The Everen/A.G. Edwards Ruling

by Mike Kroll

Last Thursday Circuit Judge James Stewart issued his ruling on the case concerning the "raid" of Everen Securities Galesburg branch office by A. G. Edwards & Sons. In that ruling Stewart reversed his earlier position to agree that Everen's non-solicitation agreements were valid and enforceable however he did not uphold Everen's claims that the former employees took proprietary information to A.G. Edwards either before or upon leaving.

The key issue from Everen's perspective had always been the non-solicitation agreements which they unsuccessfully attempted to enforce through a Temporary Restraining Order back in early December. At that time Stewart declined to prohibit the former Everen employees from soliciting their old clients which has continued at a breakneck pace throughout.

As of the last day of court testimony (January 10th) A.G. Edwards was claiming that 60 percent of the former Everen clients had already moved their accounts. Meanwhile, Everen reports some success in either luring back defecting clients or retaining those with the most sizable or actively traded accounts.

When Stewart ruled on the TRO he stated that Everen's standing to enforce the non solicitation agreements was questionable because those agreements were between the employees and an Everen predecessor firm Blunt Ellis and Loewi. Since the "training agreements" at issue did not specifically include language indicating transferability to successor firms Stewart allowed brokers Sid Carlson and Loren Wright to continue soliciting their former Everen clients.

Everen attorneys contended that officials from A.G. Edwards began soliciting Carlson back in February, 1996­­ or roughly two months after A.G. Edwards first established their Galesburg branch office in December, 1995. The inducement to Carlson and Wright was the opportunity to receive higher commissions on trades through A.G. Edwards than they already earned at Everen. For a limited time immediately after joining A.G. Edwards the two brokers will be paid much more for trades. This is known in the securities trade as "accelerated payout."

A.G. Edwards did not offer any "up-front money" to either broker as many suspected. In court testimony it was disclosed that A.G. Edwards has a policy prohibiting the payment of up-front money. At Everen brokers typically earn commissions averaging between 38-40 percent while A.G. Edwards commissions average about 43 percent. During the accelerated payout period this rate reportedly goes up to nearly 60 percent.

That boxes of Everen records taken and later burned by Carlson at his farm was not contested by A.G. Edwards. What they did contest was whether or not those records were client files and whether they could properly be considered proprietary information by Everen. Stewart's ruling was that both the nature of the information at issue and the manner in which Everen handled that information mitigated against it qualifying as Everen "trade secrets."

The lawyers for A.G. Edwards essentially prevailed in this round. By the time Stewart ruled that the non-solicitation restrictions were enforceable the 30-day time period covered was long since past. Stewart sensibly declined to restart the clock on this matter. Stewart reiterated his earlier TRO ruling that any client specific Everen information taken by Carlson or Wright and not so authorized by a transferred client must be returned. For those clients who have switched and sign consent forms Stewart mandated that Everen turn over account records to A.G. Edwards.

To the end A.G. Edwards has contended that none of their actions were wrong or inappropriate and Stewart's conflicting rulings shed little legal light on this question. A.G. Edwards' attorney Nicholas Ivarone decried the time and dollars spent on this process at Everen's insistence. From the standpoint of what little good it accomplished locally his comments seem borne out.

However, the huge volume of relevant information disclosed during the process will be beneficial to Everen as the issue moves into arbitration through the New York Stock Exchange. Everen attorney Chris Barber fully expects that they will prevail to the tune of a million dollar plus award from A.G. Edwards. The arbitration hearing is still many months off. Meanwhile, it is now business as usual at both firms' Galesburg branch offices.

This article posted to Zephyr online January 24, 1997
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