Merrill Lynch, Pierce, Fenner & Smith Inc. v. Ran
| Decision Date | 30 September 1999 |
| Docket Number | No. 99-CV-60555-AA.,99-CV-60555-AA. |
| Citation | 67 F.Supp.2d 764 |
| Court | U.S. District Court — Eastern District of Michigan |
| Parties | MERRILL LYNCH, PIERCE, FENNER & SMITH INC., Plaintiff, v. Gary L. RAN, Andrew M. Israel, Robert A. Stone, and Lyle M. Wolberg, Defendants. |
Stephen K. Postema, Bodman, Longley, Ann Arbor, MI, Joseph A. Dougherty, Rubin & Associates, P.C., (argued), Paoli, PA, for Merrill Lynch.
S. Thomas Weinner, Seth Gould, Bloomfield Hills, MI, for Ran, defendant.
Gary M. Saretsky, Bloomfield Hills, MI, for proposed intervenor.
This action arises out of the conduct of four stockbrokers who jointly resigned from Merrill Lynch on the Friday of Labor Day Weekend to join one of the firm's competitors, Paine Webber. Defendants spent the holiday weekend using confidential client information, which they absconded with, to carry out an orchestrated and pre-planned solicitation of more than 2,800 former clients they serviced while at Merrill Lynch in violation of their employment agreements. On the first business day after defendants joined Paine Webber, Tuesday, September 7, 1999, the court granted Merrill Lynch's motion for a temporary restraining order (TRO). The TRO enjoined defendants from further solicitation of their former clients, from accepting the business of any client improperly solicited, and ordered defendants to return confidential client information wrongfully converted.
Now before the court is Merrill Lynch's motion for a preliminary injunction. On Tuesday, September 21, 1999, the court heard oral argument on the motion. In addition to the careful consideration given to counsels' oral presentations, which were well-argued by both sides, the court also has duly considered the voluminous and well-drafted briefs submitted by counsel on the matter. In reaching its decision, the court was impressed with the quality and persuasiveness of the arguments made by both sides. Ultimately, however, the four defendants are bound by the terms of the written employment agreements which they willingly executed. Equity requires holding defendants to their contractual promises as they are all sophisticated and highly educated individuals whose own aptitudes are borne out by the multi-million dollar annual compensation that they received both at their predecessor, Merrill Lynch, and with their current employer, Paine Webber. Minor differences between the agreements put aside, those contracts clearly barred defendants from soliciting former Merrill Lynch clients for a period of one year after leaving the firm, and from confiscating confidential client information. Having willfully breached those promises in clear violation of their employment agreements, Merrill Lynch is entitled to injunctive relief to prevent defendants from reaping the benefits of their misconduct, to enforce the express terms of those agreements, three of which specifically require that the remedy for a breach is injunctive relief, and to maintain the status quo until this matter can proceed to arbitration before the National Association of Securities Dealers (NASD).
On September 3, 1999, the Friday of Labor Day weekend, four Merrill Lynch stockbrokers working at the Farmington Hills branch office: Andrew Israel, Gary Ran, Robert Stone, and Lyle Wolberg, submitted their letters of resignation announcing their plans to begin working for Paine Webber in Farmington Hills. The brokers began working for Merrill Lynch as follows: Ran — June, 1983, Israel — July, 1997, Stone — March, 1987, Wolberg — April, 1994. Prior to their joint resignations, defendants worked as a group at Merrill Lynch, together managing over 2,800 Merrill Lynch accounts worth over $1.3 billion in assets. Combined, defendants earned over $7.4 million commission revenues in 1999 alone. While at Merrill Lynch, the four stockbrokers pooled their accounts and split commissions as follows: Wolberg — 10%, Stone — 15%, Israel — 18% Ran — 57%. The four controlled the largest book of business at Merrill Lynch's Farmington Hills office. According to the complaint, defendants were offered over $6 million in up-front cash bonuses to join Paine Webber.
All of the brokers, with the exception of Stone, had worked as brokers before their employment with Merrill Lynch. Stone is Ran's brother-in-law and Ran convinced him to join Merrill Lynch in 1987. Ran has worked for Merrill Lynch since 1983 when he left a small securities firm in Birmingham, Michigan known as Ashton & Company to join the firm. He estimates that about 5% of his account base is derived from his early employment with Ashton. Ran inherited the bulk of his business from two Merrill Lynch brokers, Dave Caplan and Ed Broida, who retired and died respectively in approximately 1997. Prior to inheriting their book of business, Ran entered into agreements with Caplan and Broida, which were approved by Merrill Lynch management, whereby they agreed to pool their client-bases and Ran promised to earn $1 million in production credits annually. Ran claims that he was responsible for Merrill Lynch's decision to hire Stone and Wolberg, and that these two younger brokers were paid compensation solely from his share of commissions generated from the book of business he serviced. Wolberg left Prudential in 1994 to join Merrill Lynch, taking with him most of his Prudential clients. He estimates, that when he resigned, about 5% of his client base at Merrill Lynch consisted of clients derived from his employment with Prudential. Similarly, Israel left Morgan Stanley in 1997 taking with him the majority of his clients. He estimates, that when he resigned, about 90% of his client base at Merrill Lynch consisted of clients derived from his employment at Morgan Stanley.
All of the defendants signed non-use, non-disclosure and non-solicitation restrictions which prevent them from soliciting any of the clients of Merrill Lynch whom they served or whose names became known to them while they were at Merrill Lynch for a period of one year after leaving the firm and from confiscating client information. Specifically, Ran signed an Account Executive Agreement, Israel and Wolberg signed a Financial Consultant Employment Agreement and Restrictive Covenants, and Stone signed an Account Executive Trainee Agreement. (Complaint, Ex. A-D). Ran's agreement contained the following non-use, non-disclosure and non-solicitation restrictions:
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.
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.
(Complaint, Ex. A at ¶¶ 1-2). Similarly, the contracts signed by Wolberg and Israel contain the following nonuse, non-disclosure and non-solicitation agreements:
1. All records, whether original, duplicated, computerized, memorized, handwritten, or in any other form, and all information contained therein, including names, addresses, phone numbers, and financial information of any account, customer, client, customer lead or prospect ("Account"), are confidential and are the sole and exclusive property of Merrill Lynch. This information, whether provided to me by Merrill Lynch or by any Account, is entrusted to me as an employee and sale representative of Merrill Lynch. I will not use this information or remove any such records from the Merrill Lynch office except for the sole purpose of conducting business on behalf of Merrill Lynch. I agree not to divulge or disclose this information to any third party and under no circumstances will I reveal or permit this information to become known by any competitor of Merrill Lynch either during my employment or at any time thereafter.
This information is extremely valuable to Merrill Lynch and Merrill Lynch takes all reasonable measures to maintain its confidentiality and to guard its secrecy. This information is not generally known outside Merrill Lynch and within Merrill Lynch this information is confidential and used only a "need to know" basis. This information is developed and acquired by great expenditures of time, effort, and money. This information is unique and cannot be lawfully duplicated or easily acquired. Consequently, I agree that these records and the information contained therein are the property of Merrill Lynch and are deserving of trade secret status and protection.
2. If, at any time, I resign from Merrill Lynch, provoke my termination, or am terminated for cause, I agree that for a period of one year following my termination I will not solicit by mail, by phone, by personal meeting, or by any other means, either directly or indirectly, any Account whom I served or whose name became known to me during my employment at Merrill Lynch in any office and in...
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