Wells v. Merrill Lynch, Pierce, Fenner & Smith, Inc.

• Court: U.S. District Court — Eastern District of Kentucky
• Writing for the Court: WILHOIT
• Citation: Wells v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 919 F. Supp. 1047 (E.D. Ky. 1994)
• Decision Date: 21 October 1994
• Docket Number: Civil Action No. 94-237.
• Parties: Linton WELLS and Linton Wells, II, Plaintiffs, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant.

919 F. Supp. 1047

Linton WELLS and Linton Wells, II, Plaintiffs, v. MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Defendant.

Civil Action No. 94-237.

United States District Court, E.D. Kentucky, Ashland Division.

October 21, 1994.

Anita M. Britton, Lexington, KY, for Linton Wells, Linton Wells, II.

John I. Hanbury, Donna S. Colley, Ashland, KY, Gregory S. Rubin, Steven H. Doto, Paoli, PA, for Merrill Lynch, Pierce, Fenner, & Smith, Inc.

FINDINGS OF FACT, CONCLUSIONS OF LAW AND PRELIMINARY INJUNCTION

WILHOIT, District Judge.

This matter is before the Court on the Defendant's Motion for a Preliminary Injunction pursuant to FRCP 65. The Plaintiffs, Linton Wells and Linton Wells, II are stockbrokers formerly employed by the Defendant, Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch"), a brokerage firm with an office in Ashland, Kentucky. The Plaintiffs voluntarily terminated their employment with Merrill Lynch and accepted employment with the Ashland, Kentucky office of Dean Witter Reynolds, Inc. ("Dean Witter"). Both Plaintiffs had employment contracts with Merrill Lynch containing non-solicitation and non-disclosure provisions.

The Plaintiffs filed this action on September 8, 1994, alleging that the non-solicitation provisions in their employment agreements with Merrill Lynch are unenforceable. The Plaintiffs requested an Order compelling the parties to submit their dispute over the non-solicitation and non-disclosure clauses to expedited arbitration before the New York Stock Exchange. Plaintiffs further requested that this Court enjoin and otherwise stay any action that might be brought by Merrill Lynch against the Plaintiffs to enforce the non-solicitation clauses.

On September 12, 1994, Merrill Lynch filed a Counterclaim, with a Motion for a Temporary Restraining Order enforcing the non-solicitation provisions in the Plaintiffs' employment agreements. A hearing was held in Lexington, Kentucky on September 12, 1994. On September 16, 1994, this Court entered an Order sustaining the Plaintiffs' Motion to compel expedited arbitration and directed the parties to submit their controversy to arbitration before the New York Stock Exchange. The Motion of Merrill Lynch for a Temporary Restraining Order was passed.

Merrill Lynch filed a Supplemental Motion for Immediate Injunctive Relief and Discovery. The Court sustained the Motion for Immediate Discovery and the parties conducted discovery depositions on October 3 and October 4, 1994. This matter was set for hearing on Merrill Lynch's Motion for Immediate Injunctive Relief in Ashland, Kentucky on October 11, 1994. A hearing was conducted, at which the Court received additional testimony and documentary evidence, as well as arguments of counsel. The parties agreed on the record to submit this matter to the Court for decision based upon the deposition testimony and the additional evidence presented at the hearing.

FACTUAL BACKGROUND

LINTON WELLS

Plaintiff, Linton Wells, began his employment with the Lexington office of Merrill Lynch in 1967. He remained employed in the Lexington office of Merrill Lynch until 1969, when he voluntarily terminated his employment with Merrill Lynch and went to work for Almstedt Brothers in Ashland, Kentucky.

Wells remained employed with Almstedt Brothers until he and the entire office staff of Almstedt Brothers "jumped ship" to join Merrill Lynch in its Huntington, West Virginia office on March 12, 1979. Upon joining Merrill Lynch, some clients Wells serviced at Almstedt Brothers transferred their accounts to Merrill Lynch.

When Wells joined Merrill Lynch in 1979, he signed an Account Executive Agreement that provides, in pertinent part:

In consideration of Merrill Lynch, Pierce, Fenner & Smith, Inc. and/or its affiliated companies (hereinafter referred to as Merrill Lynch) employing me in a 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. (Emphasis added).

