THE TRO

When last we looked, Regina Repp was consulting with her attorney at Singer Frumento LLP about an employment agreement that her new firm, BeeDee Securities LLC ("BeeDee") wants her to sign. Pretend that you are a fly on the wall in the attorney's office.  You may review the agreement by using this link.

Regina: Should I sign this contract? I really need this job.

Attorney: Regina, this is serious. Have you carefully reviewed the agreement? Look at paragraph #5 for instance. Any information about an account that you open while at BeeDee, from a person's name to their shoe size, belongs to  BeeDee as the firm's proprietary information - the equivalent of a trade secret.

Regina: How can that be? How can a customer account belong to a broker-dealer? Doesn't it belong to the customer?  Isn't it really my account.  I mean, I'm the professional servicing the client --- they call to speak with me.

Attorney: Of course the customer owns his account to the extent that he owns the assets contained in the account.  What BeeDee is telling you is that everything concerning any account that you open while working there belongs to BeeDee exclusively.

Regina: What if I open an account for my parents? Or my best friend from college?

Attorney: They belong to BeeDee,  lock, "stock" and barrel.  Now, that's not necessarily what a court or arbitration panel will ultimately rule; but certainly that's what BeeDee will argue.

Regina: So what does this all mean for me?

Attorney: We have to look at paragraph #5 in conjunction with paragraph #6. Because it is BeeDee 's "proprietary information," for a period of one year after you leave BeeDee. You are not permitted to solicit or conduct any business for any person or account that you opened, serviced or learned about during your tenure there. And yes, that includes your parents and best friend - - - assuming that they're still speaking to you.  And as you know, many brokers leave with other brokers and assistants from the firm. That too would violate this contract.

Regina: But that could wipe me out! Put me out of business. Are you saying I shouldn't sign?

Attorney: As it is? I wouldn't.  However, I also understand that this is a fairly typical agreement in the brokerage industry.  I've seen many employment agreements used by Wall Street firms and they're often the same --- especially as to their claim of ownership of the customer account and their insistence that when you leave you may not solicit those accounts.  So as a lawyer I must urge you not to sign.  You should try to negotiate the offensive terms out.  On the other hand, virtually everyone working in the industry is subject to these same provisions, and in some cases even without a signed employment agreement the broker-dealer argues that the former employer may not compete with the firm concerning prior clients.

Regina: But I have a husband and three kids. I need this job and BeeDee won't let me start working until I sign the agreement.

Attorney: You could try to negotiate the terms of the agreement, or I can do that for you. But if you sign it as is, you must understand the ramifications. Do you know what would happen if you leave BeeDee. and try to take your accounts and maybe a couple of brokers or assistants with you to a new firm? (Attorney slaps down a legal document on the desk) BeeDee will commence an arbitration against you and your new employer for stealing accounts and employees. At the same time they would go to court and get a temporary restraining order ("TRO") against you and your new employer denying you the right to even speak with your former customers or solicit any BeeDee. accounts or employees. Here's a similar case I'm presently handling involving your future employer and its lawsuit against some departed representatives and their new firm.

Regina, this is what a proposed TRO looks like . Read it carefully and then we'll talk some more.

At an IAS Part of the Supreme Court of the State of New York, in and for the County of New York, at the Courthouse thereof, 60 Centre Street, New York, New York, on the __ day of May, 2001.

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BEEDEE SECURITIES LLC,
Petitioner,
- against -
IMA OUTTAHERE, RIP FIRMOFF, SELLA LOTTASTOK
AND HYER ENIWUHN SECURITIES, INC.,
Respondents.
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ORDER TO SHOW CAUSE

Upon reading and filing (i) the annexed petition, verified on May 2, 2001 by Yul Reegrehtet of BeeDee Securities LLC (BeeDee), (ii) the exhibits attached thereto, including employment agreements reciting, among other things, the Individual Respondents acknowledgment that petitioner BeeDee is entitled to receive a preliminary injunction in aid of arbitration against respondents to maintain the status quo and to protect against a prospective or continuing breach of contractual provisions barring unfair competition and the use of confidential information, and (iii) the emergency relief affidavit of John Lawless, Esq. sworn to April __, 2001, it is hereby:

ORDERED that respondents IMA OUTTAHERE, RIP FIRMOFF, SELLA LOTTASTOK ("Individual Respondents") and BEEDEE SECURITIES, INC. ("BeeDee" or collectively with the Individual Respondents "respondents") show cause before the Honorable Judge Judy at an I.A.S. Part of this Court, at the Courthouse, 60 Centre Street New York, New York on April _, 2001 at 9:30 a.m., or as soon thereafter as counsel can be heard, why an Order, pursuant to CPLR 7502(c), should not be entered:

(a) enforcing employment agreements between the Individual Respondents and BeeDee which expressly provide for the Court to issue provisional relief under the present circumstances to "maintain the status quo" pending arbitration;

(b) preliminarily enjoining respondents and any persons or entities acting in concert with or on behalf of such respondents from:

(i) directly or indirectly soliciting or inducing anyone (other than members of the Individual Respondents' immediate families) who was a customer of BeeDee at a time any of the Individual Respondents were employees of BeeDee, or whose name became known to the Individual Respondents during such period, (A) to transfer such customer's BeeDee account to HYER ENIWUHN SECURITIES, INC the current employer of the Individual Respondents and a competitor of BeeDee or (B) to otherwise open an account with HYER ENIWUHN SECURITIES, INC or another BeeDee competitor;

