Morgan Stanley suffered a setback in its latest effort to block a former financial advisor from contacting clients.
A federal judge declined to extend a temporary restraining order against David Sayler, whose thank you cards to clients were a focal point in
After hearing arguments from both sides, U.S. District Judge Ann Aiken, who had initially granted the firm’s request for a temporary restraining order against Sayler, concluded there were “serious questions” about the merits of the case. Morgan Stanley “failed to clearly establish that it will suffer irreparable harm in the absence of further injunctive relief,” she wrote in her July 31 decision.
Sayler left Morgan Stanley to join an existing team at UBS. While at Morgan Stanley he had been a member of another team and had previously inherited some client accounts from a retired advisor. Morgan Stanley contended in court that Sayler had improperly solicited clients of the retired advisor even though he was prohibited from doing so. Sayler denied the allegations in court filings, and argued that the firm had not even identified any clients of the retired advisor in making the allegations.
A FINRA arbitration case initiated by Morgan Stanley is still pending.
A Morgan Stanley spokeswoman declined to comment on the case. Sayler referred questions to UBS, which declined to comment.
The judge’s reasoning could influence future legal battles over alleged non-solicitation violations, says Nancy Hendrickson, an attorney at law firm Kaufman Dolowich & Voluck, and who is not affiliated with the case.
“This was decided on a legal argument that has universal application. No matter what the facts are, this is a good argument for defendants,” she says.
That could pose a problem for Morgan Stanley. Since leaving the Broker Protocol in late 2017, the wirehouse has filed a
Of course, Morgan Stanley isn’t the only brokerage to pursue departing advisors over allegedly improper client contacts. Earlier this year,
The inaugural "Wealthtender Voice of the Client Study" found that 89% of client reviews focus on relationships and emotional trust, while only 10% were focused on investment management.
In these types of TRO cases, it’s necessary to demonstrate to the court there is no way to quantify the harm allegedly being wrought by the defendant, says Hendrickson. “You have to show that money won’t solve your problem.”
And putting an injunction in place against an advisor is a pretty dramatic remedy, Hendrickson says.
In the case of Medford, Oregon-based Sayler, Judge Aiken concluded that if he were found to have violated his contracts with the wirehouse, then “the loss to Morgan Stanley is likely more financial than reputational. Such harms can be redressed by damages, as is contemplated by the [contract] agreements themselves and are not, therefore, irreparable.”
Brokerages, of course, can tally client accounts down to the penny and can easily track how many assets, if any, have followed an advisor to a competitor’s firm.
“Yes they may lose clients, but that the end of the day, you can put a dollar figure on it, is essentially what [the judge is] saying,” Hendrickson says.
In particular, Hendrickson points to a line that Aiken included in her ruling that reads: “Additionally, ‘[c]ourts have become disinclined to find irreparable, incalculable harm from financial advisors' departures.’”
That line, Hendrickson says, “gives renewed vigor to arguments defendants have been making for decades.”
But, she cautions, brokers shouldn’t take this as a Get Out of Jail Free card. “This doesn’t give you license to lie, cheat and steal as you walk out the door. You still need to be squeaky clean,” Hendrickson says.
