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Questioning if Alleged Harm Was Irreparable, Federal Court Denies TRO
May 23, 2023
Another day on Wall Street and another firm attempts to secure another Temporary Restraining Order against another former employee. As has been reported over the years in this blog, presented with more or less the same facts albeit in different cases, one court will grant a TRO whereas another will deny it. More often than not, it comes down to whether the applicant proves that the harm allegedly sustained is so severe as to be irreparable absent the intercession of a TRO. For some judges, that's a high bar to vault over; for others, they had a big bowl of bran flakes for breakfast and are in a dyspeptic mood.
Application for TRO
On May 3, 2023, in the United States District Court for the Eastern District of California ("EDCA"), Allworth Financial LP (a registered investment advisor, "RIA") sought a Temporary Restraining Order ("TRO") against its former financial advisor Jill PIvato.
Allworth Financial LP, Plaintiff, v. Jill Pivato, Defendant (Order, United States District Court for the Eastern District of California, 23-CV-00829)
https://brokeandbroker.com/PDF/AllworthEDCAOrder250522.pdf Plaintiff Allworth Financial alleged that Defendant Pivato had misappropriated trade secrets, breached a written contract, and violated California's Unfair Competition Law.
The Four-Point Winter Test
In furtherance of Plaintiff Alllworth's effort to secure a TRO, EDCA set out a four-point test as enunciated by the United States Supreme Court in Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) :
“A plaintiff seeking a preliminary injunction must establish [1] that he is likely to succeed on the merits, [2] that he is likely to suffer irreparable harm in the absence of preliminary relief, [3] that the balance of equities tips in his favor, and [4] that an injunction is in the public interest.”
Irreparable Harm
Having initially concluded as part of its analysis that Plaintiff Allworth had failed meet its burden of demonstrating irreparable harm, EDCA focused on that prong of the TRO test at the outset. Pointedly, the Court stated that:
In its initial application for a TRO, the only evidence Plaintiff cites to show irreparable harm is a declaration from Corey Gamble, Plaintiff’s Chief Compliance Officer. (ECF No. 2-2 at 13–15 (citing ECF No. 2-4).) Gamble states Defendant misappropriated and used Plaintiff’s trade secrets and confidential information to contact Plaintiff’s clients and “[t]he threatened damage and the damage already suffered by Plaintiff as a result of [Defendant’s] actions is irreparable.” (Id. at ¶ 16.) Gamble further states Defendant’s improper actions have “caused damage to Plaintiff’s reputation, good will, and business relationships in ways that cannot be repaired through money damages alone.” (Id.) Lastly, Gamble states Plaintiff “will continue to suffer immediate, irreparable harm if [Defendant] is not restrained.” (Id. at ¶ 18.)
Plaintiff submits additional pieces of evidence with its reply. (ECF No. 16.) Plaintiff submits a declaration from Valerie Kraml, Plaintiff’s senior counsel, stating that since Defendant’s resignation and due to Defendant’s ongoing solicitation of Plaintiff’s client, Plaintiff has lost at least 33 households and $40 million in assets under management to Defendant and/or her new employer. (ECF No. 16-1.) Plaintiff also submits screenshots of text messages and a voicemail transcript purporting to show that Defendant contacted Plaintiff’s clients in late April. (ECF Nos. 16-3, 16-4, 16-5.) At best, those screenshots show Defendant communicated with Defendant’s clients in late April, which possibly led to subsequent phone conversations. However, the screenshots themselves do not explicitly show Defendant solicited Plaintiff’s clients. Lastly, Plaintiff submits an email from one of its clients stating Defendant spoke to her in late April about leaving her employment with Plaintiff. (ECF No. 16-6.)
at Pages 5 - 6 of the EDCA Order
EDCA deemed as insufficient the above offer of proof as to irreparable harm for two reasons:
First, the cited "past" conduct by Defendant Pivto had occured three weeks prior to the Order. Further, Defendant asserted that she no long had access to Plaintiff's information and, further, had deleted all materials in her possession. Additionally, Defendant agreed to abide by her ongoing obligations to Plaintiff and to consent to arbitration. Those aforementioned factors taken together persuaded EDCA that there was no proof that Defendant would continue to engage in any allegedly improper conduct involving purported trade secret.
Second, mere "economic injury" does not, in and of itself, rise to the level of irreparable harm. In response to Plaintiff's contention that it had "lost the accounts of over 33 households and $40 milion in assets under management because of Defendant's conduct," at Page 7 of the EDCA Order, the Court downplayed such harm by noting that:
This argument suggests Plaintiff’s damage can be quantified. While loss of goodwill may constitute irreparable harm, a plaintiff who attempts to establish irreparable harm via loss of business reputation and goodwill must proffer evidence of that loss — a district court may not base a finding of reputational harm on “platitudes rather than evidence.” Id. As a result, evidence of reputational damage or harm to business goodwill sufficient to merit entry of preliminary relief typically incorporates information provided by, or from the perspective of, market-based sources
external to the plaintiff itself. . . .
external to the plaintiff itself. . . .
at Page 7 of the EDCA Order
Accordingly, EDCA denied Plaintiff's Application for a TRO.
Bill Singer's Comment
A nice, tight, succinct, and compelling Order from EDCA Judge Troy L. Nunley. For those contemplating seeking a TRO and for those faced with defending against such an Application, this Order perfectly illuminates the burden of proof when it comes to persuading a judge that the cited harm is, indeed, irreparable.
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