"Defamed" and "Disgusted" Ex-Merrill Lynch FAs Fight Back in Court and Claim Victory
Two former Merrill Lynch advisors – one who was terminated and allegedly defamed and one who was allegedly driven to resignation out of “disgust” for her colleagues' behavior – fought back in court and ended up winning, according to their lawyer.
At stake was the ability of the former advisors – who serviced more than $100 million in client assets in Merrill Lynch’s PHH Wealth Management Group in Canton, Ohio – to freely contact their clients.
On July 25, Merrill Lynch filed a motion for a temporary restraining order against Jason Hostetler and Tina Migge before the U.S. District Court for the Northern District of Ohio. Merrill Lynch accused the advisors of breach of contract, misappropriation of trade secrets, breach of duty of loyalty and unfair competition.
Hostetler and Migge are both currently registered with Stratos Wealth Advisors, also in Canton, Ohio.
Merrill Lynch claims that as of July 25, the firm received 140 requests from accounts that represent 44 households that were serviced by Hostetler and Migge to be transferred to their new firm. The accounts represent $26.5 million in assets and $265,206 in annual commissions that Merrill Lynch says it has lost due to the transfers.
Hostetler was registered with Merrill Lynch from February 1, 2005 until April 24, 2018. He was fired on April 6 for “conduct inconsistent with Merrill Lynch’s standards related to personal trading, resulting in the loss of manager’s confidence,” according to the complaint filed by the firm. Hostetler denies he was “piggybacking” his own personal securities trades on those of one of his clients, and he says the firm never presented proof of the accusation, according to the defendants’ opposition filing in court.
Migge was registered with Merrill Lynch from July 8, 2002 until May 18, 2018. She resigned from the firm on May 14 because she was “so disgusted” by the alleged “misconduct” of Hostetler’s former partner in the Ohio office, Kirk Hunter, and branch manager, Jim Craig, according to the opposition filing. Migge claims Hunter repeatedly disparaged Hostetler’s “ability, honesty and integrity” to clients and interfered with clients’ requests to transfer their accounts to Hostetler’s practice at his new firm. She also claims Craig “tacitly encouraged” Hunter’s behavior.
Merrill Lynch declined to comment for this article.
Both Merrill Lynch and Stratos Wealth Advisors are members of the Protocol for Broker Recruiting. The protocol lets registered representatives who move from one firm to another take the following account information, if both firms are signatories: client name, address, phone number, email address and account title of the clients they serviced while at the firm. The protocol also lets registered representatives who comply with the pact solicit customers they serviced while at their former firms – but only after they have joined their new firms.
However, both Hostetler and Migge didn’t submit to Merrill Lynch the client information required by the protocol, the advisors admit. Plus, Merrill Lynch claimed in its TRO motion that the defendants signed agreements with the firm which prevented the advisors from using client information and soliciting clients they serviced at the firm until after one year following the termination of their employment.
Hostetler didn’t have the ability to submit a protocol-compliant client information list because he was allegedly fired over the phone while in his car on his way to a business appointment and was told not to return to the office, according to the opposition filing.
Migge didn’t submit a protocol-compliant client information list because she didn’t have counsel and was “not aware of her protocol rights at the time she resigned,” according to Scott Matasar, the defendants’ Cleveland, Ohio-based lawyer in the TRO case.
Despite their respective failures to submit protocol lists, both defendants claim they never solicited their previous clients from Merrill Lynch. Hostetler claims he only spoke with some former clients to give them the courtesy of hearing from him personally that he is no longer with Merrill Lynch and has joined his new firm. Migge claims she only called around six households with whom she had a close personal relationship to let them know she resigned from Merrill Lynch.
A significant part of Merrill Lynch’s claims against the defendants were allegations against Migge that were supported by a declaration filed by Merrill Lynch’s North East Ohio Market administrative manager, Robert Wright.
According to Wright’s declaration, “when Migge left the Canton office on Monday, May 14, 2018, multiple Merrill Lynch employees observed her carrying a large redwell of documents from her office.” The declaration says two days before resigning, Migge allegedly printed documents with confidential Merrill Lynch information, including a 72-page document entitled “ALLClientsand Prospects.xls,” part of which she is believed to have kept.
The declaration adds that three days before resigning, Migge was given a 21-page document with account numbers, names and assets of Merrill Lynch accounts, which she is believed to have kept.
Migge counters by saying she gathered her personal effects and slid her resignation letter under her managers’ door on May 13, which was a Sunday, to avoid an office confrontation and didn’t return to the office after that. Thus, she claims nobody could have seen her leaving the office on May 14 because she was never present in the office on that date. She also denies she had any of the documents that Merrill Lynch believes are in her possession.
Matasar says on the night before the July 30 hearing scheduled for the case, Merrill Lynch’s lawyer contacted him to discuss the case, and that conversation eventually led to a settlement between both parties. The terms of the settlement were outlined by the court in a July 30 stipulated TRO.
The order says the defendants can transmit a formal notice that the industry commonly refers to as a tombstone letter to clients serviced by Merrill Lynch’s PHH Wealth Management Group, and that the letter won’t be considered an act of solicitation. The order also directs the defendants to return to Merrill Lynch any records, documents or data that belong to the firm.
Matasar considers the stipulated TRO a victory for his clients because “the tombstone letter would give them enough relief” to proceed with business as usual. He adds that “since my clients didn’t have any documents or materials to return, there is nothing to return.”
“I think it is fair to say that in this particular instance, Merrill Lynch was not expecting Mr. Hostetler and Ms. Migge to put up this spirited a defense and when they did, and Merrill Lynch actually had to demonstrate that there was some accuracy to their allegations, they backed down,” Matasar says.
Dennis Concilla, Columbus, Ohio-based head of Carlile, Patchen & Murphy’s securities litigation and regulation practice group, says although there’s a precedent in Ohio that says tombstone letters aren’t considered an act of solicitation, the settlement is still a victory for the defendants because Merrill Lynch’s lawyers could have decided to counter-argue the precedent. Concilla isn’t involved in this case.
The precedent that Concilla is referring to is actually also a case involving Merrill Lynch in the same court, the U.S. District Court for the Northern District of Ohio, where it filed a TRO motion in January 2001 against its former advisor Kent Hageman. In that instance, Judge Kathleen O’Malley granted the TRO but in the footnote of the ruling, she wrote: “The court finds that a mere information contact between Hageman and any former client will not constitute solicitation.”
The judge explained that “an information contact consists only of any written or oral contact that provides information about the plaintiff’s whereabouts and how they may be contacted.” She also defined what would be considered solicitation, including information about providing better service or how to transfer accounts.
“The judge really did a nice job of saying here’s what a tombstone letter is and here’s what it isn’t,” Concilla says.
With the stipulated TRO in the current case, the dispute between both parties is now in the hands of Finra’s arbitration forum, where Matasar will continue to represent the defendants.