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SALOMON SMITH BARNEY INC. v. VOCKEL

May 8, 2000

SALOMON SMITH BARNEY INC.,
V.
STEWART M. VOCKEL, III.



The opinion of the court was delivered by: Bartle, District Judge.

MEMORANDUM

Before the court is the motion of plaintiff Salomon Smith Barney Inc. ("Smith Barney") for a preliminary injunction against one of its former financial consultants,*fn1 Stewart M. Vockel, III ("Vockel"), who resigned from Smith Barney on April 28, 2000. We have subject matter jurisdiction under 28 U.S.C. § 1332.

In addition to this action, Smith Barney has instituted an arbitration proceeding against Vockel under the rules promulgated by the National Association of Securities Dealers. In that proceeding Smith Barney seeks, among other things, a monetary award. Until the dispute between the parties can be arbitrated on the merits, Smith Barney asks this court to restrain Vockel from using, disclosing, or misappropriating Smith Barney's customer information, to compel Vockel to undo account transfers for any former Smith Barney accounts he successfully caused to be transferred to his new employer, and to require Vockel to return all documents containing Smith Barney client information. The complaint does not seek a permanent injunction or other relief.

We denied the request for a temporary restraining order on May 1, 2000. On May 3, 2000, we held a preliminary injunction hearing.

In order to obtain the extraordinary remedy of a preliminary injunction, Smith Barney must establish that there is a reasonable likelihood that it will succeed on the merits and that it is reasonably likely to suffer irreparable harm if relief is denied. We must also consider whether injunctive relief will cause the defendant irreparable injury and whether granting the preliminary relief is in the public interest. See Adams v. Freedom Forge Corp., 204 F.3d 475, 484, 487 (3d Cir. 2000).

I.

Based upon the evidence presented at the May 3, 2000 hearing, held in accordance with Rule 65 of the Federal Rules of Civil Procedure, we find the following.

Stewart Vockel has worked as a bond trader or financial consultant for a number of years. Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") hired him as a financial consultant in 1991. He left Merrill Lynch and started with the Philadelphia branch of Smith Barney in November, 1994.*fn2

In late January, 2000, Vockel approached his long-time acquaintance Elliott Goodfriend, who is the Philadelphia Branch Manager for Paine Webber Inc. ("Paine Webber"), about the possibility of moving from Smith Barney to Paine Webber. On approximately March 28, 2000 Paine Webber made Vockel an offer of employment, which included a sizeable signing bonus. Vockel accepted.

In early April, approximately one week after Vockel received the offer, the administrative manager in Paine Webber's Philadelphia office, Jim Checksfield, told Vockel that Paine Webber needed his Smith Barney client account statements. On or about April 19, 2000, while still employed by Smith Barney and without asking for permission from it or any of his clients, Vockel provided to Paine Webber the account statements for 254 of the 470 accounts he was servicing at Smith Barney. Paine Webber forwarded this material to an outside firm which, at Paine Webber's expense, prepared solicitation packages and then mailed them to the account holders. The solicitation package contained a cover letter drafted and signed by Vockel, an account transfer form with each client's Smith Barney account number(s) preprinted on it, and a Paine Webber "new account" form.

The solicitation packages were mailed, via overnight delivery, on Friday, April 28, 2000.*fn3 That same day, in the late afternoon, Vockel submitted his letter of resignation to Smith Barney. He took with him newly printed gain and loss statements for all of the Smith Barney accounts he had serviced and a "household list," which showed the total assets, monthly activity, and gains and losses for each of his Smith Barney accounts. Vockel spent the weekend calling his clients. He told them about his move to Paine Webber and explained that they soon would be receiving solicitation packages that would enable them to transfer their accounts to his new employer.

This was not the first time Vockel had solicited his clients to transfer their accounts to his new place of employment. As noted above, from 1991 through October, 1994, Vockel worked at Merrill Lynch before moving to Smith Barney. At the time he left Merrill Lynch, he had been managing accounts worth approximately $23 million. Sometime between August and October, 1994, after initial discussions with John Adamiak, the Branch Manager of Smith Barney's Philadelphia office, Vockel received a job offer. The Smith Barney offer, like his recent Paine Webber offer, included a substantial signing bonus. Adamiak told Vockel that Smith Barney wanted his Merrill Lynch client account statements, which Vockel provided to Smith Barney while still a financial consultant at Merrill Lynch. Adamiak told Vockel to resign from Merrill Lynch late in the day on a Friday afternoon. He did so on October 28, 1994. That same day a solicitation package, arranged and paid for by Smith Barney, was mailed to each of the clients Vockel had advised while at Merrill Lynch. The package contained an account transfer form and a letter signed by Vockel, which had been jointly drafted by Vockel and Adamiak, that informed Vockel's Merrill Lynch clients of his move to Smith Barney. The letter also urged them to transfer their accounts. Vockel used the October, 1994 solicitation letter as a model when he drafted his April, 2000 cover letter. In fact, the two letters are nearly identical.*fn4

When Vockel resigned from Merrill Lynch in 1994, the firm either instituted or threatened suit. Smith Barney participated in the settlement of the matter.

As a result of the joint solicitation efforts of Vockel and Smith Barney in 1994, nearly all of Vockel's Merrill Lynch clients transferred their accounts. Approximately 60% of the accounts he oversaw at Smith Barney followed him from Merrill Lynch, and another 30% of his accounts resulted from referrals from those clients who had followed him from Merrill Lynch to Smith Barney. When he left Smith Barney on April 28, 2000, he was managing approximately 470 ...


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