(ii) directly or indirectly recruiting, soliciting or inducing anyone who was a BeeDee employee during the period the Individual Respondents also were in Bee Dee's employ to terminate such employee's relationship with BeeDee;

(iii) using in any manner whatsoever BeeDee confidential and proprietary information (including, without limitation, BeeDee account books, account statements, customer names, customer lists, customer leads, customer telephone numbers, or any other BeeDee information and materials in respondent's possession, custody, or control) regarding BeeDee customers or other matters involving BeeDee ("BeeDee Information");

(iv) sending or causing to be sent, or accepting or causing to be
accepted or acted upon, any form or communication relating to the transfer of accounts (other than accounts of members of the Individual Respondents' immediate families) from BeeDee to respondents or to any brokerage firm with which respondents are or may become affiliated;

(b) communicating or otherwise contacting, directly or indirectly, any person or entity (other than members of the Individual Respondents' immediate families) who, while the Individual Respondents, were employed by BeeDee, was a customer or had a brokerage based relationship with BeeDee; and

(c) directing respondents to return to BeeDee all originals and copies of documents, whether in hard copy or computerized or other electronic media form, which contain BeeDee Information (including, but not limited to, holding pages, position sheets, telephone numbers, computer data, computer printouts, computer programs, and Rolodex or other information regarding BeeDee customers) and which the Individual Respondents obtained while an employee of BeeDee; and it is further

ORDERED that, pending the hearing and determination of the instant motion and the entry of an Order in response to such motion, respondents, and any persons or entities acting in concert with respondents, hereby are restrained from disturbing the status quo and, in such regard, from:

(a) directly or indirectly soliciting or inducing anyone (other than members of the Individual Respondents' immediate families) who was a customer of BeeDee when the Individual Respondents were BeeDee employees, or whose name became known to respondents during such period, to transfer such customer's account with BeeDee to HYER ENIWUHN SECURITIES, INC or otherwise to open an account with HYER ENIWUHN SECURITIES, INC or any other BeeDee competitor;

(b) directly or indirectly recruiting, soliciting or inducing anyone who was a BeeDee employee during the period the Individual Respondents also were in BeeDee's employ to terminate such employee's relationship with BeeDee;

(c) using in any manner whatsoever BeeDee confidential and proprietary information (including, without limitation, BeeDee account books, account statements, customer names, customer lists, customer leads, customer telephone numbers, or any other BeeDee Information in respondent's possession, custody, or control) regarding BeeDee customers or other matters involving BeeDee;

(d) sending or causing to be sent, or accepting or causing to be accepted or acted upon, any form or communication relating to the transfer of accounts (other than accounts of the Individual Respondents' immediate families) from BeeDee to respondents or any other brokerage firm with which respondents are or may become affiliated;

(e) communicating or otherwise contacting, directly or indirectly, any person or entity (other than members of the Individual Respondents' immediate families) who, while respondents were employed by BeeDee, was a customer or had a brokerage based relationship with BeeDee; and

(f) directing respondents to return to BeeDee all originals and copies of documents, whether in hard copy or computerized or other electronic media form which contain BeeDee Information (including, but not limited to, holding pages, position sheets, telephone numbers, computer data, computer printouts, computer programs, and Rolodex or other information regarding BeeDee customers) and which the Individual Respondents obtained while employees of BeeDee; and it is further

ORDERED that personal service of a copy of this Order, along with the papers upon which it is based shall be made upon respondents on or before May 2, 2001, and such service shall be deemed good and sufficient service upon respondent; and it is further

ORDERED that answering papers, if any, shall be served by hand before the close of business hours at least two business days before the return date of this motion on Winit Luzit LLC, 123 Third Avenue, New York, New York 10016 (Attn: John Lawless, Esq.), as attorneys for petitioner BeeDee Capital Partners, Inc.

ENTER:
J.S.C.

Regina went home and read the proposed employment agreement and the TRO --- and promptly fell asleep. The next morning she decides "What the hell. I'll sign the agreement. I've visited a lot of broker chat-rooms and most of the posters say that broker-dealers only threaten to sue. I know my attorney has urged me to be careful but those lawyers are always overly cautious.  Besides, my family needs my income and everyone else seems to sign these damn things."

And so, basing her decision on practical, personal and business factors - as most people will do- Regina signs BeeDee's Association Agreement and starts work the following Monday morning.

Registered representatives are often given no choice but to sign contracts such as the one provided to Regina.  Oftentimes they must sign the agreement on the spot without the benefit of legal counsel - or even the benefit of reviewing the document carefully before signing! Unfortunately, as Regina's attorney explained, if a registered representative leaves a firm after signing a contract like this, she may be in for a very rude awakening. And while the courts periodically shoot down restrictive covenants such as those contained in BeeDee's Association Agreement, the matter rarely gets to that point. More often than not, a broker will sign the agreement, leave the firm, breach some term of the agreement, end up in court and arbitration, and eventually settle the case - several months and many thousands of dollars later. Read the TRO carefully and stay tuned as Regina Repp's adventures continue in "Looking Out for 'U'."