October 14, 2019
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A federal district court judge has denied Fidelity Brokerage Services’ request for an expedited discovery order prohibiting a Palm Desert, California, registered investment adviser from contacting her former Fidelity Brokerage Services customers in a case where the broker claimed retaliation.
Fidelity last Tuesday filed for a temporary restraining order and preliminary injunction against Carol York and her new employer, Cypress Wealth Services, after a Fidelity customer said she had solicited his business. In her response two days later, York acknowledged speaking to a single client for less than a minute, but said the contact was legal under California law and that Fidelity appeared to be retaliating because of a complaint she made about workplace behavior issues prior to leaving the discount broker four months ago.
Jeffrey Riffer, the Los Angeles-based lawyer representing York and Cypress Wealth, said that the judge on Friday rejected Fidelity’s request for an order prohibiting from soliciting its customers and requiring her to return any “trade secrets” she had on some 347 accounts.
Fidelity also has brought an arbitration claim against the certified financial planner, who had 21 years of brokerage experience before joining the small RIA on September 27.
“Fidelity takes the protection of our customer information seriously and has policies in place to ensure that protection, including when associates entrusted with customer information separate,” a spokesman said. “When necessary, Fidelity takes legal action in court and through Finra arbitration to further protect customer information.”
The ex parte complaint, which required a response within 24 hours, continues a spate of TRO litigation from discount firms such as Fidelity and Charles Schwab Corp. that employ a small number of brokers offering advice to customers with relatively sizable accounts.
York worked primarily with customers with at least $250,000 in their accounts and was overseeing about $564 million in client assets when she left in June after six years, Fidelity said in its lawsuit filed in the U.S. District Court for the Central District of California, Eastern Division. Cypress, founded two years ago, reported $625 million in client assets in its most recent ADV filing.
“Plaintiff, a multi-billion dollar behemoth, is attempting to out-muscle Cypress, a small financial services competitor, based on gamesmanship and because this case is retaliation for Ms. York’s complaints about Fidelity management (including allowing improper sexual communications in the workplace) when she worked there,” Riffer wrote in his filing to dismiss Fidelity’s complaint. ”The Court should not countenance such disruptive, anticompetitive tactics, especially with a case as weak as Plaintiff’s.”
In an attached “declaration,” York said she called one customer using publicly available information to inform him of her move to a firm that uses Schwab and TD Ameritrade as custodians, adding that he quickly expressed his allegiance to Fidelity.
Fidelity asserted that the contact violated non-solicitation clauses in York’s employment agreement and noted that she had information on accounts with about $564 million.
Riffer argued that advisors in California are permitted to contact former customers to announce new job affiliations under under the state’s unfair competition statute. The nonsolicitation clauses of her employment contract were “illegal and unenforceable,” he wrote, and asked the court to require Fidelity to post a bond to compensate his clients for damages they would sustain “if they are wrongfully enjoined.”
His filing also accused Fidelity of trying to “manufacture a fire” by filing an ex parte petition that gave York and Cypress little time to respond.
York wrote that she retired in June “earlier than I preferred because of the hostile work environment” she experienced. She claimed that she anonymously gave a negative valuation of her manager, and that he told other employees at a meeting which she did not attend that he knew who had complained.
After she reported his alleged remarks on an internal “chairman’s line,” a Fidelity employee relations specialist discussed her complaint with the manager’s supervisor, according to her declaration.
Fidelity, which is not a member of the Protocol for Broker Recruiting, declined to discuss specifics of the case. Fidelity earlier this month sought an injunction that would require a broker who joined Morgan Stanley in Florida to return customer data and to stop solicitations.
Large discount firms, bank-branch-centered firms and even small RIAs have stepped up attempts to prevent exiting brokers from calling former clients as they restart their practices, adopting litigation tactics developed years ago by wirehouses such as Merrill Lynch to intimidate brokers from jumping ship.
The lawsuits and arbitrations also come as discount firms in recent weeks escalated a pricing war that have taken commissions to zero. Like their full-service competitors, the discounters are increasingly promoting fee-based advisory accounts that yield revenue irrespective of customers’ interest in trading.
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