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Morgan Stanley Breakaways Sue Wirehouse for Client Access

May 22, 2018

Rather than wait for the often inevitable temporary restraining order from the wirehouse, two departing Morgan Stanley advisors in San Diego decided to turn the tables and sue the firm first — for access to their former clients, AdvisorHub writes.

Last fall, Morgan Stanley withdrew from the Protocol for Broker Recruiting, the industry accord that lets departing advisors take some client information with them without the threat of a lawsuit. And ever since it left, Morgan Stanley has been seeking temporary restraining orders against advisors leaving for other firms.

But right after Michael O’Leary and Connie Sanders-Timian notified Morgan Stanley that they were leaving for Hilltop Securities, they filed a suit against the wirehouse in federal court in the southern district of California, requesting that the non-solicitation clause in their contracts with Morgan Stanley be voided on the grounds that they’re “illegal” and “unconscionable,” as well as against the state’s public policy, according to the complaint cited by AdvisorHub.

In addition, the suit says Morgan Stanley’s definitions of client privacy and trade secrets — which the wirehouse has used in the past to argue its case against departing brokers —is overly broad. The suit also stipulates that neither of the advisors has any client files or documents, preemptively striking at the wirehouse’s usual allegations in TRO requests that brokers illegally took client contact information, according to AdvisorHub.

O’Leary had retired in 2006 from Merrill Lynch after three decades with the wirehouse, but was recruited by Sanders-Timian to head over to Morgan Stanley after she joined the firm in 2010, the website writes.

In addition to the suit in federal court, the advisors have also filed a parallel Finra arbitration complaint, according to AdvisorHub. Meanwhile, Hilltop has joined the suit too, the website writes.

“We will not hesitate to take steps to ensure that the interests of advisors and their clients are protected,” Ben Brooks, a spokesman at Hilltop, tells AdvisorHub.

The suit appears to be the first time departing brokers and their hiring firm take pre-emptive legal action since Morgan Stanley and, just weeks later, UBS, left the broker protocol, Thomas Lewis, a lawyer at Stevens & Lee, tells the website.

But Lewis says the suit will be difficult to win; the plaintiffs will have to prove their contracts aren’t enforceable and go up against Morgan Stanley’s considerable legal resources, according to AdvisorHub. Morgan Stanley, meanwhile, “expressed bewilderment” at their suit, the website writes.

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“Claimants seem determined to fight claims that Morgan Stanley has not made, making this action premature in the extreme,” Morgan Stanley spokeswoman tells AdvisorHub in an emailed statement. “The advisors’ agreements comply fully with California law, and the suggestion that injunctive relief is necessary to prevent an action Morgan Stanley has not even pursued against them defies logic and common sense.”

By Alex Padalka
  • To read the AdvisorHub article cited in this story, click here.