Former Broker Enjoined From Using Fidelity’s Customer Lists
Published by Eric A. Welter on November 22, 2010
The U.S. District Court for the Eastern District of Virginia recently issued a temporary restraining order (TRO) preventing a former broker for Fidelity Global Brokerage Group, Inc. from using Fidelity’s proprietary customer information to solicit its customers for his new employer, Morgan Stanley Smith Barney, LLC. More after the break. Gray was employed by Fidelity as […]
The U.S. District Court for the Eastern District of Virginia recently issued a temporary restraining order (TRO) preventing a former broker for Fidelity Global Brokerage Group, Inc. from using Fidelity’s proprietary customer information to solicit its customers for his new employer, Morgan Stanley Smith Barney, LLC. More after the break.
Gray was employed by Fidelity as a Vice President/Senior Account Executive. In this position, Fidelity alleged that Gray had access to customer account information. When Gray left his employment at Fidelity for Morgan Stanley, he signed an Employee Agreement in which he promised to maintain the confidentiality of Fidelity’s customer information, not to use trade secret information, and not to solicit Fidelity’s customers for three years after the termination of his employment.
Within seven months of leaving Fidelity, Gray allegedly used proprietary information to cause 12 Fidelity customers and over $9 million in assets to be transferred from Fidelity to Morgan Stanley. Several Fidelity customers also complained to Fidelity that Gray was using their personal information to solicit them for Morgan Stanley. As required by the Financial Industry Regulatory Authority (“FIRNA”), Fidelity was pursuing its claims against Gray in binding arbitration. However, Fidelity requested that pursuant to the Employee Agreement signed by Gray, the court enjoin Gray from using its customer information to solicit its customers while the arbitration was pending.
In granting Fidelity’s request for a TRO, the court held that Fidelity would likely succeed on the merits of the arbitration. First, the court concluded that Fidelity’s customer lists and customer information was entitled to the protection of trade secret information under the Trade Secret Act. Additionally, the Employee Agreement signed by Gray, which was governed by Massachusetts law, was likely enforceable to protect the legitimate business interest of Fidelity, including Fidelity’s goodwill and trade secrets. Gray argued that the three-year nonsolicitation period in the Employee Agreement was unreasonably long and therefore unenforceable. The court rejected Gray’s argument and held that the restrictive covenant would likely be upheld to protect Fidelity’s legitimate interests.
Despite the fact that Fidelity manages over $1.5 trillion in assets, the court also found that there was a likelihood of irreparable harm without immediate relief as customers cannot be “unsolicited” and it is impossible to measure the loss of clients’ goodwill, trust, and future business.
For a copy of the court’s opinion, click here.Topics: Noncompete Agreements, Virginia