Edelman Financial Goes After Former Employee in Federal Court

Plaintiff alleges that since resigning, Mr. Butera has solicited and accepted business from Edelman clients in violation of the Restrictive Covenant. (ECF No. 1, at ¶ 57). Plaintiff's counsel alleged at the hearing that Mr. Butera had 237 clients while working for Edelman. Thomas Dunker, an Edelman officer, attested in a declaration that, prior to Mr. Butera's resignation, Defendant had a book of business of more than 370 client accounts. (ECF No. 4-2, at ¶50). Mr. Dunker attests in his supplemental declaration that Mr. Butera has contacted at least eight individuals and at least eight couples who are or were Edelman clients. (ECF No. 17-1, at ¶5-20). Mr. Dunker further attests that, as of June 12, Mr. Butera has accepted business from a total of 33 client accounts. (ECF No. 17-1, at ¶ 26). The financial loss to Edelman has been inconsistently alleged as $36 million in its complaint, (ECF No. 1, at ¶64), and $31 million in the declaration of Mr. Dunker, (ECF No. 4-2, at ¶45). In any event, the alleged "outflow of assets under management" is in the tens of millions of dollars. 

Mr. Butera, in an affidavit, denies soliciting any of his former clients. (ECF No. 13-1, at ¶10, 14). Rather, he states that he merely announced his new affiliation. (ECF No. 13-1, at ¶10). Mr. Butera states that his announcement simply advised the clients he contacted that he had left Edelman, joined a new firm, and provided his new contact information. Mr. Butera says that he only provided account transfer information to clients who wished to continue doing their business with him. (ECF No. 13-1, at ¶12). Mr. Butera also denies removing or retaining any client lists or other client data from Edelman. (ECF No. 13-1, at ¶7)

SIDE BAR: By way of recap:

Butera's book of biz covered 237 or over 370 clients and, oh my!, he may have contacted at least eight individuals and eight couples; and, thereafter, he may have opened 33 client accounts at his new shop (which was affiliated with LPL Financial LLC). And, wow, Plaintiff Edelman allegedly lost $36 million . . . or $31 million . . . or tens of millions of dollars. And Butera may have improperly solicited his former Edelman clients or not, or he may have retained client data or not. What we know for certain is that Edelman is unhappy and the firm is going after Butera in federal court. Will DMD grant the former employer's TRO Motion? Keep reading.

Edelman has no evidence that Mr. Butera took anything in tangible or digital form from Edelman when he left. Rather, Edelman merely alleges that Mr. Butera must have taken (and utilized) its trade secrets, because that is the only way he could have solicited his former clients. (ECF. No. 4-2, at ¶51). Mr. Butera attests that he did not remove or retain any client lists or other client data from Edelman, but instead that some of his clients are family members and friends, or that their contact information is available through publicly available sources. (ECF No. 13-1, at ¶7, 8). Counsel acknowledged at the hearing that "It" (presumably LPL) asked him to write a list of clients from memory when he began work for LPL and then to use publicly available sources to locate contact information. It is axiomatic that publicly available information is "generally known," and thus not a trade secret. Edelman contends, specifically, that the identity of a client carries with it the trade secret information that the person has net worth that merits having a financial advisor. 

While it may be that Edelman can establish trade secret status for certain client information, it has neither yet done so clearly, nor shown that Mr. Butera misappropriated it. Moreover, to the extent that Mr. Butera disclosed trade secret information (the names of his Edelman clients) to his new employer, the harm is already done.

Although Plaintiff has clearly shown that Mr. Butera emailed and called some of his Edelman clients in the days immediately after he resigned, and that some of them have transferred their accounts, it has failed to make a clear showing that it is likely to succeed on the merits of its claim that Mr. Butera breached the Restrictive Covenant by soliciting clients. Edelman takes the position that any communication initiated or participated in by Mr. Butera that doesn't include the statement that he can't take their business is solicitation. It is far from clear that it is correct in that interpretation, or that Mr. Butera did more than merely announce his transition to a new company. Moreover, as with the trade secrets claim, it is unclear whether the activity is ongoing. Mr. Butera transitioned to LPL on May 12, and the Dunker declaration of June 12 details contacts up to May 26, 2022, but not beyond.  

[A]ccept[ing] any business of the same or similar nature to the Business of the Partnership with or from any Client or Potential Client whom Participant has solicited (directly or indirectly) or with whom Participant has worked, communicated or dealt on behalf of the Partnership group, or any other Client that received services from any office, branch or principal work location at which Participant was based[.]

(ECF No. 4-4, at 15). Edelman is seeking to enforce its broad clause, stating at the hearing that it would provide Mr. Butera a list (even though it contains trade secrets) of those clients who received services at his former work location even if not from Mr. Butera. It is premature to resolve these very complex issues-the parties differ decidedly on their interpretations of the provision, with Edelman espousing a troubling, extremely broad interpretation. It has failed to make a clear showing of likelihood of success.

Accordingly, Edelman has failed to establish entitlement to temporary injunctive relief. It has moved for some expedited discovery in advance of a hearing on its motion for a preliminary injunction. Counsel are directed to confer with regard to a schedule. If agreement is reached, simply advise the court, and chambers will offer suitable dates for a hearing. If agreement cannot be reached, counsel are to submit letters outlining their respective positions and the court will convene a recorded telephone conference to set a schedule.

• Edelman Financial
• DMD
• TRO
• Book of Business
• Non-Solicit
• LPL
• BrokeAndBroker
• Bill Singer