506 F.Supp. 1182 (M.D.Ga. 1981), Civ. A. 80-74, Merrill Lynch, Pierce, Fenner & Smith v. Stidham
| Date | 15 January 1981 |
| Docket Number | Civ. A. 80-74 |
| Citation | 506 F.Supp. 1182 |
| Parties | Merrill Lynch, Pierce, Fenner & Smith v. Stidham |
| Court | U.S. District Court — Middle District of Georgia |
Page 1182
C. B. Rogers, Paul W. Stivers, Phillip S. McKinney, Rogers & Hardin, Atlanta, Ga., for plaintiff.
William A. Clineburg, Jr., King & Spalding, Atlanta, Ga., for defendants.
Page 1183
OWENS, Chief Judge:
Merrill Lynch, Pierce, Fenner & Smith, Inc., 1 (hereinafter Merrill Lynch), a nation-wide stock brokerage firm, filed its complaint in this court on Monday, September 15, 1980, seeking a preliminary and permanent injunction against defendants and former Merrill Lynch account executives Reese M. Stidham, III, H. Paige Scarborough, and John A. Bruner, who on Friday afternoon, September 12, 1980, left Merrill Lynch's Athens, Georgia office employment; opened an Athens, Georgia, office for Robinson-Humphrey, Inc., a major Merrill Lynch competitor headquartered in Atlanta, Georgia; and began soliciting Merrill Lynch's customers formerly serviced by each of them while employed by Merrill Lynch.
Defendants Stidham, Scarborough and Bruner without prior training or experience in the marketing of securities, were first hired by the Athens, Georgia, office of Merrill Lynch in 1974, 1977, and 1978 respectively. At the time of hiring, each defendant signed an employment contract containing employment restrictive covenants which Merrill Lynch contends are legally enforceable under Georgia law and the basis for the injunctive relief it seeks. The defendants acknowledge the execution of their respective contracts but assert that each of the restrictive provisions is overly broad and unenforceable under Georgia law.
Defendant Stidham's agreement in its pertinent parts provides:
"In consideration of Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or its affiliated companies (hereinafter referred to as Merrill Lynch) employing me in sales capacity and in consideration of (a) the salary to be paid by Merrill Lynch, (b) for other good and valuable consideration, it is hereby agreed that:
1. All records of Merrill Lynch, including the names and addresses of its clients, are and shall remain the property of Merrill Lynch at all times during my employment with Merrill Lynch and after termination for any reason of my employment with Merrill Lynch, and that none of such records nor any part of them is to be removed from the premises of Merrill Lynch either in original form or in duplicated or copied form, and that the names, addresses, and other facts in such records are not to be transmitted verbally except in the ordinary course of conducting business for Merrill Lynch.
2. In the event of termination of my services with Merrill Lynch for any reason, I will not solicit any of the clients of Merrill Lynch whom I served or whose names became known to me while in the employ of Merrill Lynch in any community or city served by the office of Merrill Lynch, or any subsidiary thereof, at which I was employed at any time for a period of one year from the date of termination of my employment. In the event that any of the provisions contained in this paragraph and/or paragraph (1) above are violated I understand that I will be liable to Merrill Lynch for any damage caused thereby."
Defendant Scarborough and Bruner's agreements in their identical pertinent parts, provide:
"In consideration of Merrill Lynch, Pierce, Fenner & Smith Incorporated and/or its affiliated companies (hereinafter referred to as Merrill Lynch) employing me in a sales capacity or as a trainee for a sales position, and in consideration of (a) the salary to be paid by Merrill Lynch, (b) the cost of my schooling and training to be received as a member of the training school of Merrill Lynch, and (c) the compensation, living
Page 1184
allowance and other benefits to be received by me while attending the school and during the pre-school and post-school training, and (d) in further consideration of the opportunities which will be afforded me during and after my schooling period and (e) for other good and valuable consideration, it is hereby agreed that:
1. All records of Merrill Lynch, including the names and addresses of its clients, are and shall remain the property of Merrill Lynch at all times during my employment with Merrill Lynch and after termination for any reason of my employment with Merrill Lynch, and that none of such records nor any part of them is to be removed from the premises of Merrill Lynch either in original form or in duplicated or copied form, and that the names, addresses, and other facts in such records are not to be transmitted verbally except in the ordinary course of conducting business for Merrill Lynch.
