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A three-year-old pact among brokerage houses that outlines what customer information brokers can take when moving from one employer to another has cut employment litigation among brokerage shops. But some say the rules are too general and that brokerages are starting to seek court relief again. Ted Levine of New York’s Wachtell, Lipton, Rosen & Katz helped Merrill Lynch & Co., the Smith Barney division of Citigroup Global Markets Inc. and UBS Financial Services Inc. establish the so-called Protocol for Broker Recruiting three years ago. Currently, about 30 companies are on board, including large and small industry players, Levine said. “It’s put in a discipline which firms have adhered to allow brokers to move,” Levine said. Some companies eschew the protocol because they’d rather keep their options open when a broker leaves, particularly companies that build a customer base through advertising rather than broker legwork, said Christopher Stief, a Philadelphia partner at Atlanta-based Fisher & Phillips who specializes in employee-defection and recruitment issues. Still, litigation among member firms has dwindled from hundreds of cases a year to a handful, Stief said. “In simple dollars and cents, there’s no doubt they’ve saved money on legal fees,” he said. Signs of resurgence The protocol has worked well in the past few years, but brokerage houses have been more willing to seek court remedies in the past six months, said employment lawyer and litigator Michael Taaffe of Abel Band in Sarasota, Fla. Taaffe is defending brokers in a Florida federal suit filed by Smith Barney, one of three similar federal cases the company filed this year. Smith Barney sought temporary restraining orders and preliminary injunctions against brokers who switched firms to bar them from soliciting customers they served at Smith Barney and demanded that brokers return documents. Smith Barney v. Carroll, No. 07-60220 (S.D. Fla.); Smith Barney v. Roulette, No. 07-427 (D. Md.); Smith Barney v. Bonham, No. 07-666 (D. Ore.). Smith Barney’s Florida and Maryland cases were dismissed and sent to arbitration. The Oregon case was settled, according to the defense lawyer. Taaffe is also defending brokers in a federal suit brought by A.G. Edwards Inc. against four former Marco Island, Fla., brokers who jumped to Morgan Stanley. A.G. Edwards, whose claims included breach of contract, misappropriation of trade secrets, breach of fiduciary duty and breach of the duty of loyalty claims, obtained a court-ordered preliminary injunction on Sept. 18. The injunction bars the brokers from violating the protocol until the Financial Industry Regulatory Authority can arbitrate the case. A.G. Edwards & Sons Inc. v. McCreanor, No. 07-570 (M.D. Fla.). A.G. Edwards, Smith Barney and the companies’ lawyers on the cases declined to comment, but Taaffe said the industry’s intense competition is bound to spark some litigation. “Some of these brokers control assets that amount to a small bank, with books worth hundreds of millions of dollars,” Taaffe said. Several companies that agreed to the protocol said they’re generally satisfied with the pact. Merrill Lynch said the agreement has virtually eliminated litigation among member firms over broker movement. And Raymond James & Associates Inc. President Dennis Zank said the protocol has “halved” such disputes. If brokers at protocol firms follow the rules, “there is no reason for [temporary restraining orders],” Zank said. Brokerage companies’ major gripe is the protocol’s vague language. Cambridge Investment Research Inc. adopted the protocol about a year ago because the company was increasingly recruiting brokers who were employees of other brokerage houses, instead of hiring independent contractors, said Chief Operating Officer Amy Webber. But the company wrote some of its own procedures to address gaps such as how it could give client information to a third party that transfers the assets. “There still are some things to be resolved,” Webber said.

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