Morgan Stanley's pursuit last week of a temporary restraining order against a New Jersey broker who resigned December 8 is a clear sign the firm will aggressively enforce one-year non-solicititation agreements in contracts with brokers, industry observers said.
"This shows that Morgan Stanley will take an aggressive approach," said James Heavey, a partner at Barton LLP.
"I would definitely agree," said Louis Diamond, vice president at Diamond Consultants, a recruiting firm. "Clearly, Morgan Stanley is going to go after whomever they can."
A federal judge in New Jersey last Wednesday agreed to a temporary restraining order against the broker, John Fitzgerald, who left the firm to move to Commonwealth Financial Network. Two days after Mr. Fitzgerald resigned, Morgan Stanley filed its complaint against him to stop him "from soliciting Morgan Stanley customers he had serviced while employed by Morgan Stanley and to require him to return all customer information he took with him," according to the lawsuit.
Morgan Stanley's complaint is being closely watched by the industry, particularly by brokers at large firms who may be considering changing employers.
A spokeswoman for Morgan Stanley, Margaret Draper, said the firm had no comment about the case involving Mr. Fitzgerald. Anthony Paduano, Mr. Fitzgerald's attorney, did not return a call to comment.
Morgan Stanley at the end of October said it was leaving the broker protocol for recruiting, informing advisers that the firm would enforce client confidentiality and non-solicitation agreements. It was the first wirehouse to withdraw from the protocol, which was created by a handful of large firms in 2004 to limit costly lawsuits against brokers when they moved from one firm to another.
The judge, Renee Marie Bumb of U.S. District Court, New Jersey, ordered that Mr. Fitzgerald had 24 hours to turn over any documents he removed from Morgan Stanley, including emails, and couldn't use confidential client information to solicit Morgan Stanley clients, according to a court order.
But, Mr. Fitzgerald could return phone calls and emails from his clients, process account transfer requests from clients and keep documents given to him by customers, according to the order. His attorneys can argue next month why a preliminary injunction should not be ordered.
While the restraining order clearly benefits Morgan Stanley, the order was positive for the broker because it "recognized the client's choice of adviser and the freedom of client," noted David Gehn, an attorney with Ellenoff Grossman & Schole.