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.... (Emphasis added).

In 1990, the Plaintiff and four other individuals from Merrill Lynch's Huntington office were transferred to Ashland, Kentucky to establish a new office of Merrill Lynch.

LINTON WELLS II

Plaintiff, Linton Wells, II, began his brokerage career in January of 1989, with Blinder Robinson, a regional brokerage firm in Lexington, Kentucky. After about six months, the Plaintiff left Blinder Robinson and was employed with RB Marich, another regional brokerage firm in Lexington, Kentucky. In February of 1990, Linton Wells, II was hired by Merrill Lynch in its Huntington, West Virginia office. He received two months of training while in the Huntington office and moved to the Ashland office in 1992. When Linton Wells, II joined Merrill Lynch in 1990, he signed a Financial Consultant Agreement that provides, in pertinent part, that:

In consideration of Merrill Lynch, Pierce, Fenner & Smith Incorporated (hereinafter referred to as Merrill Lynch) employing me in a sales capacity or for a sales position, and consideration of (a) the salary to be paid by Merrill Lynch, (b) the opportunities which will be afforded me, (c) the support services and facilities provided to me, and (d) 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 of my employment for any reason with Merrill Lynch. None of such records, nor any part of them is to be removed by me from the premises of Merrill Lynch either in original form or in computerized, duplicated, or copies form except with the permission of an office manager for the purpose of conducting the business of Merrill Lynch and the names, addresses, and other facts in such records are not to be transmitted verbally, in writing, or in computerized form by me except in the ordinary course of conducting proprietary information of Merrill Lynch and shall be treated by me as confidential information of Merrill Lynch. (Emphasis added).

2. In the event of termination of my services with Merrill Lynch for any reason, I will (i) not solicit, for a period of one year from the date of termination of my employment, any of the clients of Merrill Lynch whom I served or other clients of Merrill Lynch whose names became known to me while in the employ of Merrill Lynch in the office of Merrill Lynch in which I was employed, and who reside within one hundred miles of the Merrill Lynch office in which I was employed, and (ii) return any original records and purge or destroy any computerized, duplicated, or copied records referred to in paragraph 1 which have been removed from the premises of Merrill Lynch in any form. (Emphasis original). 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 and/or injury, including but not limited to reasonable attorney's fees, caused thereby and, in the event that damages are an inadequate remedy, Merrill Lynch will be entitled to injunctive or other equitable relief. (Emphasis added).

3. ... I further consent to the issuance of a temporary restraining order or a preliminary or permanent injunction to prohibit the breach of any provision of this contract, or to maintain the status quo pending the outcome of any arbitration proceeding which may be initiated. (Emphasis original).

After hours on September 6, 1994, Linton Wells and Linton Wells, II tendered letters of resignation from Merrill Lynch. On September 7, 1994, they accepted employment with Dean Witter.

The Defendant asserts that the Plaintiffs have violated and intend to continue to violate their respective employment agreements while in the employ of Dean Witter by soliciting Merrill Lynch customers and by maintaining and using a computer software program which contains a compilation of customer information including Merrill Lynch account information.

AUTHORITY TO GRANT INJUNCTIVE RELIEF

Both parties agree that the merits of the underlying dispute are subject to arbitration according to the Constitution and Rules of the New York Stock Exchange. Therefore, the issue before the Court is whether a preliminary injunction may be issued to maintain the status quo pending arbitration.

Even if this matter is to be resolved by arbitration, a preliminary injunction may be granted by the Court to maintain the status quo pending arbitration. Teradyne, Inc. v. Mostek Corp., 797 F.2d 43 (1st Cir. 1986); Roso-Lino Beverage Distrib. v. Coca Cola Bottling Co., 749 F.2d 124 (2d Cir.1984); Blumenthal v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 910 F.2d 1049 (2d Cir.1990); Ortho Pharmaceutical Corp. v. Amgen, Inc., 887 F.2d 460 (3rd Cir.1989); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bradley, 756 F.2d 1048 (4th...