The opinion of the court was delivered by: Urbina, District Judge.
GRANTING THE PLAINTIFF'S MOTION FOR A TEMPORARY RESTRAINING
On May 11, 2001, John Rothe resigned effective immediately
from his job as a financial advisor at Morgan Stanley DW Inc.
("the plaintiff" or "Morgan Stanley"). Mr. Rothe ("the
defendant") immediately accepted a job with a rival company,
CIBC Oppenheimer ("Oppenheimer"), thus setting the stage for a
textbook employer-employee dispute about a
On May 16, 2001, the plaintiff filed a verified complaint and
a motion for a temporary restraining order and a preliminary
injunction.*fn1 The plaintiff, a Delaware corporation
maintaining its principal place of business in New York City,
brings this suit in federal court under diversity jurisdiction
pursuant to 28 U.S.C. § 1332. The plaintiff alleges that on July
7, 1998, the defendant signed an Account Executive Trainee
Employee Agreement ("the Agreement") as a condition of his
initial and continuing employment with Morgan Stanley. The
plaintiff now claims that the defendant has violated that
agreement by taking files with him after resigning from Morgan
Stanley and by contacting Morgan Stanley's clients to persuade
them to sever their relationship with Morgan Stanley and
transfer their accounts to the defendant's new employer,
The plaintiff asks for temporary and preliminary injunctive
relief pending an expedited hearing on the merits before a panel
of arbitrators pursuant to paragraph 10335(g) of the National
Association of Securities Dealers ("NASD") Code of Arbitration
The defendant counters that injunctive relief is inappropriate
for four main reasons: (1) this matter belongs in arbitration;
(2) the plaintiff is unlikely to prevail on the merits in
arbitration; (3) enforcement of the agreement would violate NASD
rules by denying public customers the right to exercise their
own investment decisions; and (4) money damages can adequately
address the purported harms suffered by the plaintiff. See
Opp'n to Pl.'s Mot. for Injunctive Relief ("Opp'n") at 19.
Accordingly, the defendant argues that the court should deny the
plaintiffs motion for preliminary-injunctive relief.
For the reasons that follow, the court will grant the
plaintiffs motion for a temporary restraining order.
In 1996, while he was in college, Mr. Rothe, 26, began working
at Morgan Stanley's Washington office as an intern. See Rothe
Decl. at 2. After graduating from the University of Maryland in
1997, he Joined Morgan Stanley as a full-time sales assistant.
See id. While he was a sales assistant, he obtained his
securities licenses and registrations. See id. On June 1,
1998, Morgan Stanley gave Mr. Rothe a promotion and he joined
the financial advisor training program. See id. About one
month later, on July 7, 1998, he signed the Account Executive
Trainee Employment Agreement. See id.
Several of the material facts in this case are not in dispute.
The parties agree that on July 7, 1998, John Rothe signed and
executed the Agreement. See Compl., Ex. A; Decl. of John E.
Rothe dated May 17, 2001 ("Rothe Decl.") at 2. The parties also
acknowledge that Mr. Rothe resigned from his position as a
financial advisor at Morgan Stanley's Washington, D.C. office
"effective immediately" on May 11, 2001. See Compl., Ex. B
(Def.'s resignation letter to Mr. Jerry Castro, Branch Manager,
dated May 11, 2001). As Yohannes Tilahun, the sales manager of
the Washington office, states, "On May 11, 2001 at 5:15 p.m.,
Defendant resigned from Morgan Stanley without prior notice to
join the Washington, D.C. office of CIBC Oppenheimer . . ., a
direct Morgan Stanley competitor." See Pl.'s Mot. for a T.R.O.
and Prelim. Inj. ("Pl.'s TRO Mot."), Ex. A. (Aff. of Yohanes
Tilahun ("Tilahun Aff.")) at 2 (emphasis in original).
Beyond these points, the parties find little to agree on.
The plaintiff seeks a temporary restraining order to prevent
what it calls the "unlawful misappropriation by Defendant John
Rothe . . . of confidential information pertaining to hundreds
of Morgan Stanley accounts, representing in excess of $10
million in assets under Morgan Stanley management and over
$250,000 in Morgan Stanley commissions over the last 12 months,
and Defendant's effort to divert these accounts, assets and
commission revenues" to Oppenheimer. See Pl.'s Mem. at 1.
According to the plaintiff, Mr. Rothe, while still employed by
Morgan Stanley, prepared to engage in, and now continues to
engage in, the following acts that violate the terms of the
Agreement: (1) removing, retaining, and/or copying confidential
information pertaining to Morgan Stanley customers, and/or
customer lists, including the names and/or addresses of hundreds
of Morgan Stanley accounts formerly served by Defendant at
Morgan Stanley; (2) disclosing and producing this confidential
customer information to Oppenheimer; and (3) using this
confidential customer information to solicit Morgan Stanley
customers. See id. at 2; see also Ex. A (Tilahun Aff.).
