U.S. District Court in Philadelphia
PHILADELPHIA – A federal judge has granted a temporary restraining order and preliminary injunction to Citibank and Citigroup Global Markets against Morgan Stanley Smith Barney, pending the outcome of an arbitration hearing from the Financial Industry Regulatory Authority (FINRA).
Senior Judge Robert F. Kelly of the U.S. District Court for the Eastern District of Pennsylvania granted Citi’s application for the TRO and preliminary injunction, in connection with a lawsuit filed by the banking institution last week on June 11.
The action stems from a former Citi employee, Robert Kyle III, a defendant in this litigation, allegedly contacting Citi clients upon his departure from that organization and asking them to continue doing business with him and his new employer, Morgan Stanley.
According to Citi’s suit, these actions violate an employment agreement Kyle signed upon starting work with Citi in August 2010. The agreement contained two provisions: 1) That Kyle would be forbidden from soliciting Citi’s client for one year after his termination, and 2) That Kyle would be required to keep information about Citi’s client base confidential.
Further, Citi claimed upon executing the employment agreement, Kyle agreed to be subject to a TRO and/or preliminary injunction, should he breach any of the agreement’s provisions.
On May 11, Kyle resigned from Citi and “became associated with” Morgan Stanley the very same day. Since joining Morgan Stanley, Citi asserts Kyle breached the restrictive covenants he entered into with them, causing them irreparable injury, which entitles them to temporary and preliminary injunctive relief. Specifically, Citi alleges Kyle solicited Citi’s clients to transfer their accounts to Morgan Stanley.
On June 11, Citi filed its complaint, alleging “breach of contract; misappropriation of trade secrets; breach of fiduciary duty; breach of duty of loyalty; intentional and negligent interference with actual and prospective economic advantages; and unfair competition” on Kyle’s part.
Further, Citi filed a motion for a TRO, a preliminary injunction and expedited discovery the following day, seeking to restrain and enjoin Kyle from further breaching his agreements with Citi until such time as an arbitration panel appointed by FINRA can decide the merits of the underlying dispute.
On June 15, a hearing was held on the subject of Citi’s motion. Kyle was present for the hearing, and counsel for both parties presented arguments in addition to Kyle’s attorney having submitted an affidavit on his client’s behalf. Stemming from that proceeding, the Court granted Citi’s motion for the TRO and preliminary injunction.
Kelly explained the TRO as “an extraordinary form of relief, designed to temporarily maintain the status quo (generally for 14 days, and on rare occasions for longer) while the parties prepare to litigate the issues on a motion for a preliminary injunction”, and preliminary injunctive relief as “an extraordinary remedy which should be granted only in limited circumstances.”
“A TRO order may be appropriate where the movant has made reasonable efforts to provide notice, and demonstrated the following four elements: (1) A likelihood of success on the 3 merits; (2) The probability of irreparable harm if the relief is not granted; (3) That granting injunctive relief will not result in even greater harm to the other party; and (4) That granting relief will be in the public interest,” Kelly said.
Regarding success on the trio of merits, Kelly said, “There are seven separate counts in Citi’s Complaint. Focusing on the main count of Breach of Contract, we find that Citi will likely succeed on the merits of that claim.”
Under New York law, where Citi is based, the following four prongs need to be satisfied in order to show a breach of contract. “(1) The existence of a contract, (2) The plaintiff’s performance under the contract, (3) The defendant’s breach of the contract, and (4) Resulting damages.”
Per the contract itself, which satisfies the first, second and fourth prongs of the New York breach of contract law, Citi provided the testimony of its Regional Market Manager, Barbara McCollum.
McCollum testified three Citi high net-worth clients informed the firm Kyle solicited them to move their accounts to Morgan Stanley.
“At least one account for which Kyle was the Investment Counselor at Citi already has switched to Morgan Stanley. This account is in excess of $2 million. On information and belief, without misappropriating Citi’s confidential and proprietary client information, defendant would not have possessed the Citi clients’ private personal phone numbers and would not have had the ability to call Citi clients,” McCollum stated.
Kyle responded he “followed the guidelines” provided to him five years earlier on how to provide clients with notice without soliciting them, though the guidelines Kyle refers to were not provided to the court and Kelly said whether Kyle solicited clients since joining Morgan Stanley remains unclear.
“Upon consideration of McCollum’s declaration and Kyle’s declaration, we conclude that there is a likelihood that Citi will succeed on the merits of its breach of contract claim. As such, this factor weighs in favor of granting the TRO,” Kelly stated.
On the subject of irreparable harm, Citi further argued “future economic loss” if the requested TRO and preliminary injunction were not granted. Kelly agreed with their argument.
“We are of the opinion that Citi has a legitimate interest in protecting its investments and in maintaining confidential client information and client trust. It is this Court’s view that the threat of irreparable injury is present in the instant case as a monetary price cannot be placed on such matters as potential loss of goodwill and customer confidence under the facts presented here,” Kelly said. “Therefore, monetary damages would not be sufficient to make Citi whole, and it risks irreparable injury if the TRO is not granted. Thus, we find that this factor weighs heavily in favor of granting the TRO.”
As to injunctive relief not resulting in greater harm to the other party, the Court concluded Kyle would be negatively impacted by said injunctive relief, but not necessarily more so than Citi.
“Thus, a balancing of the harms, which the parties would suffer upon our decision to grant or deny a TRO, is not determinative,” Kelly said.
For the final requirement, public interest, Kelly commented that “there are compelling public interests of enforcing valid contractual provisions and protecting business investments, as well as confidential customer information.”
“As such, Citi has shown that the interests of the public favor granting the TRO,” Kelly said.
In addition to the granted TRO and preliminary injunction, the plaintiffs are seeking any other relief the Court deems just and appropriate in this matter.
The plaintiffs are represented by Leonard Weintraub of Paduano & Weintraub, in New York, N.Y. and Timothy S. Cole of Mantacole, in Blue Bell.
The defendant is represented by Daniel H. Wirth and Joseph B. Alonso of Gregory, Doyle, Calhoun & Rogers in Marietta, Ga. and Michael H. Rosenthal of Rosenthal Lurie in Philadelphia.
U.S. District Court for the Eastern District of Pennsylvania case 2:15-cv-03298
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at firstname.lastname@example.org