SUSAN M. NOVOTNY, United States Magistrate Judge
Before the court is plaintiff's emergency motion for temporary restraining order (doc. 4) which has been referred to the undersigned by Judge Mickle pursuant to 28 U.S.C. § 636(c) upon the express consent of the parties.
The complaint in this action, filed on Thursday, July 12, 2001, in the Tallahassee Division, alleges that defendant, a former financial consultant employed by plaintiff in its Tallahassee office, resigned without advance notice on Friday, July 6, 2001, and immediately joined plaintiff's competitor, Raymond James Associates, Inc. ("Raymond James"). Plaintiff ("Merrill Lynch") alleges defendant has (1) breached "the Merrill Lynch agreements and other policies which she agreed to abide by," (2) converted Merrill Lynch's proprietary information and trade secrets, (3) breached her common law fiduciary duties to Merrill Lynch, and (4) committed acts which constitute an unfair method of competition.
Also on July 12, 2001, Merrill Lynch filed the instant emergency motion for temporary restraining order and preliminary injunction (docs. 4, 5). At 1:30 P.M., EDT, on Friday, July 13, 2001, defendant filed her memorandum in opposition (doc. 6). At approximately that same time the undersigned first learned of the pendency of this action and the emergency motion. Due to the unavailability of Judge Mickle and recusal of other judges of this court, the matter was referred to the undersigned for the purpose of conducting the hearing on Merrill Lynch's motion for immediate injunctive relief. A telephonic hearing (which consisted only of oral argument and consideration of the filed papers) was conducted on Friday, July 13, 2001, at 4:00 P.M., EDT.
As of the signing of this order, a written order of reference has not been docketed by Judge Mickle; however, the undersigned has been assured such an order is forthcoming. It is unclear to the undersigned whether this order of reference will authorize the undersigned to only resolve under 28 U.S.C. § 636(c) Merrill Lynch's emergency motion for temporary injunctive relief or all matters relating to the instant motion. (At the commencement of the telephonic hearing, counsel for both parties assured the undersigned of their client's consent for the undersigned to proceed under Section 636(c).)
Standard for Injunctive Relief and Arbitration
It is well established that injunctive relief will issue if the movant demonstrates: (1) a substantial likelihood of success on the merits, (2) a substantial threat of irreparable injury if the injunction were not granted, (3) that the threatened injury to Merrill Lynch outweighs the harm an injunction may cause to the defendant, and (4) that granting the injunction would not disserve the public's interest. Lucero v. Trosch, 121 F.3d 591, 598 (11th Cir. 1997).
The parties agree that this dispute will ultimately be decided by an arbitration panel of the National Association of Securities Dealers, Inc. ("NASD"). Rule 10335 (formerly Section 47) of the NASD Code of Arbitration Procedure provides that parties may seek a temporary injunction either within the arbitration process or from a court of competent jurisdiction. Under Rule 10335(g), "[i]f a court has issued an injunction against one of the parties to an arbitration agreement, unless otherwise specified by the court, any requested arbitration concerning the matter of the injunction shall proceed in an expedited manner according to a time schedule and procedures specified by the arbitration panel appointed under this Code."
Courts granting injunctions in cases similar to this action have held that Section 10335 (and former Rule 47) give the employer the right to seek temporary injunctive relief from a federal district court pending an arbitration hearing. See, e.g., Merrill Lynch v. Hagerty, 808 F. Supp. 1555 (S.D. Fla. 1992), aff'd, 2 F.3d 405 (11th Cir. 1993). Defendant points out that Judges King and Ryskamp in the Southern District of Florida have held that because emergency injunctive relief is available before the NASD, Merrill Lynch cannot establish the need for judicial relief or the required irreparable harm. Although these rulings are persuasive, because the NASD Code clearly provides Merrill Lynch an alternative forum in the courts, the undersigned finds this matter is now for this court to resolve — at least on a temporary basis.
Merrill Lynch et al. v. Marum, No. 99-8509-CIV-KLR (S.D. Fla. 1999); Citicorp Investment Services, Inc. v. Rodriguez and Pena, No. 99-1640-CIV-King (S.D. Fla. 1999).
Findings of Fact
It is noted that no testimony or direct evidence has been presented. In making these findings, the undersigned relies upon the averments in and exhibits attached to the pleadings including the affidavits of Deborah Boney (Merrill Lynch's administrative manager (doc. 2, att.)), and of defendant (doc. 6, ex. A).
In late 1987, Merrill Lynch employed defendant as a "Client Associate." After completing Merrill Lynch's Professional Development Program, defendant was promoted to a Financial Consultant and became responsible for handling retail customer accounts. During defendant's tenure, Merrill Lynch trained her, provided her with operational and sales support, and paid her business expenses.
According to Merrill Lynch, defendant became a Financial Consultant in April 1996 (Boney aff. at 2). According to defendant's affidavit attached to document 6, she "began operating as a full-fledged Financial Consultant in December 1997."
