. Exhibit B, at ¶¶ 15-17.45. At least 22 other Clients already knew about Mr. Clyburn's transition in the days following his resignation. Exhibit B, at ¶¶ 16-17.46. Three Edward Jones clients specifically reported that Mr. Clyburn called them shortly after his resignation and asked them to transfer to Ameriprise. See Affidavit of Curtis Miller, attached as Exhibit D, at ¶ 7.47. One Edward Jones Client said Mr. Clyburn called her the day he resigned and she told him that she did not know if she wanted to transfer her account. Mr. Clyburn then sent her an introductory letter regarding Ameriprise. The Client was agitated about receiving the letter. Exhibit D, at ¶ 8.48. An Edward Jones Client from another Edward Jones branch office in Wytheville reported that he received a FINRA disclosure letter from Ameriprise regarding opening an account at Ameriprise, but he had never requested to open an account at Ameriprise. See Affidavit of Russell Jones, attached as Exhibit E, at ¶¶ 4-7.49. Upon information and belief, Mr. Clyburn was planning his transition before his resignation from Edward Jones.50. Mr. Clyburn moved his Edward Jones Office around February 2020, but did not inform the Edward Jones clients about the move from Monroe Street to 775 W Main Street, Ste. 1. Mr. Clyburn is now working for Ameriprise at the same location as his previous Edward Jones branch office. Exhibit B, at ¶ 11.51. Mr. Clyburn contacted clients prior to his resignation to schedule appointments that would occur after his resignation. The Clients did not know that Edward Jones had moved the branch location, so Clients would not realize, until arriving, the appointment at the former branch office was actually an appointment at an Ameriprise Branch Office.52. For example, on Monday, June 29, 2020, a Client reported that she had an upcoming appointment scheduled with Mr. Clyburn that was made "a few months ago." The meeting was not documented on the branch office calendar. Exhibit B, at ¶ 19.53. On Tuesday, June 30, 2020, a Client reported that he already had an appointment scheduled with Mr. Clyburn and was confused if he was at Edward Jones. Exhibit B, at ¶ 20.54. On Tuesday, June 30, 2020, a Client reported that Mr. Clyburn had left her a message "the other day" that he needed to do an annual review. Exhibit B, at ¶ 21.55. On Tuesday, June 30, 2020, a Client was surprised to hear about Mr. Clyburn because he had just called her and asked her to "come by the office for her review." Exhibit B, at ¶ 22.56. Another Client reported that Mr. Clyburn scheduled an appointment with her prior to his resignation and called her after his resignation and said he could now explain why he scheduled the appointment - so that he could have her sign forms to transfer her account to Ameriprise. Exhibit D, at ¶ 8.57. Mr. Clyburn has called that Client multiple times. Exhibit D, at ¶ 9. 58. Several other clients have reported that Mr. Clyburn has called them multiple times. Exhibit D, at ¶ 10.
WDVA Opinion
WDVA held a teleconference hearing on August 14, 2020, and granted the TRO. Edward D. Jones & Co., L.P., Plaintiff, v. Samuel "Ed" Clyburn, Jr. , Defendant (Opinion WDVA, 20-CV-00433 / August 19, 2020)
http://www.brokeandbroker.com/PDF/ClyburnOpWDVA200820.pdfIn granting the relief sought by Jones, the Court seems to have heavily relied upon affidavits from the firm's current employees Carol Hartis and Curtis Miller, who related conversations that they had with clients immediately after Defendant Clyburn's resignation. As noted in part in the WDVA Opinion [Ed: footnote omitted]:
[A]s of June 30, 2020, four days after Mr. Clyburn resigned, twenty clients reported that Mr. Clyburn had already called them, and several of the clients indicated that they would be moving their accounts to Mr. Clyburn.1 Hartis Aff. ¶¶ 15-17. One client (L.G.) advised Ms. Hartis that Mr. Clyburn had "just called her and asked her to ‘come by the office for her review.'" Id. ¶ 22. At least three clients (B.F., C.G., and D.N.) "specifically told" Mr. Miller during the first week of July that Mr. Clyburn had "called them and asked them to move their accounts to Ameriprise." Miller Aff. ¶ 7, ECF No. 1-4. Those clients then cancelled appointments that they had scheduled to meet with Mr. Miller. Id.On July 15, 2020, Mr. Miller met with another client, S.W. Id. ¶ 8. S.W. "reported that Mr. Clyburn had scheduled an appointment with her before he left Edward Jones for a time after his resignation." Id. "Mr. Clyburn then called her the day he resigned and said he could now tell her why he scheduled