AMEX WINS A ROUND IN FIGHT OVER NON-COMPETE CONTRACTS: APPEALS COURT RULES CLIENTS NOT PORTABLE
American Express Financial Advisors may have a valuable new bullet in its legal arsenal against defecting reps who…
American Express Financial Advisors may have a valuable new bullet in its legal arsenal against defecting reps who solicit old clients in violation of their non-compete agreements.
A federal appeals court in Chicago has given Amex a victory and perhaps a precedent in upholding an injunction barring the life insurance subsidiary of SunAmerica Inc. from luring Amex reps and inducing them to move client assets to SunAmerica products.
The recent decision was the latest chapter in a 2?-year legal slugfest over whether SunAmerica’s brokerage and insurance subsidiaries systematically raided Amex for reps.
Amex’s complaint against SunAmerica’s brokerages, SunAmerica Securities and Royal Alliance Associates, is before an arbitration panel of the National Association of Securities Dealers in New York. The panel is expected to issue a decision in that case within a few months.
Meanwhile, a federal judge in Chicago has retained jurisdiction over a similar dispute between the two companies’ life insurance units.
In partially affirming the judge’s injunction against SunAmerica Life Insurance Co., the 7th U.S. Circuit Court of Appeals appeared to give its blessing to the standard non-compete contract Amex requires its reps to sign.
NASD arbitrators frequently don’t enforce parts of those pacts, which prohibit departing advisers from soliciting or even serving their former clients at Amex for one year.
Arbitrators, for example, often bar departing advisers from actively soliciting clients of their old companies, but allow them to take care of former customers who seek them out.
The three-judge panel for the 7th Circuit, however, appeared to find the entire contract enforceable.
‘presumptively reasonable’
“A covenant of only one year – and one that barred contacts with actual clients rather than excluding the covenanter from an entire line of business – requires little proof of justification and indeed could be thought presumptively reasonable, for it is certainly routine,” Chief Judge Richa
rd Posner wrote in his Feb. 10 opinion.
The statement marked the first time a court at the federal appellate level has ruled on the enforceability of Amex’s non-compete pacts, says Eric Brandfonbrener, a lawyer with the Chicago firm of Grippo & Elden, who argued the case for Amex.
“To have a ruling from a Court of Appeals and then to have it from this panel, which is one of the most respected Courts of Appeals in the country, should have impact (on future rulings),” Mr. Brandfonbrener says.
And the cases keep coming, as the Minneapolis-based financial planning giant in recent months has stepped up its legal campaign against departing reps who shift client assets in Amex mutual funds and annuities to outside products.
on the other hand…
But Tom Campbell, a New York lawyer representing Los Angeles-based SunAmerica, says the ruling’s impact should be minimal, since NASD arbitrators, not federal judges, rule on most complaints against defecting reps. Mr. Campbell has represented numerous advisers Amex has sued.
“Such a statement (from the judge) is so general and lacking in context with any particular factual (situation) that it can’t be taken literally,” Mr. Campbell says. “Judge Posner is given to professorial dictating.”
A year ago, the federal judge found that SunAmerica had improperly lured Amex reps by telling them their non-compete agreements weren’t enforceable and promising to pay their legal fees if they were sued.
The judge also found that SunAmerica officials had helped to prepare solicitation letters from former American Express reps to their old clients.
The Appeals Court ruled that the NASD has jurisdiction over SunAmerica’s brokerage subsidiaries and overturned the judge’s injunction against them. The injunction against SunAmerica’s life insurance unit was left standing.
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