WealthManagement Magazine

Broker is Barred from Contacting Clients for Two Years

In an NASD arbitration case decided last July, Daniel Davila, formerly a broker with Monroe Financial Corp. in Bloomington, Ind., was banned from contacting clients he obtained while working at Monroe, for a period of two years from the date he left--May 2, 1997. In addition, the panel ordered Davila to pay $20,000 in compensatory damages and all costs and attorneys' fees to his former firm.Monroe

In an NASD arbitration case decided last July, Daniel Davila, formerly a broker with Monroe Financial Corp. in Bloomington, Ind., was banned from contacting clients he obtained while working at Monroe, for a period of two years from the date he left--May 2, 1997. In addition, the panel ordered Davila to pay $20,000 in compensatory damages and all costs and attorneys' fees to his former firm.

Monroe Financial brought the arbitration to recover damages for Davila's alleged breach of non-compete and confidentiality agreements, according to the case summary. Monroe claimed Davila "may divulge confidential information and trade secrets as defined in the Agreement, all in violation of the Agreement." Monroe also alleged "the wrongful acts" of Davila have caused the firm "irreparable harm."

It's not clear from the case summary what the alleged "wrongful acts" were. But Daniel Trachtman, an attorney with Wooden & McLaughlin in Indianapolis who represented Monroe, says it refers to Davila's violation of the non-compete agreement. "I'm not aware of any act other than that," Trachtman notes.

When asked to comment on the panel's reasoning for the two-year injunction, Trachtman points out that it's purely speculation on his part, but "Monroe Financial is a somewhat specialized brokerage firm, and some of its client base is associated with a national/ international corporation headquartered in this small town [Bloomington]." When Davila left and started contacting clients, "The competitive effect was perhaps different from what you might see in a big city," Trachtman says.

When contacted by Registered Representative, a spokesperson for Monroe Financial said, "we're not able to discuss it [the case]" and referred calls to the firm's former parent company, Cook Group Inc. The parent company did not return calls.

According to the latest Securities Industry Association yearbook, Monroe Financial had only three brokers as of January 1997.

After leaving Monroe Financial in May of last year, Davila went to work for A.G. Edwards in Bloomington, Ind. According to the case summary, Davila claimed that his agreement with Monroe did not include a non-solicitation provision, and the document Monroe was using attempted to prohibit him from working, which is unenforceable under Indiana state law.

Apparently, the arbitration panel disagreed with Davila's argument. Panel Chairman Scott Goldsher, a Chicago attorney who primarily represents investors, says he doesn't recall the case, adding, "I don't comment to the press on arbitration cases."

(Goldsher was the NASDR injunctive arbitrator in the Robert Zielke case [November '97, RR, Page 90; expanded version at rrmag.com, Breaking News section] in which he granted an injunction to Dean Witter forbidding broker Zielke's new firm, Bear Stearns, from accepting accounts from Dean Witter.)

Davila also had no comment on his case, and in a prepared statement, A.G. Edwards says only that "Mr Davila and A.G. Edwards have agreed to abide by the decisions set forth in the arbitration."

A two-year temporary restraining order (TRO) preventing a broker from contacting clients is unusual.

"Pretty amazing, isn't it?" says Tom Campbell, an attorney with Smith Paduano Campbell in New York City who frequently defends brokers in TRO cases, but was not involved in the Davila case. "I know of one case with a one-year injunction on a one-year contract," Campbell notes. "In my experience, someone [a broker] had to have done something really wrong that comes out in the hearing."

Campbell says he knows of one other circumstance that may lead to a long-term injunction. "If someone is given their book on a silver platter, it would be unfair for them to take the book somewhere else."

The Davila case demonstrates, says Campbell, "that arbitrators have tremendous power to give significant relief."

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