Opinion
No. HHD-CV-07-5013653S
April 1, 2008
MEMORANDUM OF DECISION
This action arose after the defendant Brett Cavalieri (Cavalieri) terminated his employment with the plaintiff United States Trust Company, N.A. (US Trust, N.A.) and obtained employment with the defendant Morgan Stanley and Co., Inc. (Morgan Stanley). In the complaint, dated October 4, 2007, the plaintiff makes claims for injunctive relief, claims of breach of contract, breach of duty of loyalty, misappropriation and misuse of trade secrets, conversion, tortuous interference with contractual relations, tortuous interference with business relations, violations of CUTPA, civil conspiracy, equitable accounting and constructive trust. On October 4, 2007, the Court granted US Trust, NA's application for temporary injunction and issued an Order to Show Cause why the injunction should not be extended. The show cause hearing was scheduled for December 12, 2007. On December 4, 2007, the defendant Morgan Stanley filed a motion for stay pending arbitration, and the defendants filed a motion for protective order. On December 12, 2007, the parties agreed the temporary injunction would remain in force until a hearing on the motion to stay pending arbitration scheduled for January 30, 2008. The motion for protective order was heard on December 17, 2007, after which the court stayed discovery until the arbitration issue was decided. On or about December 31, 2007, the defendants filed a motion to vacate or modify ex parte injunction and to compel arbitration. The plaintiff objects to the defendants' motions. The matter was heard on January 30, 2008.
II FINDINGS OF FACT
In or about December 2003, Cavalieri began his employment with U.S. Trust as a Business Development Officer. On December 12, 2003, he executed an employment agreement, titled "Confidentiality, Nonsolicitation and Assignment Agreement." The agreement contained restrictive clauses addressing nonsolicitation, noncompete and nondisclosure. Cavalieri agreed that during his employment with U.S. Trust, and for a period of eighteen (18) months following the termination of employment, he would not divert any U.S. Trust client and/or employee to terminate their relationship with U.S. Trust. Under the agreement, Cavalieri also agreed not to accept business from the clients he serviced at U.S. Trust for a period of six (6) months after the termination of employment with U.S. Trust. He agreed not to use or disclose U.S. Trust's confidential information outside of his employment with U.S. Trust, and to return all U.S. Trust confidential information upon termination of employment with U.S. Trust.Cavalieri also agreed to abide by a Code of Business Conduct and Ethics of US Trust. The employment agreement did not include a written arbitration clause.
Cavalieri received his compensation from U.S. Trust, N.A. or UST of New York NY, which were subsidiaries of US Trust Corporation.
On September 17, 2007, Cavalieri resigned from U.S. Trust, effective immediately. At the time of his resignation, Cavalieri was the principal contact for twenty-two (22) U.S. Trust clients and was responsible for approximately $85 million in client assets under U.S. Trust management. Between September 18 and 27, 2007, accounts valued at more than $50,000,000 were transferred from U.S. Trust to Morgan Stanley.
The defendants have moved to stay the proceedings pending mandatory arbitration before the Financial Industry Regulatory Authority (FINRA.) Cavalieri was registered as a stock broker with UST Securities, Corp., a subsidiary of US Trust Corporation. Cavalieri, UST Securities, and Morgan Stanley are FINRA members, but the plaintiff, U.S. Trust Company, N.A. is not a member.
III DISCUSSION ( 1) Temporary Injunction
"The principal purpose of a temporary injunction is to preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits." (Citation omitted; internal quotation marks omitted.) Clinton v. Middlesex Mutual Assurance Co., 37 Conn.App. 269, 270, 655 A.2d 814 (1995).
The standard for granting a temporary injunction is well settled. "In general, a court may, in its discretion, exercise its equitable power to order a temporary injunction pending final determination of the order, upon a proper showing by the movant that if the injunction is not granted she will suffer irreparable harm for which there is no adequate remedy at law . . . In exercising its discretion, the court, in a proper case, may consider and balance the injury complained of with that which will result from interference by injunction." (Citation omitted; internal quotation marks omitted.) Moore v. Ganim, 233 Conn. 557, 569 n. 25, 660 A.2d 742 (1995).
"A party seeking injunctive relief must demonstrate that: (1) it has no adequate remedy at law; (2) it will suffer irreparable harm absent an injunction; (3) it will likely prevail on the merits; and (4) the balance of equities tips in its favor. Waterbury Teachers Ass'n. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994)." Midstate Medical Center v. Doe, 49 Conn.Sup. 581, 587, 898 A.2d 282 (2006) [ 41 Conn. L. Rptr. 77].
