Wash. Tr. Advisors, Inc. v. Arnold

646 F.Supp.3d 210

WASHINGTON TRUST ADVISORS, INC., Plaintiff, v. Susan K. ARNOLD, Ronald D. Halterman,Brett C. Lonergan, Nicholas T. Rossi, Private Advisor Group, LLC,and Northward Financial Group, Defendants.

Civil Action No. 22-11847-PBS

United States District Court, D. Massachusetts

Signed December 13, 2022

Jeffrey E. Francis, Melanie A. Conroy, Pierce Atwood LLP, Boston, MA, for Plaintiff.

Erik W. Weibust, Epstein Becker & Green, P.C., Boston, MA, for Defendants Susan K. Arnold, Ronald D. Halterman, Brett C. Lonergan, Nicholas R. Rossi.

David J. Freniere, Freniere Law Group PLLC, Wellesley, MA, for Defendant Private Advisor Group LLC.

MEMORANDUM AND ORDER

Saris, District Judge

INTRODUCTION

Plaintiff Washington Trust Advisors, Inc. ("Washington Trust") sued Susan K. Arnold, Ronald D. Halterman, Brett C. Lonergan, Nicholas T. Rossi (collectively, the "Individual Defendants"), Private Advisor Group, LLC ("PAG"), and Northward Financial Group ("Northward") alleging that the Defendants set up a competing investment advisory company in violation of the Individual Defendants' restrictive covenants. Washington Trust also claims that Defendants misappropriated their trade secrets. Before the Court is Washington Trust's motion for a temporary restraining order and a preliminary injunction. After hearing, the Court ALLOWS IN PART and DENIES IN PART the motion.

BACKGROUND

The factual record, including affidavits and documentary evidence submitted by the parties, supports the following facts.

I. Factual Background

A. Washington Trust

Washington Trust, formerly known as Weston Financial Corp., Inc. ("Weston"), is a Wellesley, Massachusetts-based registered investment advisor representing high-net worth individuals and businesses. It is a subsidiary of Washington Trust Company, of Westerly, which acquired it in 2005. Washington Trust's wealth advisors work with clients to implement their financial goals.

B. Susan Arnold

Susan Arnold served as an investment advisor for Washington Trust since the 2005 acquisition. On November 2, 2005, Arnold entered into an employment agreement with Washington Trust. The agreement contained non-competition and non-solicitation covenants that would last during Arnold's employment and for 12 months thereafter. The non-competition covenant provided that Arnold shall not:

directly or indirectly, whether as owner, partner, shareholder, director, consultant, agent, employee, co-venturer or otherwise, engage, own, operate, participate or invest in any business or activity anywhere in Rhode Island, Connecticut, Massachusetts, New York, New Jersey, New Hampshire, Vermont, Maine, Minnesota, North Carolina, Pennsylvania, Florida or California that develops, markets, sells, offers or provides any products or services that are competitive with or similar to any products or services that are developed, marketed, sold, offered or provided by the Company or its subsidiaries or the other investment management businesses of Washington Trust.

Dkt. 5-2 ¶ 6(a).

Similarly, the non-solicitation covenant provided that Arnold shall not:

directly or indirectly, in any manner (i) call upon, solicit, accept, divert or take away any of the customers, clients, business partners, prospective customers, clients or business partners of the Company or Washington Trust, (ii) hire any employee or consultant of the Company or Washington Trust (or any person who was an employee or consultant of the Company or Washington Trust at any time during the six months prior to the expiration of the Employee's obligations under this Section 6) or solicit, entice or attempt to persuade any of those employees or consultants to leave the services of the Company or Washington Trust for any reason or (iii) disparage the Company or Washington Trust to any employee or consultant of the Company or Washington Trust or to any customer, client or business partner of the Company or Washington Trust.

Id. ¶ 6(b).

By its own terms, the agreement terminated on December 31, 2008, with a few provisions (not including the restrictive covenants) surviving termination.

On August 15, 2018, Arnold and Washington Trust entered into a letter agreement with a new compensation structure. The letter agreement stated that "[a]s described in your Employment Agreement with Weston dated November 2, 2005, the provisions of Section 6 of that Agreement [regarding non-competition and non-solicitation] remain in effect." Dkt. 5-3 at 2. The letter agreement then restated the two restrictive covenants.