Morgan Stanley claims that Mr. Rothe has committed the torts
of conversion, unfair competition and breach of the duty of
loyalty. The plaintiff also charges that Mr. Rothe has
misappropriated Morgan Stanley's trade-secret customer lists and
breached the express terms of the Agreement he signed as a
condition of his employment. See Pl.'s Mem. at 2.
Morgan Stanley points out that in addition to containing the
restriction on Mr. Rothe's future employment, the Agreement also
called for the issuance of a temporary restraining order and a
preliminary injunction to preserve the status quo pending the
outcome of arbitration if the defendant breached the terms of
his agreement. See Compl., Ex. A.
In consideration for Mr. Rothe's signing the agreement and
becoming an employee, Morgan Stanley asserts that it agreed to,
and in fact did, register and compensate Mr. Rothe, give him
training and a job as a financial consultant and provide him
with Morgan Stanley operational and sales systems, research and
development, sales assistants and support, as well as the
benefit of its reputation and goodwill. See Pl.'s Mem. at 3.
Moreover, the company alleges that it provided Mr. Rothe with
Morgan Stanley customers through: (1) "walk-ins"; (2)
"call-ins"; (3) reassignments; (4) clients from Morgan
Stanley-sponsored seminars; (5) leads from lists purchased from
mail-order firms; (6) leads from Morgan Stanley national
advertising campaigns; (7) leads from customer responses to
national television campaigns; (8) leads responding to Morgan
Stanley newspaper coupons; (9) leads calling Morgan Stanley's
toll-free telephone number; (10) leads from blanket mailings to
zip codes; and (11) other customer leads and sales advantages
resulting from Morgan Stanley's
goodwill, reputation, and name recognition in the securities
industry. See id.
Furthermore, the plaintiff claims that before the defendant
joined Morgan Stanley, Mr. Rothe "had no experience as a
financial consultant in the securities brokerage industry."
See Pl.'s TRO Mot., Ex. A, Tilahun Aff. at 2. Mr. Tilahun also
alleges that the company gave Mr. Rothe on-the-job training
throughout his employment and, at all times, paid his annual
registration fees with the NASD, the New York Stock Exchange,
and the American Stock Exchange. See id. In addition, Mr.
Tilahun makes the following specific allegations:
7. Despite Defendant's contractual and other
obligations to Morgan Stanley, and despite the fact
that Morgan Stanley is informing its customers
where to reach Defendant, we have learned that
immediately upon his resignation late May 11, 2001,
Defendant began initiating contact with clients he
formerly serviced at Morgan Stanley to solicit them
to transfer their accounts to Oppenheimer.
8. In particular, our investigation has indicated
so far that at least one client received a package
of solicitation materials on Saturday, May 12, 2001
(the day after Defendant resigned), requesting that
the client transfer its accounts to Oppenheimer.
9. In addition, our investigation has revealed that
Defendant removed all of the original files of one
significant Morgan Stanley client. That client
maintained eight Morgan Stanley accounts with
assets in excess of five million dollars. The
original documents missing include account and
taxpayer information, margin papers,
correspondence, and check receipts, among other
vital and confidential information regarding the
Id. at 2-3. The plaintiff asserts that all these alleged
actions constitute violations of Mr. Rothe's agreement.
Accordingly, Morgan Stanley seeks injunctive relief pending an
expedited hearing on the merits before a panel of arbitrators in
accordance with Rule 10335(g) of the NASD Code of Arbitration
Countering that a temporary restraining order is not the
appropriate remedy in this case, Mr. Rothe states that Morgan
Stanley should seek relief from the arbitration process alone.
He asks the court to deny the plaintiffs motion with prejudice
and to direct Morgan Stanley to proceed promptly to arbitration
of this matter on the merits before the NASD. See Opp'n at 4.
Mr. Rothe also argues that even if an injunction were proper
in this case, Morgan Stanley's proposed order would violate the
rules of the NASD. See Opp'n at 3. That is, the company's
proposed order would include a restriction on Mr. Rothe's right
to accept business from the customers at issue. See id. The
NASD's Board of Governors, however, "just last week approved the
publication of a rule interpretation making clear that the NASD
rules prohibit `any member firm [such as Morgan Stanley] from
taking any action that interferes with [a] customer's right to
transfer his or her account.'" See id.; Ex. 2 (NASD news
release dated May 7, 2001).
In sum, the defendant argues that the plaintiff has failed to
make a showing strong enough to justify the issuance of
injunctive relief. The court disagrees. Accordingly, the court
will grant the ...