The parties agree that defendant did not sign Merrill Lynch's "typical" consultant employment agreement, including any agreement containing a specific non-compete clause or covenant. Instead, defendant signed and "accepted the obligation to follow" Merrill Lynch's "Guidelines for Business Conduct" which provides:
This appears to be the "Account Executive Trainee Agreement" which is the subject of numerous reported cases Merrill Lynch has initiated when one of its financial consultants resigned and then immediately joined a competitor brokerage firm.
Merrill Lynch's assets include more than its capital — there are its premises, equipment, information, business plans, ideas for new products and services, customer lists, and, most importantly, in a very real sense, its people. It is expected that employees will use these assets only for the purposes intended and not for their personal benefit unless they have been approved for general employee or public use. This even extends to business opportunities which come to employees as a result of their employment — they are the proprietary opportunities of Merrill Lynch.
Doc. 1, ex. A. Defendant also signed and "agreed to comply" with Merrill Lynch's "Conflict of Interest Agreement," which provides
I agree that I will not, during or after my employment with Merrill Lynch, use or disclose to another any confidential information or business secrets relating to Merrill Lynch.
Id., ex. B. Finally, defendant agreed to comply with Merrill Lynch's "Compliance Outline for Financial Advisors," which instructs
CONFIDENTIALITY OF CLIENT INFORMATION
You may not discuss the business affairs of any client with anyone, including other employees except on a need-to-know basis. Information or records concerning the business of the Firm and/or its clients may not be released except to persons legally entitled to receive them.
Id., ex. C.
Merrill Lynch represents that as a result of her employment, defendant acquired access to hundreds of Merrill Lynch accounts representing more than $31.9 million in assets under Merrill Lynch management"and "generated over $221,000 in commission revenues for Merrill Lynch in the past twelve months alone" (Boney aff. at 4).
Merrill Lynch indicates that it recently has "confirmed that Lovekamp sent a solicitation mailing with pre-prepared account transfer forms to the Merrill Lynch customers they [sic] formerly serviced at Merrill Lynch" (id.). Moreover, Merrill Lynch has "learned Lovekamp has been placing telephone calls to the Merrill Lynch customers she formerly serviced attempting to convince them to transfer their account to Raymond James" (id.). Merrill Lynch speculates that defendant "has dispatched this solicitation mailing to most, if not all, of the Merrill Lynch clients she formerly serviced" and "intends to call all of [these] customers" (id.). Merrill Lynch further speculates that while defendant was still in its employ, defendant assembled a listing of "the identities of Merrill Lynch account holders, their addresses, zip codes, the types of Merrill Lynch accounts they maintain and Merrill Lynch account numbers" (id. at 4-5) for use in her written and telephonic solicitations. Finally, "based on past experiences with Raymond James," Merrill Lynch speculates "that Raymond James paid Lovekamp over $200,000 in up-front cash bonus, guaranteed salary, enhanced commission pay-out and/or asset based bonuses" (id. at 3).
Defendant Lovekamp avers that due to her family and social ties in the Tallahassee area, her "client relationships were developed independent of my joining Merrill Lynch" (doc. 6, defendant's aff. at 2). Defendant states
I do not need copies of records to contact many of my clients. I could reconstruct many of my clients' names from memory and obtain their phone numbers from either my memory or publicly available sources.
Id. at 3. Defendant fears Merrill Lynch will "use the issuance of an injunction to damage my reputation by making clients question my judgment" (
id.).
Notably, in her affidavit, defendant does not deny recently sending solicitation letters to some or all of the clients she served at Merrill Lynch and does not deny providing transfer of account forms along with these letters. Nor does defendant deny having initiated telephone conversations in an effort to persuade her former Merrill Lynch clients to follow her and transfer their accounts to Raymond James. Rather, defendant's counsel argued at the hearing that defendant did not need to rely on Merrill Lynch's customer lists to recall the names of her clients and could have found the clients' telephone numbers from publicly available sources. Defendant's counsel also proffered at the hearing that defendant did not receive an up-front signing bonus by Raymond James and earns her living solely upon commissions.
Defendant's counsel proffered during the hearing that any transfer forms defendant may have provided her former clients did not include all required information; i.e., the forms mailed by defendant did not include certain information such as account numbers which the clients would have to provide when returning the form.
Conclusions of Law A. Likelihood of Success on the Merits
Merrill Lynch's burden is to make a prima facie showing that it has a reasonable probability of succeeding on the merits. See Oburn v. Shapp, 521 F.2d 148 (3d Cir. 1975).
Neither the parties nor this court has discovered previously reported cases upon these same facts, i.e., where there is no employment contract which expressly prohibits the conduct alleged here. In consideration for her employment with Merrill Lynch, defendant Lovekamp signed no "employment contract" but did agree to use Merrill Lynch's "information" and "customer lists" only for the "purposes intended and not for his (her) personal benefit," to not disclose Merrill Lynch's "confidential information or business secrets" and to keep confidential and to not "release" the "business affairs of any client."
