FORT LAUDERDALE, FL (July 13, 2009) – Victory in the courtroom for three former Merrill Lynch employees sued by the financial giant. Merrill Lynch claims the trio took confidential information when they left, but defense attorney Richard Epstein , senior partner and co-chair of the litigation department at Greenspoon Marder, P.A. , argued that Merrill Lynch is a victim of its own recruiting practices, punitive pay cuts and, in the end, would still have had the accounts it says it lost if it had not grossly overreacted.
Peter Weitz and Steven Weitz resigned as financial advisors with Merrill Lynch on May 29. Eugene Morgia left the firm when his position as commercial banking and liquidity specialist was eliminated on March 20, as a result of the Bank of America merger. The trio left Merrill Lynch’s Coral Springs, Fla. office to establish a South Florida office for New York-based boutique wealth management firm Fusion Analytics Investment Partners.
On June 10, Merrill Lynch alleged in a complaint filed in federal court in Fort Lauderdale, Fla. and with the Financial Industry Regulatory Authority (FINRA) that Weitz, Weitz and Morgia violated their non-compete agreement, misappropriated trade secrets by taking client information and, by suggesting that their former clients have their accounts maintained with Merrill Lynch’s BroadcortAdvisors division, misled those clients about their departure from Merrill Lynch.
However, on July 2, FINRA denied Merrill Lynch’s request for a permanent injunction, which would have prohibited Weitz and Weitz from contacting any clients formerly serviced at Merrill Lynch. Morgia was removed from the complaint in an earlier federal court stipulation, when claims against him were proven to be groundless.
Epstein argued for the defense that Merrill Lynch did not show a legitimate business interest in justifying restrictive covenants against Weitz and Weitz, due to the following:
In 2004, Merrill Lynch was one of the original financial firms that formed “The Protocol for Broker Recruiting.” The Protocol allows a financial advisor moving between member firms to take client contact information, as long as a copy of that information accompanies a written resignation. Once employed by the competing signatory firm, the advisor can actively solicit those clients notwithstanding a non-compete agreement with the former firm. Merrill Lynch sued Weitz, Weitz and Morgia nonetheless, as Fusion Analytics is not a “Protocol” firm.
In creating “The Protocol” and encouraging other major financial firms to adopt it as an industry standard, Merrill Lynch effectively acknowledged that client contacts are not trade secrets and that a departing financial advisor’s clients are not protectable interests under the Florida law that governs the enforceability of such employment agreements.
The clients that Merrill Lynch claims it would lose to Fusion Analytics would, had Merrill Lynch not sued, actually still have had their accounts with Merrill Lynch’s BroadcortAdvisor Division. Merrill Lynch markets BroadcortAdvisor to independent broker dealers and investment advisors like Fusion Analytics. Fusion Analytics advised each former Merrill Lynch client of Weitz’ and Weitz’ move, while suggesting a seamless transition of their Merrill Lynch account to BroadcortAdvisor.
Earlier this year, Merrill Lynch unilaterally changed the compensation plan for its longtime brokers, including Weitz and Weitz. The plan dramatically cut the payout for Merrill Lynch’s most loyal brokers, which effectively forces out some of Merrill Lynch’s most consistently producing brokers. At the same time, Merrill Lynch is actively recruiting brokers with non-compete agreements from competing firms with promises of huge sign-on bonuses.
“These are people who have produced year in and year out; nevertheless, Merrill Lynch instituted a punitive pay plan,” said Epstein. “Merrill Lynch then pursued them in court, while not suing others who did precisely the same thing but moved, instead, to a ‘Protocol’ firm. Consider this fair warning that everybody in the industry needs to play by the same rules. You can’t claim privileges that you deny others.”
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