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J.P. Morgan Challenges Its Limited Participation Under The Protocol For Broker Recruiting By Seeking A Preliminary Injunction Against A Six-Broker Team Transitioning To Morgan Stanley

In May 29, 2015, J.P. Morgan Chase Bank, N.A. and J.P. Morgan Securities LLC (collectively “JPMorgan”) moved to renew a motion, before the United States District Court for the District of New Jersey, seeking a preliminary injunction (the “Motion”) against six (6) former registered representatives (the “Brokers”), who left JPMorgan to join Morgan Stanley.  According to court documents, the Brokers managed $2 Billion of client assets derived from four-hundred (400) families’ accounts that produce approximately $15 million in revenue per year.  The purpose of the preliminary injunction was the preserve the status quo ante by enjoining certain client solicitation activities by the Brokers, while JPMorgan and the Brokers resolved issues related to the Brokers’ transition to Morgan Stanley through arbitration.

In its Motion, JPMorgan alleged, inter alia, that since transitioning from JPMorgan to Morgan Stanley, the Brokers illegally solicited JPMorgan clients and converted JPMorgan’s confidential and proprietary client information.  JPMorgan’s Motion argued that a preliminary injunction preventing the Brokers from continuing to solicit JPMorgan clients is necessary because the resulting financial harm and loss of customers’ confidence is unascertainable and as such, no other adequate remedy at law exists.

On June 8, 2015, the Brokers filed a forty-page Memorandum of Law in Opposition to Motion for Injunctive Relief (“Opposition”).  Generally, the Brokers’ Opposition argued that the District Court should deny JPMorgan’s Motion because JPMorgan is a signatory to the Protocol for Broker Recruiting (the “Protocol”) and all of the Brokers’ activities were permitted under the Protocol.  Briefly, the Protocol is an agreement between many of the major securities firms that is designed to give clients the opportunity to choose their financial advisory on the merits of their relationships, rather than though the court system.  Under the Protocol, a registered representative who transitions from one Protocol signatory firm to another is permitted to solicit his or her clients once they join the new firm and is permitted to retain certain limited client information.

On June 10, 2015, JPMorgan filed its Reply Memorandum of Law in Further Support of Plaintiffs J.P. Morgan Chase Bank, N.A. and J.P. Morgan Securities LLC Motion for A Preliminary Injunction (“Reply”).  In its Reply, JPMorgan argued that contrary to the Brokers’ assertions, it was not a signatory to the Protocol.  Rather, only one branch of JPMorgan’s business is a signatory to the Protocol; the J.P. Morgan Securities line of business, formerly known as Bear Stearns Private Client Services.  As such, the Brokers’ arguments that their actions were proper under the Protocol was inapplicable to determining the Motion.  Alternatively, JPMorgan argued that even if the Protocol applies, the Brokers were not entitled to protection under its provisions because they had failed to follow its guidelines for transitioning between firms.

The Brokers, through their Opposition, pre-empted JPMorgan’s Reply argument by stating that JPMorgan was improperly seeking the protection of the Protocol when it benefitted them, while arguing that it did not apply to them, when the Protocol did not benefit them.  In support of that argument, the Brokers made two arguments: first, that none of the approximately 1,200 other signatories to the Protocol had agreed to and ratified JPMorgan’s limited participation in the Protocol; and second, the Brokers referenced other court documents where JPMorgan’s counsel, arguing on behalf of JPMorgan, stated that JPMorgan was entitled to protection under the Protocol.  A ruling by the District Court is expected on or around July 7, 2015.

Lax & Neville assists its clients in transitions between both Protocol signatory firms and non-Protocol signatory firms.  Our attorneys understand the legal and regulatory issues that registered representatives may face when transitioning between firms and have the ability to protect their clients’ business through negotiation, mediation, arbitration and litigation before state or federal courts.  If you are transitioning between firms, contact the attorneys at Lax & Neville LLP today at (212) 969-1999 and schedule a consultation.