A federal court judge has handed a substantial win to a ex-Hightower advisor embroiled in an ongoing dispute against his former firm over its interpretation and enforcement of their non-compete agreements and alleged breaches relating to trade secrets.
In the latest development, the United States District Court for the District of Delaware dismissed Hightower's claims that Darren Reinig, who provided financial services and investment advice through the firm from July 2019 to December 2021, breached a non-compete agreement when he launched a new firm in February of 2024.
The long-running dispute between Hightower and Reinig revolves around a standard protective agreement he entered into as part of its July 2019 acquisition of Delphi, a firm he co-owned. That SPA "provides for post-sale restrictions [against Reinig] on competition, solicitation, and use of confidential information, among other things."
Reinig sold his interest in the acquired firm to Hightower in December 2021, then helped transition his clients to other Hightower advisors affiliated with the firm until the end of 2022, when his relationship with Hightower ended. After that, the two entered into a "letter agreement" in 2023, which modified the SPA to accommodate "Reinig's expressed intent to pursue business and investment opportunities in the field of venture capital and private equity" that, according to Reinig, would not conflict with Hightower's client relationships.
Reinig's decision to launch a new wealth and advisory business in southern California, Hightower said, breaches the covenants he agreed to in the SPA. But according to Judge Ruland G. Andrews, the SPA violates public policy in California, rendering it invalid under the state's law.
"Under California law, non-complete clauses are illegal, absent the application of a specific exception," Andrews wrote. "The SPA prohibits Reinig from engaging in investment advisory business anywhere in the United States. This clearly violates California public policy."
Addressing another claim by Hightower under the Defend Trade Secrets Act, the judge denied a motion from Reinig pressing for more definite details about "alleged trade secrets and/or 'confidential information' " that he supposedly misappropriated.
Andrews noted that motions for more definite statements on trade secrets are typically granted when the accusing party's statement "[suffer] from unintelligibility rather than the want of detail." But Hightower's motion spelling out trade secrets as "client lists, client contact and financial information, [and] proprietary investment strategies" was intelligible, he ruled.
Robert Traylor from Stratege Law, who represents Reinig in the dispute against Hightower, said the implications of the decision in Delaware goes beyond advisors in California.
"What we've just seen from Judge Andrews at the Delaware District Court is [Hightower's] non-competes are illegal," Traylor told InvestmentNews in a phone interview. "[The decision] impacts any advisor that would be subject to California law, [and] any advisor in the state of California."
As a substantial equity holder in Hightower, Traylor argued Reinig had no intention of threatening its business model, and dealt with the firm in good faith.
By pursuing litigation in the US District Court for the District of Delaware, he said Hightower hoped it would gain an advantage from a favorable forum, but instead wound up exposing a legal chink in its armor.
"We think the decision has implication's for Hightower's business model and its efforts to restrict client transfers and competition from former advisors," Traylor said. "They could have simply recognized that Darren was the good actor here, that he complied with his two-year non-compete ... They're the ones who forced the decision to be made that their non-competes are illegal, because they're just overbroad."
The latest ruling against Hightower parallels another bid it made to block an Alabama-based advisor, John Gibson, from launching his own firm. That complaint, filed by the Chicago-based RIA giant in 2022, eventually made its way to Delaware court.
"The Delaware chancery court, applying Alabama law, said that [Hightower's] restrictive covenants were illegal," Traylor said. "California's a bit in the vanguard on making these things illegal ... [But] there are other states that recognize the same thing: that these non-competes violate individuals' ability to engage in their chosen profession and earn a livelihood. And that's all Darren Reinig wanted to do."
"While we are still evaluating the Delaware court’s decision and our next steps, our proceedings with Mr. Reinig are moving forward in arbitration where we remain confident that we will prevail," a Hightower spokesperson said in an emailed statement to InvestmentNews.
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