A federal judge last week denied a temporary restraining order that sought to stop three former financial advisors from soliciting members of the $17 billion First Technology Federal Credit Union. The ruling came after the advisors moved to rival firms, a shift the credit union claims caused hundreds of millions of dollars in lost assets.
The San Jose, Calif.-based credit union claimed that longtime financial advisors Alfred “Jack” Jackson, Sage Kendall and Kristina Hernandez — who all reside in Idaho — allegedly stole confidential data, including client lists, and used it to solicit members in violation of contracts and trade secret laws.
According to court documents, the client lists contained names and contact details for 683 members with assets totaling more than $520 million. Within a month of the advisors resigning and joining competing investment firms, First Tech claimed it lost more than $205 million and $1.1 million in recurring annual revenue, per the lawsuit filed in U.S. District Court in Boise in October.
Jackson, Kendall and Hernandez joined LPL Financial. Jackson also launched Riverside Financial Planning last June. Kendall became a partner at Family Tree Financial, founded by Chris Eggleston. Osaic Wealth holds the securities registrations for Kendall and Eggleston, according to court filings.
Senior U.S. District Judge B. Lynn Winmill held a virtual hearing Oct. 30, where attorneys argued for and against the temporary restraining order. The motion sought to prevent the former advisors and their new firms from soliciting First Tech clients, demanded the return of client lists and requested a forensic review of electronic devices to remove any remaining credit union data.
Whether the hearing was open to the public remains unclear. On Oct. 31, Winmill denied the TRO “for reasons stated on the record ... and reserved the right to issue a written decision.” As of Friday afternoon, those reasons had not been posted to the court's docket, nor had a written decision been released. In addition, a transcription of the hearing is not available to the public and as such is sealed until release of transcript restrictions, according to a docket filing.
In court documents, Jackson and Kendall asserted they resigned from First Tech and took member lists under the Protocol for Broker Recruiting (PBR), an industry agreement allowing advisors to move between firms without litigation, provided certain conditions are met. Under PBR, advisors may take limited client data — names, addresses, phone numbers and account titles — if both firms are PBR signatories. Advisors must also leave a copy of the list with the former firm and provide written notice, which Jackson and Kendall claimed they did on Sept. 9.
However, First Tech stated it was never a PBR signatory — something the advisors allegedly knew, the lawsuit claimed.
While the former advisors did not confirm whether they knew First Tech was not a signatory, they stated in court filings that after receiving cease-and-desist letters on Sept. 11 and 13, they immediately stopped using the client lists and returned them “in a good faith effort to resolve the matter.”
They also initially agreed to preserve and remediate electronically stored information (ESI) on their personal devices. But negotiations broke down over concerns about exposing attorney-client privileged information, according to the advisors.
“Many of plaintiff’s (First Tech) demands would have been met if and when the parties agreed upon an ESI (electronically stored information) protocol, which plaintiff now refused to discuss. At this point, it became clear to defendants that plaintiff had never intended to engage in any good faith negotiations,” the former advisors stated in their court filing. “Instead, it (First Tech) sought to harass, threaten, and otherwise make defendants’ transition to their new firms as difficult as possible. Plaintiff’s unreasonable demands and invented urgency were aimed at getting in front of this court to seek a TRO and Preliminary Injunction, first requested until ten (10) days after plaintiff elected to cease communications.”
The advisors argued that an injunction was unwarranted because First Tech failed to meet the legal threshold for irreparable harm, which typically involves human suffering or environmental damage.
“If First Tech has suffered any harm, that harm has to a large extent, already been incurred and is recoverable through a monetary award. First Tech acknowledges throughout its motion and complaint that defendants have already contacted and transitioned clients to their new firms,” the former advisors stated in their court briefing. “This case is not about environmental harm or human suffering, it is about the loss of revenue due to the loss of clients and fees. Without conceding that Jackson and Kendall were prohibited from contacting clients in the manner which they did, any alleged harm First Tech suffered is easily remedied by monetary damages, making a TRO and preliminary injunction improper remedies.”
Contact Peter Strozniak at peter.strozniak@arc-network.com.
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