The plaintiff seeks a temporary injunction to enforce the restrictive clauses of the employment agreement. "Our Supreme Court has set out a five-part test for determining the reasonability of a restrictive covenant: (1) the length of time the restriction is to be in effect; (2) the geographical area covered by the restriction; (3) the degree of protection afforded to the interest of the party in whose favor the covenant is made; (4) the restrictions imposed on the employee's ability to pursue his occupation; and (5) the potential for undue interference with the interests of the public." Hart, Nininger Campbell Assoc. v. Rogers, 16 Conn.App. 619, 636, 548 A.2d 758 (1988).
In this case, the restrictive clauses of the employment agreement are reasonable and reasonably necessary to protect the plaintiff's interests. The length of time the restriction is to be in place is reasonable. There is a reasonable relationship between the type of business interests to be protected and the scope of the geographical restrictions. Cavalieri is able to pursue his occupation with Morgan Stanley. There is no potential for undue interference with the public interest.
In Aetna Retirement Services, Inc. v. Hug, Superior Court, judicial district of Hartford-New Britain at New Britain, Docket No. CV-97-0479974 (June 18, 1997, Holzberg, J.), the plaintiff applied for a temporary injunction prohibiting its former head of sales from working for a competitor in violation of a restrictive covenant. The court held that the restrictive covenant was enforceable and granted the temporary injunction.
The court must first consider whether a temporary injunction should remain in place. Given the circumstances, U.S. Trust, N.A. has proved the grounds for a temporary injunction. The plaintiff has shown that it has no adequate remedy at law, and it would suffer substantial harm absent an injunction. It has sufficiently demonstrated its likelihood of success on the merits. Finally, plaintiff has demonstrated that the balance of equities tips in its favor.
Next, the court must consider whether the October 4, 2007 temporary injunction should be modified. Having considered the law and equities, the court grants the motion to modify in part and orders the attached temporary injunction.
( 2) Stay Pending Arbitration
The court has the authority to stay proceedings pending arbitration under certain circumstances. General Statutes § 52-409 provides: "If any action for legal or equitable relief or other proceeding is brought by any party to a written agreement to arbitrate, the court in which the action or proceeding is pending, upon being satisfied that any issue involved in the action or proceeding is referable to arbitration under the agreement, shall, on motion of any party to the arbitration agreement, stay the action or proceeding until an arbitration has been had in compliance with the agreement, provided the person making application for the stay shall be ready and willing to proceed with the arbitration."
The court in United States Trust Co., N.A. v. MacLachlan, No. 602908/07 (N.Y.Sup.Ct. January 3, 2008), denied a cross motion to compel arbitration under circumstances very similar to the instant case. There, a U.S. Trust, N.A. employee resigned from U.S. Trust, N.A. and began working for Morgan Stanley in alleged violation of her non-compete agreement. After the plaintiff brought suit, the defendant moved to compel arbitration on the grounds that she was a registered broker with UST Securities, and therefore U.S. Trust, N.A. was required to submit the dispute to FINRA arbitration. In denying the motion, the court held: "Even though it appears that at least one of the affiliates of U.S. Trust is a FINRA member firm and Maclachlan was a FINRA registered representative with that firm, defendant's motion must be denied at this juncture because the evidence before the court is insufficient to establish that Maclachlan was employed by that firm. The plaintiff in this action cannot be compelled to arbitrate before FINRA because the employment agreement does not contain an arbitration clause and plaintiff is not a FINRA member firm. Thus, it is not clear that FINRA would be an appropriate arbitration forum." Opinion at pp. 6-7.
Like MacLachlan, the evidence is insufficient to establish that Cavalieri was an employee of UST Securities a FINRA member firm. The plaintiff, U.S. Trust, N.A. is not a FINRA member firm. Cavalieri's employment agreement did not contain a written agreement to arbitrate. Accordingly, the motion for stay pending arbitration is denied.
( 3) Motion for Protective Order
The court, having denied the motion for stay pending arbitration, vacates the December 17, 2007 order granting the motion for protective order. The motion for protective order is hereby denied, and the parties may proceed with discovery.
IV CONCLUSION AND ORDER
For the above-stated reasons, the court enters the following orders regarding the matters pending before the court:
(1) Motion to vacate or modify ex parte injunction and to compel arbitration (114) — Denied as to arbitration, Granted in part as to the modification of the injunction;
(2) Motion for stay pending arbitration (107) — Denied;
(3) Motion for protective order (108) — Denied.