Under Florida law, a customer list has been held to be a trade secret over which a securities brokerage firm has a legitimate business interest. See Hagerty, 808 F. Supp. at 1558; Hapney v. Central Garage, Inc., 579 So.2d 127 (Fla. 2d DCA 1991); Fla. Stat. § 688.002; see also Sethscot Collection, Inc. v. Drbul, 669 So.2d 1076 (Fla. 3d DCA 1996). Such a finding is conditioned upon the firm's having taken "reasonable" efforts "under the circumstances to maintain its secrecy." Fla. Stat. § 688.002(4)(b); see also Fla. Stat. § 812.08. While it is recognized that the extent of Merrill Lynch's efforts to maintain the confidentiality of its customer list may be disputed, Merrill Lynch can seemingly present sufficient evidence to establish its customer list, and more specifically defendant's client list, was an asset of the company that required defendant's non-disclosure or use for personal gain. This court rejects defendant's suggestion that because Merrill Lynch did not require defendant to sign an employment contract with an express non-solicitation provision, Merrill Lynch did not take reasonable steps to protect its customer lists. Moreover, while defendant argues she can rely upon her memory and does not require information from Merrill Lynch files to contact her clients who are also her long-time personal associates, she does not deny having made use of such information in initiating recent written and telephonic contact with these clients.
Accordingly, this court concludes Merrill Lynch has demonstrated a likelihood of succeeding on the merits.
B. Irreparable Harm
Under Florida law, the use of "specific trade secrets" and "customer lists" is presumed to result in irreparable injury. Fla. Stat. § 542.33. Notwithstanding this statutory presumption, this court is persuaded that if successful, Merrill Lynch's monetary loss of future business cannot be determined with sufficient degree of certainty. Thus, if injunctive relief is not granted, Merrill Lynch will be irreparably harmed.
C. Injury to Plaintiff versus Harm to Defendant
The issuance of a temporary injunction will only briefly affect defendant's ability to transact business with those of her clients at Merrill Lynch with whom she has directly initiated contact and will not interfere with defendant's ability to recruit new clients. The comparable harms are therefore found more detrimental and permanent to Merrill Lynch if the relief sought is not granted.
The parties advise that an expedited arbitration proceeding will likely commence within four to six weeks.
D. Public Policy
Without dispute it is in the public's interest to assure that members of the public have the right and opportunity to conduct vital financial business with the advisor of their own choosing. The issuance of an injunction will affect that interest only of investors defendant serviced while at Merrill Lynch and with whom she has initiated contact in an effort for them to transfer their accounts to defendant's new employer.
The public interest additionally demands the enforcement of reasonable agreements between employees and employers and to protect business investments and confidential customer information, particularly in the highly sensitive investment industry. Granting temporary relief will promote these goals. See, e.g., Merrill Lynch et al. v. Chamberlain, ___ F. Supp. ___, 2001 WL 682550 (M.D. Pa. June 8, 2001).
In light of the above findings and conclusions, it is now ORDERED:
1. Merrill Lynch's motion for temporary restraining order is granted and shall remain in effect until 2:00 P.M., EDT (1:00 P.M., CDT), on Friday, July 27, 2001, at which time a hearing shall be conducted at which defendant may present evidence and show cause why a preliminary injunction should not be ordered according to the terms and conditions set forth herein. Pending further order by Judge Mickle, this hearing shall be conducted before him.
If the parties choose to continue to proceed before the undersigned, formal written consents should be promptly filed pursuant to 28 U.S.C. § 636(c). Upon receipt of consents by all parties, Judge Mickle may enter an order of reference.
2. Defendant is hereby enjoined and restrained from (1) initiating any further contact or communication with any client of Merrill Lynch whom defendant served or whose name became known to her while in the employ of Merrill Lynch, for the purpose of advising said clients of her new affiliation or for the purpose of soliciting or encouraging the transfer of any accounts or business patronage from Merrill Lynch; (2) accepting any business, including account transfers, from any clients with whom defendant solicited for the purpose of doing business with her at Raymond James; and (3) using, disclosing, or transmitting information contained within the records of Merrill Lynch.
3. Defendant shall immediately return to Merrill Lynch all original Merrill Lynch records and other documents or recordings containing customer names and other account-related information, and any copies thereof in whatever form, even if independently created by Merrill Lynch from her memory. Merrill Lynch shall retain these documents pending the hearing on the preliminary injunction.
4. Merrill Lynch shall promptly advise any individuals calling its offices and wishing to speak with defendant that defendant is no longer employed with Merrill Lynch, but is currently employed with Raymond James in its Tallahassee office. Merrill Lynch shall deal fairly with all such inquiries, shall provide defendant's telephone number if requested by the caller, and shall promptly provide defendant with account information when requested in writing by past or present clients of Merrill Lynch.
5. Merrill Lynch shall post a bond in the amount of $10,000, on or before Friday, July 20, 2001. Failure to timely post this bond shall result in the vacation of this order.
DONE AND ORDERED.