Judge Denies Morgan Stanley’s Bid to Handcuff Oregon Broker
A fired Morgan Stanley broker in Medford, Oregon has prevailed in a hotly contested legal battle over a temporary restraining order blocking him from contacting his former customers at his new firm.
Aiken acknowledged that the firm raised “serious questions” about whether Robert Sevcik, who now works at regional brokerage D.A. Davidson, had violated a non-solicitation agreement governing accounts he inherited from a retired advisor. But the firm did not prove that it would suffer “irreparable harm” or that it could meet a “balance of equities” fairness test.
“Morgan Stanley has shown ‘serious questions’ going to the merits of the case and that the balance of equities weighs slightly in its favor, but it has not shown a likelihood of irreparable harm, and the public interest does not favor either side,” Aiken wrote. “Morgan Stanley has, therefore, failed to show that it is entitled to preliminary injunctive relief.”
A spokesperson for Morgan Stanley said it will still continue to pursue its claims for a permanent injunction and damages in arbitration. It could also still ask the court at a status conference in September for a hearing to make a case for a preliminary injunction, according to Aiken’s order.
“While we respectfully disagree with the Court’s decision, we are pleased with some of the Court’s findings on the merits of the case, and are confident that we will be able to make our case before a FINRA arbitration panel,” the spokesperson said in a prepared statement.
Aiken in her order found that Morgan Stanley likely showed at least one and possibly “a few more” instances in which Sevcik had breached the non-solicitation provisions, including by sending a bulk mailing to 4,239 households with income over $150,000 in three local zip codes. The so-called tombstone announcements are commonly used by brokers when attempting to inform clients of their move, but Aiken said that they “arguably qualify an indirect attempt to solicit.”
“Given the sheer number of postcards mailed and the mailing list criteria, it is likely that other FAP clients also received a postcard,” Aiken wrote. “And the messages on the postcard subtly invite and encourage recipients to contact Sevcik about conducting business with him at D.A. Davidson.”
But Aiken said that Morgan Stanley did not show that Sevcik had taken any confidential customer information, in addition to failing to meet the other tests for a TRO, including the irreparable harm standard.
“The Court is being meticulous about following well-established jurisprudence that reserves the imposition of a TRO/preliminary injunction for circumstances where a victim will be irreparably harmed on a pre-trial basis absent such intervention,” wrote Bill Singer, a securities lawyer who blogs about regulatory cases.
The order marks the second time that Aiken has rebuffed Morgan Stanley’s bid for an injunction. In 2019 she dissolved a TRO that she had initially issued against another former Morgan Stanley broker, David J. Sayler, who had moved to UBS, on similar grounds that the wirehouse had not met the burden of proving it would suffer “irreparable harm.”
Both Saylor and Sevcik had been part of an inherited account agreement with a former broker, James Maddux, who retired in 2017. As part of the five-year Former Advisor Program, the brokers agreed not to solicit Maddux’s former customers for a period of one year if they left the firm.
Sevcik had inherited a client roster with $160 million in assets that generated around $1 million in annual revenue as part of the deal with Maddux, Morgan Stanley argued in its July 30 complaint. The firm had also noted that it had fired him for taking credit for some commissions that should have been shared with the retired advisor, although Sevcik said in filings it was an “honest mistake.”
Sevcik, who started his career at Morgan Stanley predecessor Smith Barney in 2008, according to BrokerCheck, could not immediately be reached for comment. Sevcik had argued that he did not solicit customers but merely responded to inbound requests as allowed under the FAP agreements.
He also said that the amount of commissions tied to the miscoded trades was far from the “tens of thousands” that Morgan Stanley initially cited.
Morgan Stanley has been reimbursing retired brokers as it conducts a nation-wide sweep of miscoded trades going as far back as 2013 and has ensnared more than a dozen advisors, including many high-end producers.
“Sevcik secured an important victory by defeating Morgan Stanley’s TRO application,” Singer wrote of the TRO battle. “He gets to live another day and to continue to earn a living, which he will likely need to do in order to pay his ongoing legal bills.”