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Morgan Stanley Smith Barney LLC v. Sayler

United States District Court, D. Oregon, Medford Division

July 31, 2019


          OPINION & ORDER


         This matter comes before the Court to determine if the Temporary Restraining Order ("TRO") granted to Plaintiff Morgan Stanley Smith Barney LLC ("Morgan Stanley") should continue as a preliminary injunction. Oral argument was held on July 19, 2019. ECF No. 19. For the reasons set forth below, the motion for continuing injunctive relief is DENIED and the previously-issued injunction is hereby dissolved.


         A preliminary injunction is an "extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief." Winter v. Natural Res. Def. Council, 555 U.S. 7, 22 (2008). A plaintiff seeking a preliminary injunction generally must show that: (1) the plaintiff is likely to succeed on the merits; (2) the plaintiff is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in favor of the plaintiff; and (4) an injunction is in the public interest. Id. at 20.

         The Supreme Court's decision in Winter, however, did not disturb the Ninth Circuit's alternative "serious questions" test. Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1131-32 (9th Cir. 2011). Under this test, "'serious questions going to the merits' and a hardship balance that tips sharply toward the plaintiff can support issuance of an injunction, assuming the other two elements of the Wiiiter test are also met." Id. at 1132, Thus, a preliminary injunction may be granted "if there is a likelihood of irreparable injury to plaintiff; there are serious questions going to the merits; the balance of hardships tips sharply in favor of the plaintiff; and the injunction is in the public interest." M.R. v. Dreyfus, 697 F.3d 706, 725 (9th Cir. 2012).


         Morgan Stanley is a Delaware LLC with its principal place of business in New York. Morgan Stanley is a broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Morgan Stanley conducts its business through offices nationwide, including an office in Medford, Oregon, In 2006, Defendant David James Sayler ("Sayler") began working for Morgan Stanley, or its predecessor, as a financial advisor in Medford, Oregon. Sayler resigned from his position with Morgan Stanley on June 13, 2019 to take a position with one of Morgan Stanley's competitors.

         In 2016, Sayler joined the Cedar Ridge Group (the "Group"), a joint production group based out of Morgan Stanley's Medford branch office. As part of the Group, Sayler was compensated based on the revenue generated by the entire team, rather than the revenue generated by the accounts he directly serviced. "As a result, [Sayler] was paid almost 15% more than he would have if he had not become part of the team." Compl. ¶ 6.

         In 2017, another member of the Group, James Maddux, retired. On his retirement, Maddux entered the Former Advisor Program ("FAP"), under which Maddux agreed to encourage his clients to remain with Morgan Stanley after his departure. Maddux's accounts would be serviced by active Morgan Stanley financial advisors and, in exchange, Maddux would receive a portion of the revenue generated by his former accounts.

         On August 2, 2017, Sayler signed a memorandum of understanding (the "2017 Agreement"), by which he agreed to serve as an active advisor for some of the Maddux accounts through the FAP. Compl. Ex. B. These included accounts previously serviced under Joint Production Number 173-035 (the "173-035 Accounts"). As an active advisor on the Maddux accounts, Sayler agreed that the client information associated with those accounts was "highly confidential, proprietary and the property of Morgan Stanley," and that "the misuse or misappropriation of such information would be of immeasurable loss and detriment to Morgan Stanley." Compl. Ex. B, at 3. Sayler agreed that, if his employment with Morgan Stanley was siispended or terminated, he would immediately stop using the Maddux account information and that he would immediately deliver that information to Morgan Stanley, without retaining any of it. Sayler also agreed that, in the event of termination, for any reason, [F]or a period of one year or the remainder of the Payment Period, whichever is longer, you will not solicit or attempt to solicit, directly or indirectly, any of the Clients who were served by you or any other Active Advisor in connection with this FAP Agreement, or whose names became known to you in connection with this FAP Agreement, while in the employ of Morgan Stanley or as a result of your employment with Morgan Stanley, with respect to securities, commodities, financial futures, insurance, tax advantages investments, mutual funds, or any other line of business in which Morgan Stanley or any of its affiliates is engaged, Compl. Ex. B, at 3.

         As part of the 2017 Agreement, Sayler agreed that Morgan Stanley was entitled to seek injunctive relief in the event of a breach. Compl. Ex, B, at 3-4. Sayler further agreed that any dispute over the 2017 Agreement would be resolved by FINRA arbitration.

         In April 2019, Sayler became dissatisfied with his participation in the Group. Sayler Decl. Sayler decided to leave the Group, but remain with Morgan Stanley as a financial advisor. On April 22, 2019, Sayler and two other advisors signed the Morgan Stanley Wealth Management Former Advisor Program Joint Active Advisor Agreement (the "2019 Agreement"). Compl. Ex. C.

         As with the 2017 Agreement, the 2019 Agreement was concerned with protecting the Maddux's retirement income. It memorialized that Sayler would serve as the lead active advisor on the 173-035 Accounts and would receive 74.67% of the revemie generated by those accounts, which would increase annually until 2022, when Sayler would receive 75% of the revenue generated by the 173-035 Accounts. Compl. Ex. C, at 1-2. The 2019 Agreement included terms covering confidentiality and non-solicitation of clients identical to those set forth in the 2017 Agreement.

         The 2019 Agreement also incorporated the Joint Production Agreement Policy (the "Joint Production Policy") with respect to the 173-035 Accounts and the Joint Production Policy was attached to the 2019 Agreement. Compl. Ex. C, at 9. The Joint Production Policy included additional terms concerning confidentiality and ...

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