C. Ronald Halterman

Ronald Halterman started working at Weston in 2008 and began serving as an investment advisor in 2012. Halterman entered into an employment agreement with Washington Trust on August 14, 2018. As with Arnold, Halterman's agreement contained non-competition and non-solicitation covenants. The non-competition covenant stated:

During your employment with Weston and for a period of six (6) weeks following the cessation of your employment in the event of your voluntary resignation, you will not, directly or indirectly, alone or as an owner, partner, officer, director, investor, consultant, employee, agent, joint venture, [lender or] stockholder of any entity, accept employment or engage in any business activity with any business or entity substantially similar to that of the Company or which is directly competitive with the Company within the geographic market area of the Company. For purposes of the foregoing, a business or entity is substantially similar to or directly competitive with the Company if such business or entity engages in wealth management and financial planning products and services. The geographic market area means Rhode Island, Connecticut, Massachusetts, New York, New Jersey, New Hampshire, Vermont, Maine, Minnesota, North California [sic], Pennsylvania, Florida and California.

Dkt. 5-4 ¶ 6(a).

The non-solicitation covenant provided:

During your employment with Weston and for a period of twelve (12) months following the cessation of your employment for any reason, you will not, directly or indirectly: (i) recruit or otherwise solicit, induce or influence any person who is an employee of the Company to terminate their employment with the Company to become an employee of or otherwise be associated with you or any company or business with which you are or may become associated; or (ii) attempt in any manner to solicit or encourage any client, customer, supplier, or other business partner with whom the Company has had business contact or with whom you have personally had business contact any time during your employment with Weston to terminate or otherwise modify adversely its business relationship with the Company.

Id. ¶ 6(b).

Along with the six week term of the noncompete, Halterman's restrictive covenants differed from Arnold's in two other material ways. First, his agreement stated that the restrictive covenants "are intended to remain in effect during and after your employment with Weston whether or not your duties change during your employment with Weston." Id. ¶ 6. Second, the agreement added that "the restrictive periods set forth herein will be tolled for any period during which you are in breach of this paragraph and will end only when the full term of the restrictive periods have run with no violation of your obligations." Id.

D. Brett Lonergan

Brett Lonergan served as an investment advisor for Washington Trust for three years. On February 12, 2019, Lonergan entered into an employment agreement with Washington Trust that included non-competition and non-solicitation covenants that were substantively the same as Halterman's. Like Halterman, Lonergan's noncompete had a six-week term, his covenants were set to remain in effect after termination of his employment regardless of whether his duties changed, and the covenants included a tolling provision.

E. Nicholas Rossi

Nicholas Rossi served as an investment advisor for Washington Trust beginning in 2018. On June 25, 2018, Rossi entered into an employment agreement with Washington Trust. Rossi's restrictive covenants were substantively identical to Halterman's and Lonergan's.

F. The Individual Defendants' Departures From Washington Trust

The Individual Defendants each became disaffected with Washington Trust management following a series of changes to staffing and compensation structure. On Friday, September 23, 2022, they all submitted letters stating that they were resigning effective immediately and would be joining Northward, an affiliate of PAG based in Needham, Massachusetts. Both Northward and PAG provide financial planning and wealth management services.

The Individual Defendants attest that they arrived at the decision to resign independently and did not solicit each other to leave Washington Trust. They each returned property belonging to Washington Trust, including customer lists, pricing information, marketing materials, client identifying information, and customer files. They also erased client contact information from their personal phones and inspected their text messages and social media accounts for client-related information, deleting any they found.

Immediately after they resigned, the Individual Defendants used public databases like whitepages.com to obtain the contact information of former clients. When they reached former clients over the phone, they used a prewritten script with the following language:

a. This is < < Your Name > > calling. I am calling to let you know that as of __________, I resigned from Weston and have some new contact information. Please get a pen and paper so you can take this information down.

b. My new contact information is (provide firm name, address, phone number, email address) - and encourage clients to write it down.

c. When I left the firm, I did not take any of your information with me. Is it okay if I get your phone number, email address and home address?

d. Then PAUSE. - Allow the client to drive the conversation from there and answer questions, if any,

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