658 F.2d 1098 (5th Cir. 1981), 80-7735, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Stidham

Docket Nº:80-7735, 81-7048.
Citation:658 F.2d 1098
Party Name:MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Plaintiff-Appellee, v. Reese M. STIDHAM, III, H. Paige Scarborough and John A. Bruner, Defendants-Appellants.
Case Date:October 15, 1981
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

Page 1098

658 F.2d 1098 (5th Cir. 1981)



Reese M. STIDHAM, III, H. Paige Scarborough and John A.

Bruner, Defendants-Appellants.

Nos. 80-7735, 81-7048.

Unit B [*]

United States Court of Appeals, Fifth Circuit

October 15, 1981

Page 1099

King & Spalding, William A. Clineburg, Jr., Atlanta, Ga., for defendants-appellants in both cases.

C. B. Rogers, Phillip S. McKinney, R. H. Sinkfield, Paul W. Stivers, Atlanta, Ga., for plaintiff-appellee in both cases.

R. Byron Attridge, Dan L. Heller, J. Kevin Buster, Atlanta, Ga., for defendants-appellants in No. 81-7048.

Appeals from the United States District Court for the Middle District of Georgia.

Before HILL, FAY and HENDERSON, Circuit Judges.

JAMES C. HILL, Circuit Judge:

Merrill Lynch, Pierce, Fenner & Smith, Incorporated (hereinafter Merrill Lynch) brought this action in United States District Court, Middle District of Georgia, to enjoin Reese M. Stidham, III, H. Paige Scarborough, and John A. Bruner (hereinafter defendants) from violating noncompetition and nondisclosure terms in their respective employment contracts. The district court granted the injunction which we vacate in part and affirm in part, 506 F.Supp. 1182.


Defendants Stidham, Scarborough, and Bruner were employed by Merrill Lynch on December 30, 1974, March 14, 1977, and June 19, 1978, respectively. Contemporaneous with his hiring, each was placed in an "account executive training program," which involved intensive as well as expensive training at Merrill Lynch's New York headquarters. To these defendants, this program was an absolute necessity: neither Stidham, Scarborough nor Bruner had any prior securities experience, and obviously none of the three defendants met the strict license and registration requirements applicable to dealers in securities. The training period, during which defendants were compensated as salaried employees but generated no income for Merrill Lynch, lasted approximately one-half year. Following licensing, defendants became "account executives" stockbrokers with the Athens, Georgia office of Merrill Lynch.

In connection with his employment, each defendant executed a contract with Merrill Lynch containing two restrictive covenants, which are the essence of this litigation. These promises constitute the first two paragraphs of the agreements between the parties and provide:

  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

Page 1100

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.

Defendants, it is fair to say, were successful with Merrill Lynch. Their salaries prior to their respective resignations from Merrill Lynch ranged from approximately $54,000 to $84,000 per year. 1 Nonetheless, they were receptive when in mid-1980 they were courted by a major southeastern securities firm, Atlanta-based Robinson-Humphrey Company, Incorporated. By August 1980, each had accepted a position with that firm to open and operate its new Athens office. The district court found that prior to informing Merrill Lynch of their plans, defendants duplicated various records containing vital sales information 2 and provided Robinson-Humphrey with client names and addresses so that the latter might dispatch announcements of its new office opening to investors likely to take advantage of it. 3

On September 12, 1980 defendants resigned. Five days later Merrill Lynch brought suit.

The complaint, filed on September 17, alleged jurisdiction under 28 U.S.C. § 1332 (1976), prayed for all manner of equitable relief injunction, preliminary and permanent, impression of constructive trust, and accounting and demanded legal damages, attorneys' fees, and costs. The district court on that very day conducted an in camera hearing and preliminarily enjoined defendants Stidham, Scarborough, and Bruner from violating the terms of the restrictive covenants set out supra. This Court, following defendants'...

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