2. In the event of termination of my services with Merrill Lynch for any reason, I will not solicit any of the clients of Merrill Lynch whom I served or whose names became known to me while in the employ of Merrill Lynch in any community or city served by the office of Merrill Lynch, or any subsidiary thereof, at which I was employed at any time for a period of one year from the date of termination of my employment. In the event that any of the provisions contained in this paragraph and/or paragraph (1) above are violated I understand that I will be liable to Merrill Lynch for any damage caused thereby."
Each defendant was hired by Merrill Lynch as an account executive trainee; received extensive training from and at substantial expense to Merrill Lynch; and within approximately one year from initial employment was qualified, promoted to, and working as an account executive in Merrill Lynch's Athens, Georgia, office. Merrill Lynch assigned new Merrill Lynch customers or clients to each defendant, and each defendant obtained some new customers or clients by personal solicitation. At the time each defendant left Merrill Lynch's employment, they were each serving some two to three hundred customers and earning substantial monetary commissions 2 from doing so.
Prior to September 1980, Robinson-Humphrey did not have an Athens, Georgia office. Desirous of opening such an office, Robinson-Humphrey asked a friendly business man to contact defendant Stidham and ascertain whether or not he would be interested in leaving Merrill Lynch's employment and starting up an Athens, Georgia, office for Robinson-Humphrey. In mid-June 1980 Mr. Stidham was thus contacted, responded affirmatively and was invited to Robinson-Humphrey's Atlanta headquarters for further discussion. Between that first meeting and around July 15, 1980, Mr. Stidham had detailed discussions with Robinson-Humphrey officials about every phase of the opening of the Athens, Georgia office; mentioned the possible new Robinson-Humphrey office to defendants Scarborough and Bruner; and reported their positive interest to Robinson-Humphrey. On or about July 15 two Robinson-Humphrey officials met with Messrs. Stidham, Scarborough and Bruner at the Athens County Club. At that meeting Mr. Stidham was hired as manager of the new office, guaranteed $84,000 for his first year of employment and promised an accelerated commission payout schedule. Defendants Scarborough and Bruner while not hired at that meeting, were led to believe they had job offers and would each receive a guaranteed $15,000 minimum for the first three months of employment, plus an accelerated commission payout schedule; in August they each accepted these offers.
Page 1185
The defendants continued in Merrill Lynch's employment while Robinson-Humphrey did all that was necessary to locate, construct, and furnish its new office and prepare for its opening. The first that Merrill Lynch knew was on Friday afternoon, September 12, 1980, when the defendants resigned.
Prior to resigning the defendants had copied Merrill Lynch's records called "holding pages" on which the customer's name and inventory of all securities owned is shown and had furnished to Robinson-Humphrey the names and addresses of customers serviced by them. Using that information, letters announcing the opening of Robinson-Humphrey's new office were prepared and ready for mailing when they resigned. Some customers had been personally contacted, told of the impending opening of a Robinson-Humphrey office and asked to authorize a transfer of securities held by Merrill Lynch to Robinson-Humphrey. Defendant Bruner even went so far as to sign the name of some of the customers serviced by him, to a required transfer form which only the customer can sign.
After notice to defendants' attorneys, Merrill Lynch on September 17, 1980 filed its complaint and motion for preliminary injunctive relief. Following an in-chambers hearing, the court on September 17 granted a preliminary injunction which upon appeal and for unstated reasons was stayed by the Fifth Circuit Court of Appeals on October 14, 1980.
Upon motion by the plaintiff a hearing upon plaintiff's motion for permanent injunctive relief was set for November 13, 1980, at 9:30 a. m.
Defendants on or about November 1, 1980, petitioned the Fifth Circuit Court of Appeals to mandamus this trial judge to hold no further hearings in this case prior to a decision on the merits of defendants' pending appeal being rendered. In affidavits attached to their petition each defendant stated:
"5. Prior to the issuance of the injunction, some of my clients were in the process of transferring their accounts from Merrill Lynch to Robinson-Humphrey in order to continue doing business with me. During the period in which the injunction was in effect, those clients were unable to do business with me. Since the staying of the injunction, most, but not all, of those clients have elected to continue doing business with me.
"6. A number of my clients have been unwilling to transfer their accounts from Merrill Lynch to Robinson-Humphrey since the filing...
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