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Identity of Fidelity clients considered ‘confidential information’

Ex-employee allegedly violated non-solicitation, confidentiality agreements

A financial consultant who allegedly compiled a list of his former clients from memory after leaving the company to join a competitor could be considered to have used confidential information, a Massachusetts Superior Court judge has found.

Defendant Devin Callinan, who had left plaintiff Fidelity Investments for a job with defendant UBS Financial Services, argued that information he had retained in his head — as opposed to a hard-copy or electronic list that he took with him — did not constitute confidential information under his non-solicitation and confidentiality agreement with Fidelity.

But Judge Brian A. Davis, sitting in the Business Litigation Session, disagreed.

“The manner in which confidential information is retained by a former employee does not affect whether the information itself is, in fact, confidential,” Judge Brian A. Davis wrote, granting Fidelity’s motion for preliminary injunctive relief. “If the identity of Fidelity’s clients constitutes ‘Confidential Information’ when the information is embodied in written form, such as a customer list, it remains confidential when it resides in the memory of a former employee, such as Mr. Callinan.”

Meanwhile, Davis declined to revisit Smith Barney v. Griffin, a 2008 decision in which then-Superior Court Judge Ralph D. Gants announced a rule that departing financial counselors can inform clients they are leaving, where they are going, and the services they plan to provide. Davis rejected Fidelity’s argument that such a rule was no longer necessary given how easily clients can find a departed counselor through an online search.

vanderzanden-danielle“If the announcement is verbal, there’s more likely to be a dispute over what was actually said [in the conversation between the advisor and the client]. If you do it in writing, we lawyers won’t have to battle about that.”

— Danielle Y. Vanderzanden, Boston and Portland, Maine

Still, Davis found, Callinan’s telephone contact with former clients, which in some instances allegedly included a sales pitch for UBS, exceeded the simple written announcement contemplated by Griffin.

The 12-page decision is Fidelity Brokerage Services LLC v. Callinan, et al.

Unsurprising result

The lawyers for Fidelity, Callinan and UBS could not be reached for comment before deadline.

But John R. Bauer, a Boston attorney who handles non-solicitation and non-disclosure cases, said the decision did not surprise him.

“I would expect most judges to find that the client list used by the employee constitutes protectable confidential information,” Bauer said. “The list is not made public or easily ascertainable.”

At the same time, Bauer said, if the court intended to rely on the non-solicitation provision as a basis for enjoining Callinan from talking to Fidelity’s clients, one would expect the court to address whether Callinan had close associations with the clients he allegedly solicited.

“Courts do not often issue non-solicitation injunctions based solely on a non-disclosure provision,” Bauer said. “If the employee did not have close associations with the clients, I am not sure I’d agree with the outcome.”

Michael L. Rosen of Boston described Davis’ conclusion that Callinan used confidential information by simply remembering who the clients were and then using publicly available information to develop a client list as “problematic.”

“Other Superior Court decisions have gone the other way,” Rosen said. “I wonder whether the conclusion would have been different had Callinan brought these clients to Fidelity from another firm.”

Regarding the solicitation issue, Rosen called the decision a clear signal that written announcements are safer than oral ones.

“[Verbal contact] is not by itself improper, but it carries a greater risk of a dispute and ultimately a conclusion that a solicitation occurred,” he said.

Danielle Y. Vanderzanden of Boston and Portland, Maine, agreed.

“If the announcement is verbal, there’s more likely to be a dispute over what was actually said [in the conversation between the advisor and the client],” she said. “If you do it in writing, we lawyers won’t have to battle about that.”

Additionally, Vanderzanden said, case law permitting the written “wedding-style” announcement is meant to give the investor a choice of advisor.

“By doing the announcement in writing, you prompt further communications between the departed advisor and the individual making investments only if the client initiates it,” she said.

Christina L. Lewis of Boston said the decision is important on three fronts. First, she said, the issue of whether customer identities alone, as opposed to client identities coupled with pricing lists and service history, has been litigated across jurisdictions and the rulings tend to be fact-specific.

Second, she said, the issue over whether non-disclosure obligations extend to information in a person’s memory is also frequently litigated, and the ruling reinforces that an employer should be able to protect against improper use of such information regardless of the form it takes.

Third, the opinion clarifies the line between a general announcement that an employee has switched jobs and overt solicitation of former clients, she said.

“Each case has its own unique facts and there are no bright-line rules as a result,” Lewis said. “This opinion does, however, provide some clarity.”

Client contact

Callinan joined Fidelity in 2007 after graduating from college.

When Callinan started, he executed an employment agreement containing a provision that barred him from using any of Fidelity’s confidential information to solicit Fidelity customers directly or indirectly for a year after his departure.

By 2016, Callinan had become a vice president, serving roughly 500 “high net worth” client from Fidelity’s Framingham location.

Callinan did not develop his own client base, however. His clients were almost exclusively provided through referrals from existing Fidelity customers, leads supplied by Fidelity, and reassignments from other Fidelity representatives.

On June 13, 2018, Callinan abruptly resigned from Fidelity, joining UBS in its Wellesley office the same day.

Immediately upon arrival, Callinan created a written list of Fidelity clients that he says he prepared entirely from memory. He gave the list to UBS managers, who tracked down and added contact information for each client from publicly available sources.

Callinan used the contact information to personally contact many of his former clients by phone to inform them he had joined UBS. During the conversations, if a client showed any interest in why he left Fidelity, he allegedly would provide a pitch for UBS while describing Fidelity’s downsides.

Fidelity ultimately sued Callinan and UBS in Superior Court, alleging violation of his non-solicitation and non-disclosure agreement and seeking preliminarily injunctive relief. Because the parties agreed the merits would be decided in a FINRA arbitration, Davis ruled only on the issue of injunctive relief.

Preliminary injunction

Davis found Fidelity was likely to succeed on the merits of its claim and faced a risk of irreparable harm absent an injunction.

Regarding the non-disclosure issue, he rejected Callinan’s argument that because he compiled a list of former clients from memory, he did not use confidential information.

“Fidelity … contends, and Defendants do not dispute, that Mr. Callinan only became aware of the particular Fidelity clients he served through his work at Fidelity,” Davis said. “Thus, the identity of Mr. Callinan’s former Fidelity clients falls squarely within the definition of ‘Confidential Information’ set out in [his] Employment Agreement.”

That is true whether the names of former clients were stored only in Callinan’s memory or on a piece of paper or a computer flash drive, Davis added.

As to the issue of solicitation, Davis was not persuaded by Fidelity’s argument that financial advisors no longer needed to be able to announce their departure to former clients since, in an “Internet-saturated world,” a customer who learns of an advisor’s departure can find the advisor at their new location in seconds.

“This argument … assumes a level of internet savvy that not all passive investors may possess,” he said, adding that it ignores the concern, expressed in Griffin, that without an announcement, clients may assume the advisor left under a professional or ethical cloud.

Davis also found, however, that Callinan’s calls as alleged went significantly beyond just announcing his move to UBS.

“The calls were not intended simply to ‘provide [former clients] with his new contact information’ … but rather to create an almost certain opportunity for Mr. Callinan to persuade them to transfer their accounts to UBS regardless of whether they had a genuine interest in doing so,” Davis said, concluding that the preliminary injunction should be granted.

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