Ubs Painewebber, Inc. v. Aiken, CIV. 1:02CV56.

• Decision Date: 15 March 2002
• Docket Number: No. CIV. 1:02CV56.,CIV. 1:02CV56.
• Citation: 197 F.Supp.2d 436
• Court: U.S. District Court — Western District of North Carolina
• Parties: UBS PAINEWEBBER, INC., Plaintiff, v. Roger H. AIKEN; Michael S. Boulos; and Patrick G. McQuilling, Defendants.

Page 436

197 F.Supp.2d 436

UBS PAINEWEBBER, INC., Plaintiff, v. Roger H. AIKEN; Michael S. Boulos; and Patrick G. McQuilling, Defendants.

No. CIV. 1:02CV56.

United States District Court, W.D. North Carolina, Asheville Division.

March 15, 2002.

COPYRIGHT MATERIAL OMITTED

Cynthia V. McNeely, Poyner & Spruill, Charlotte, NC, Lee H. Zell, Will Hill Tankersley, Kimberly Till Powell, Balch & Bingham LLP, Birmingham, AL, for plaintiff.

Robert B. Long, Jr., Philip S. Anderson, Long, Parker & Warren, P.A., Asheville, NC, J. Pat Sadler, Sadler & Hovdesven, P.C., Atlanta, GA, for defendants.

MEMORANDUM AND ORDER

THORNBURG, District Judge.

THIS MATTER came before the Court for a hearing on Plaintiff's motion for a preliminary injunction pending arbitration. After entry of a temporary restraining order, the Court held a hearing on March 12, 2002, on the motion. Based on the preliminary findings and legal conclusion set forth below, the Court will grant Plaintiff's motion and enter a preliminary injunction against the Defendants.

I. PROCEDURAL HISTORY

Plaintiff's complaint, filed March 5, 2002, seeks injunctive relief against the Defendants Roger H. Aiken (Aiken), Michael S. Boulos (Boulos), and Patrick G. McQuilling (McQuilling). On March 6, 2002, Plaintiff filed a motion for a temporary restraining order and preliminary injunction pursuant to Fed.R.Civ.P. 65 and Defendants responded on the same day. Based on these submissions, the Court entered an order granting the Plaintiff a temporary restraining order, although in a more limited form than requested. Based on the factual allegations set forth in the pleadings and the arguments of counsel during the hearing, and bearing in mind that the burden is on the Plaintiff to prove each of the requirements for a preliminary injunction, the Court makes the following findings of fact. Manning v. Hunt, 119 F.3d 254, 265 (4th Cir.1997) ("the burden is on the plaintiff to demonstrate that all the requirements of Blackwelder favor granting the preliminary injunction").

II. FINDINGS OF FACT

Aiken, formerly a member of the stock brokerage firm of J.C. Bradford & Co.(Bradford), was employed as branch manager of its Asheville, North Carolina, office. In April 2000, PaineWebber¹ began implementation of its acquisition of Bradford. PaineWebber's obligation to complete the transaction was made contingent on the execution of a Personal Employment Agreement (PEA) by 90 percent of a select group of Bradford members which included Aiken. On May 22, 2000, Aiken executed his PEA with PaineWebber; and in consideration therefor, received consideration which the parties agree was in excess of $700,000.00. PaineWebber closed its acquisition of Bradford on June 9, 2000.

Among the terms of the PEA signed by Aiken and the other Bradford members as a part of the buyout were the limitations at issue in this case. The PEA contains a choice of law clause stating that New York law will govern the contract. Aiken's PEA was to run for a term of four years. At the close of the four-year term, Aiken's employment with PaineWebber would become "at will" and the restrictions of the PEA would no longer apply to him. During the four-year term, however, Aiken could only be terminated for cause as set forth in the agreement. Nonetheless, if Aiken's employment at PaineWebber ended, regardless of the reason, he was subject to the following restrictions for one year, i.e., "the Non-Compete Period:" (1) Aiken would not engage "in any of the duties" he had performed at PaineWebber for any other employer, including himself; (2) he would not "induce or attempt to persuade" an employee of PaineWebber to discontinue employment with that firm; and (3) for six months following the termination of his employment, Aiken would not solicit "brokerage business" from customers of PaineWebber or provide such business to them. See, Exhibit A, Personal Employment Agreement, attached to Plaintiff's Complaint.

In addition to the "Non-Compete Period" restrictions, Aiken also agreed not to copy, use or disclose "Confidential Information" received in the course of his employment at PaineWebber. The definition of "Confidential Information" in the PEA included any information about PaineWebber or any of its clients or employees that Aiken obtained as a result of his employment with that company.