the appointment - to do the paperwork to switch firms." Id. S.W. "told Mr. Clyburn on that call that she had not decided if she wanted to switch firms." Id. S.W. has since "reported that Mr. Clyburn called her again and that she was irritated because she plans on staying at Edward Jones." Miller Supp'l Decl. ¶ 3, ECF No. 16-1.According to Edward Jones' evidence, Mr. Clyburn has also made other statements in an effort to convince the company's clients to transfer their accounts to Ameriprise. For instance, clients have relayed that Mr. Clyburn has questioned whether they can trust the younger financial advisor who replaced him at Edward Jones. Id. ¶ 5. Clients have also stated that Mr. Clyburn is promising them lower fees if they transfer their accounts to Ameriprise. Id. ¶ 6.The record indicates that Mr. Clyburn's efforts have been successful. As of July 20, 2020, approximately $25 million dollars in assets had been transferred to Mr. Clyburn at Ameriprise. Miller Aff. ¶ 11. As of August 13, 2020, Edward Jones' branch office had "lost $42 million dollars in assets out of $70 million." Miller Supp'l Decl. ¶ 7.
at Pages 4 - 5 of the WDVA Opinion
The Denial River
In weighing the allegations, the Court acknowledged that Defendant Clyburn had denied taking any information belonging to Jones, and he also denied soliciting Jones' customers in violation of any agreements. Pointedly, the Court noted that:
[M]r. Clyburn asserts that he informed a number of his clients at Edward Jones that he had left the company and joined Ameriprise, and that some of those clients chose to transfer their accounts from Edward Jones to Ameriprise, "as is their right." Id. Mr. Clyburn further avers that he "did not send any Ameriprise-branded materials" or "account-transfer paperwork to [his] former customers unless the customer asked [him] to do so." Id. ¶ 22. According to Mr. Clyburn, the majority of the accounts he serviced at Edward Jones belonged to family members, friends, and acquaintances in the Wytheville community. Id. ¶ 15.
at Page 5 of the WDVA Opinion
Four-Part TRO Test
In keeping with the widely accepted standard for the issuance of a TRO, WDVA enunciated the four-part test whereby a Plaintiff must establish that it is
1. likely to succeed on the merits,2. that it is likely to sufer irreparable harm absent the TRO,3.that the balance of equities favors the TRO, and4. the TRO is in the public interest.
Hearsay Was Persuasive for TRO Consideration
Upon review of the record in this case, the court finds it appropriate to "rely on" and accord greater weight to the hearsay evidence submitted by Edward Jones. Id. As indicated above, the sworn statements from Edward Jones' employees recount information relayed by several specific clients regarding their particular communications with Mr. Clyburn. The sworn statements clearly support a finding that Mr. Clyburn has initiated contacts with clients "for the purpose of inviting, encouraging or requesting [them] to transfer from Edward Jones" to Ameriprise, or to "open a new account" with Ameriprise, in violation of the Agreement. . . . Although Mr. Clyburn may be able to offer evidence to contradict the specific factual assertions made in the affidavits and declaration submitted by Edward Jones, such evidence is not before the court at this time. Accordingly, at this stage of the proceedings, the court concludes that Edward Jones has clearly shown a likelihood of success on the merits of its breach of contract claim.
at Pages 10 -11 of the WDVA Opinion
Irreparable Harm
at Pages 11 -12 of the WDVA Opinion[A]s summarized above, Edward Jones has presented evidence indicating that Mr. Clyburn has solicited and diverted business from clients serviced by Mr. Clyburn during his employment with Edward Jones. "Thus, plaintiff is suffering present harm from defendant's breach of the non-solicitation [provision]," and it is likely to continue suffering such harm in the absence of temporary injunctive relief. Update, Inc. v. Samilow, 311 F. Supp. 3d 784, 796 (E.D. Va. 2018).Mr. Clyburn strenuously argues that the harm suffered by Edward Jones-the loss of revenue when a client moves to a different brokerage firm-is not irreparable because Edward Jones can seek compensatory damages during the FINRA arbitration proceedings. As indicated during the hearing, the court finds this argument unpersuasive. "While FINRA may be able to calculate and award monetary damages based on client accounts that already have transferred" from Edward Jones to Ameriprise, "that is only part of the harm and part of the remedy." . . .
