An August 1, 2019 decision from a Federal Court in the Northern District of New York lays out the blueprint for how and why a former employer can succeed in seeking injunctive relief, barring that former employee from continuing to divert and solicit business away.

Reading this decision, there can be no mistake:

This was an outright win for the plaintiff.

What Happened in Citizens Securities, Inc. v. Bender

According to the papers filed in this case, Plaintiff is registered as a broker-dealer with the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority (“FINRA”) that provides its clients with investment advice, financial planning, and portfolio management. 
Plaintiff’s client information — including client lists and names, addresses, investment holdings, and other financial information — is valuable, confidential, not generally known throughout the securities industry, and not readily or easily ascertainable by Plaintiff’s competitors.  

Given the sensitivity of the financial information involved, the clients expect that their information will be kept confidential. Therefore, Plaintiff has (correctly) undertaken numerous measures to assure that this information remains private, including: (1) mandating that all its financial advisors and employees to sign confidentiality agreements; (2) maintaining security measures that strictly limit employees' ability to access the confidential client information to those employees with a legitimate need to do so; and, (3) setting up its systems in a manner that prevents employees from being able to download or otherwise copy this information to another device.

Additionally, and most pertinent to this lawsuit, Plaintiff also has all of its financial advisors execute a non-solicitation agreement, whereby they agree not to solicit any of Plaintiff’s clients whose name became known to them as a direct or indirect result of their employment for one year post-termination.

Shortly after defendant resigned, Citizens Securities found out that Bender was actively soliciting the very clients with whom he had worked while at plaintiff; even worse, the manner in which he conducted these sales pitches revealed a detailed knowledge about the clients' portfolios - details that he could have only known if he had inappropriately copied or downloaded those clients' confidential information in tacit violation of the confidentiality agreements he had signed with plaintiff.

The result of defendant's (alleged) activities?

So far, at least according to plaintiff, more than $14 million in client assets have been transferred from plaintiff to defendant's new employer's management.

What the Court Did

Given the extraordinary detail and measures that plaintiff included in their papers to document defendant's activities - and equally important - the protective measures they took to try to prevent that precise thing from happening, what happened next should come as no surprise:

The Court granted plaintiff's request for injunctive relief pending the arbitration of this matter before FINRA - and only asked for the posting of a $50,000 bond by plaintiff.

The Takeaways

There are two (2) primary takeaways here:

First, although that last part of the decision as to the posting of the bond may seem insignificant, consider this: when $14 million in assets are at stake, the Order that plaintiff only post a $50,000 bond clearly signals - at least in my view - that the Court was strongly convinced of the merits behind plaintiff's application.

Second, from a careful reading of the decision, it appears that the primary reason plaintiff's application seems so compelling is because they were so meticulous in the first instance about the preventative measures they took to protect what they deemed to be confidential information. Many, if not most, employers like to claim that everything under their roof is "confidential," but they seldom back that up with concrete measures like Citizens Securities did to show that they really treat the information that way. And the results in this case - at least thus far - back that up.

Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer
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