Unlike Aiken, Boulos and McQuilling were not subject to the PEA restrictions. However, certain employment restrictions were contained in Employee Forgivable Loan (EFL) agreements which each of them signed as part of their compensation package with PaineWebber.² Under the EFL terms, both Boulos and McQuilling agreed not to solicit any PaineWebber customers whom either of them serviced. They also agreed to return any and all records relating to clients of PaineWebber. The EFL declares that these restrictions apply to each of them, "until such time as this [EFL] has been forgiven by [PaineWebber] in full ..., or repaid by [Boulos or McQuilling] to [PaineWebber] in full ...." The parties agree each of the Defendants repaid the unforgiven portions of his respective EFL in full at the time of his resignation.

On March 1, 2002, Aiken, Boulos, and McQuilling resigned from PaineWebber and subsequently were employed by A.G. Edwards & Sons, Inc. (Edwards). It is undisputed that each of them has sent letters to clients of PaineWebber. Boulos and McQuilling admit their letters solicited these clients to transfer their accounts to Edwards. Aiken argues that his letters did not actually solicit clients to transfer their accounts but merely detailed the restrictions placed on Aiken by the PEA and informed the clients of their right to place their account with whatever firm they might choose. The letter contained the following: "If you wish to continue our business relationship, please sign the enclosed transfer form(s) and return the form(s) along with a copy of your most recent account statement to us in the enclosed, self-addressed envelope.³" Included were the forms required to transfer the accounts. Aiken argues that because the PEA does not define "solicit" the term must be construed against PaineWebber as the drafter of the document.

This argument about the definition of solicitation puts the Court in mind of Justice Stewart's oft quoted statement regarding hard-core pornography, "I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it." Jacobellis v. Ohio, 378 U.S. 184, 197, 84 S.Ct. 1676, 12 L.Ed.2d 793 (1964). The language in Aiken's letter solicits clients to transfer their accounts to Edwards.

The evidence also shows that Defendants took documents, including client lists of the Asheville branch of PaineWebber, for use at Edwards. In response to the temporary restraining order, Defendants returned a number of documents to PaineWebber, despite their sworn statements in declarations that such documents had not been taken. Additional information, stored as documents or on computers, has been destroyed, deleted, or otherwise removed from the control of PaineWebber.

Furthermore, the submissions of PaineWebber create a strong impression that Aiken persuaded Boulos and McQuilling to join him in leaving PaineWebber. The Defendants also appear to have encouraged others to consider a move to Edwards although to this point, no others are alleged to have left PaineWebber's employ.

Defendant Aiken's conduct is admittedly in violation of the terms of the PEA and the Court finds he has deliberately and irresponsibly breached a contract into which he knowingly and voluntarily entered in return for substantial remuneration.

III. PRELIMINARY INJUNCTION

A. Standard

In order to establish the right to a preliminary injunction, PaineWebber must establish by a preponderance of the evidence:

(1) The likelihood of irreparable harm to the Plaintiff if the preliminary injunction is denied;

(2) the likelihood of harm to the Defendants if the requested relief is granted;

(3) the likelihood that the Plaintiff will succeed on the merits; and

(4) the public interest

The stronger PaineWebber's showing of success on the merits, the less it must show regarding the relative harm of the relief sought in order to prevail. Likewise, the greater the possible harm, the less likelihood of success on the merits PaineWebber must demonstrate. See, e.g. Arkansas Best Corp. v. Carolina Freight, 60 F.Supp.2d 513, 515 (W.D.N.C.1999); Direx Israel, Ltd. v. Breakthrough Med. Corp., 952 F.2d 802, 812 (4th Cir.1991); Blackwelder Furniture Co. v. Seilig Mfg. Co., 550 F.2d 189 (4th Cir.1977). The law in this Circuit is clear that the "balance of the harms" aspect of this test is more important than the "likelihood of success on the merits." See, Safety-Kleen, Inc. v. Wyche, 274 F.3d 846, 868 (4th Cir.2001) (Luttig, J. dissenting) (noting that under the Blackwelder standard, "[t]he two more important factors are those of probable irreparable injury to the plaintiff without a decree and of likely harm to the defendant with a decree." (quoting Blackwelder, 550 F.2d at 196)). The "balance of the harms" test is to be performed before any analysis of the "likelihood of success on the merits." Id. ("[T]he first step in a Rule 65(a) situation is for the court to balance the `likelihood' of harm to the plaintiff against the `likelihood' of harm to the defendant." (quoting Blackwelder, 550 F.2d at 195)). If the "balance of the hardships" favors PaineWebber, "`it will ordinarily be enough that the plaintiff has raised questions going to the merits so serious, substantial, difficult, and doubtful as to make them fair ground for litigation.'" MicroStrategy Inc. v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir.2001) (quoting Blackwelder, 550 F.2d at 195).

B. Entry of Preliminary Injunction Pending Arbitration

The parties agree that all of the...