Wirehouse Morgan Stanley needs to persuade a Texas state judge to rethink a prior ruling if it is to succeed against two FAs who defected to Raymond James.

The firm has an evidentiary hearing April 25. In the prior ruling the judge denied the wirehouse’s request for a restraining order to muzzle Jason Bottenfield and Brett Diamond. Morgan Stanley wants the judge to rethink that decision.

Bottenfield and Diamond each had $140 million under management at the wirehouse when they left Morgan Stanley’s branch in the well-heeled Dallas neighborhood of Park Cities on March 15 for Raymond James Financial Services-affiliated RIA Steward Partners Global Advisory, according to the wirehouse’s lawsuit.

With their move, the two FAs opened Steward Partners' first Dallas office -- its second Texas location and 18th nationwide. They operate under the name Diamond & Bottenfield Private Wealth Management Team.

In its so far unsuccessful lawsuit, Morgan Stanley argues the departure represents “a case of egregious employee disloyalty, breach of contract, unfair competition, and misappropriation of confidential information and trade secrets.”

Morgan Stanley contends that Bottenfield and Diamond signed agreements that “prohibited [them] from retaining any Morgan Stanley client information and soliciting any of Morgan Stanley’s clients for a period of one year should they cease to be employed by Morgan Stanley,” according to the wirehouse’s lawsuit.

The wirehouse offered in its lawsuit detailed allegations about Bottenfield and Diamond’s actions prior to leaving, alleging the two FAs “planned and engaged in a systematic effort to misappropriate Morgan Stanley confidential information.”

The two “were observed working unusual hours late at night and on weekends,” the lawsuit alleges. The extensive printing of client information was unnecessary, Morgan Stanley argues. “Financial advisors like [Bottenfield and Diamond] have no need to print these types of documents. If a financial advisor needs to address a specific issue, prepare for a client meeting, or address a client inquiry, all of this information is readily available on his or her computer screen,” Morgan Stanley argues in its lawsuit.

On the day the two departed, another Morgan Stanley employee was speaking on the phone to a disputed client when the client indicated Diamond was also calling him on the same cell line, according to the lawsuit. When the client did not answer Diamond on his cell phone, the client reported Diamond began calling his home phone, Morgan Stanley’s lawsuit alleges.

Andrew Shapren, a lawyer with Philadelphia’s Buchanan Ingersoll & Rooney, who represents the two FAs, did not return a call by press time.

A Morgan Stanley spokesperson declines to comment on the litigation.

So far none of Morgan Stanley’s allegations have persuaded the Dallas court to issue an order barring the two advisors from engaging in any activity.

Instead, when the presiding judge rejected the wirehouse’s request for a temporary restraining order on March 25, the court triggered the wirehouse’s pending request for a permanent injunction: “[T]he Court finds that [Morgan Stanley] failed to meet its burden” and its request should be “denied in all respects,” the judge wrote.

“It’s traditionally an uphill battle [for the wirehouse] if [it] is denied a TRO,” says Thomas Lewis, an attorney at Lawrenceville, N.J.-based firm Stevens & Lee, who represents both financial advisors and their employers but none of the parties in this litigation. Lewis has never represented Morgan Stanley but has often opposed the wirehouse in court.

(Getty)

Even though Morgan Stanley has tried to keep brokers from leaving with their client accounts ever since it abandoned the Protocol for Broker Recruiting in November 2017, it hasn’t usually pursued this type of aggressive legal action unless its management “believes confidential documents were taken,” Lewis says.

“I think Morgan Stanley has been pretty fair in the way it has been looking at these matters,” he adds. Financial advisors can leave Morgan Stanley and their clients may follow them — no other employer would hire them if that wasn’t the expectation — but they have to do so without risking allegations of soliciting clients unless they have a “carve out” in their agreement to do so, Lewis says.

Bottenfield worked for nine years at Morgan Stanley and prior to that, four years at Smith Barney and was there when the company became Citigroup Global Markets. Diamond also worked for Morgan Stanley for nine years, and for eight years at Citigroup before that. Both joined Morgan Stanley at the takeover of Smith Barney.