Having found in favor of Jones on the two prongs that are typically the issues that present the greatest obstacle, WDVA quickly finds that the balance of equities and the public interest favor the issuance of the TRO. Accordingly, Clyburn is temporarily enjoined from soliciting clients of Edward Jones in violation of the non-solicitation provision of the Agreement. The dispute is now headed for plenary hearings before FINRA's arbitration forum
Bill Singer's Comment
Compliments to WDVA for a compelling and thoughtful Decision. That being said, I'm not sure that I agree with some of the findings or conclusions but given that this is merely a TRO, I can live with it knowing that a FINRA Arbitration Panel will have the ability to remove, modify, or continue some/all of the restrictions. Pointedly, I personally doubt that anything Clyburn did rose to the level of "irreparable harm" to a behemoth firm such as Edward Jones. Unfortunately for Clyburn, I don't wear the black robes.
As I have long noted, I am not a fan of the broad anti-solicitation and anti-competition provisions that are routinely embedded in FINRA member firms' employment agreements. Such provisions are lop-sided and rarely procured via bargaining by the parties. The final draft of far too many Wall Street employment agreements is an unfair arrangement whereby the registered representative is relegated to a non-professional status akin to a drone and given virtually no credit for cold calling, onboarding, and nurturing clients. On the other hand, many Wall Street reps are highly compensated and enjoy many benefits from these agreements -- unfortunately, too few reps retain a lawyer to counsel them on the onerous impact of many contractual provisions. Far too often, I am contacted by a besieged rep only after service of the former employer's TRO papers, and that Defendant laments that he had not retained a lawyer to review the agreement before signing it.
A few important practice pointers emerge in Clyburn. Courts and arbitration panels really, really, really (that enough reallys for you?) detest efforts by a rep to contact "current" customers and try to persuade them to move to a "future" brokerage firm. There is something that just strikes many folks as wrong when you're still getting paid by Firm X but you're bad mouthing that firm while still employed there, and, adding insult to injury, you're trying to solicit clients to move to Firm Y. Oh yeah, sure, you're a pretty clever fellow as you yourself proclaim and, sure, how the hell is anyone going to prove what you said to entice your clients to transition with you? Well, Mr. Smarties Pants, why don't you re-read the above case. Note that Edward Jones persuaded a court that Clyburn's conduct warranted an injunction.
Quite simply put, you should never be soliciting clients to move their accounts while you're still employed at your current firm. There will be phone logs showing dates and times. There will be emails with date/time stamps. There will be dated instant/direct messages. There will be logs of online social media exchanges. Again, re-read the above case.
For some Wall Street clients, the relationship is with your firm. They like the television ads. They respect your employer's stature. For other clients, the relationship is personal -- it's between you and them. They don't much care about television ads. They have read enough bad press about your current firm that they have no allegiance. For the clients that are enamored with you, it's not going to take any solicitation to pry them away. You leave. They call you. The ACAT paperwork is generated and in the mail.
Ultimately, Clyburn is about nuance or a lack thereof. There are legal, ethical, moral ways for a departed rep to let his clients know that he's newly onboard at a new firm. That announcement is often made via a very neutral communication we refer to as a "Tombstone." You simply publish that you are at Firm X effective such and such date. You don't disparage your former firm. You don't use the language of enticement or solicitation. You don't do anything that suggests the instigation of a migration of your accounts. I'm not saying that Clyburn did or didn't do any of the aforementioned. I leave it to WDVA's findings to speak for themselves. What you should note is Clyburn is now, officially "jammed up," as we say in the biz. Perhaps a tad more subtlety in his conduct might have avoided all or most of the unpleasantness. Similarly, if you're thinking of joining Edward Jones, focus a bit less on the "onboarding" process and a bit more on the what-ifs of "separation."