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Ayco Company, L.P. v. Feldman

October 22, 2010

THE AYCO COMPANY, L.P., PLAINTIFF,
v.
BRIAN D. FELDMAN, DEFENDANT.



DECISION and ORDER

I. INTRODUCTION

On October 12, 2010, the Ayco Company, L.P. ("Plaintiff" or "Ayco") initiated the instant action by filing a Complaint against Brian D. Feldman ("Defendant" or "Feldman"). Dkt. No. 1. Plaintiff alleges that Defendant breached the terms of his employment contract, misappropriated confidential information and trade secrets, breached fiduciary duties owed to Plaintiff, and engaged in unfair competition. Id. Plaintiff seeks damages and injunctive relief, pursuant to Federal Rule of Civil Procedure 65. Id.; Pl.'s Mot. for a temporary restraining order and preliminary injunction (Dkt. No. 4) ("PI Motion").*fn1

On October 14, 2010, this Court granted Plaintiff's request for a temporary restraining order ("TRO") enforcing a ninety-day non-compete agreement entered into by the parties; enjoining Defendant from using or divulging Plaintiff's confidential information and trade secrets; and requiring the immediate return of any such material in Defendant's possession. Dkt. No. 8. The Court has received additional submissions and held a Show Cause hearing on October 21, 2010 to determine whether a preliminary injunction enjoining the same conduct covered by the TRO through December 23, 2010 is warranted. Id. Upon consideration of the submissions, oral arguments, and applicable law, the Court grants Plaintiff's request for preliminary injunctive relief.

II. BACKGROUND

Ayco is a financial services company that provides comprehensive financial counseling and education services for corporate executives and employees and wealthy individuals. Cavoli Decl. (Dkt. No. 16-1) ¶ 8; Roe Aff. (Dkt. No. 4-3) ¶ 5. Ayco provides a broad range of services including tax and estate planning, wealth transfer, insurance planning, investment management, benefits and compensation strategies, and retirement planning. Roe Aff. ¶ 6. It has been operating for approximately 40 years, during which time it has achieved an extensive client base largely by developing relationships with corporations and entering into contracts to provide financial services to the senior executives of those corporations, as part of their compensation package. Id. ¶ 5. Ayco continues to service a number of these executives after they retire. Id. Ayco's client list is not publicly available. Id. ¶ 26; Cavoli Decl. (Dkt. No. 24-1) ¶¶ 7-9..

Ayco is registered with the Securities and Exchange Commission, but it is not a broker dealer and is not registered with the Financial Industry Regulatory Authority ("FINRA"). Cavoli Decl.¶¶ 9, 16; 10/21/2010 OSC Tr. ("OSC Tr.") 16:1-2. Its affiliates include other investment advisors, insurance agencies, real estate brokerages, securities broker-dealers, commodities and future advisors, and banks. Id. One affiliate, Mercer, is a broker-dealer primarily involved with the sale of variable life insurance and variable annuities; Mercer's "authority to do business is based on its own independent license with FINRA." Id. ¶ ¶ 14,17. Both Ayco and Mercer are wholly owned subsidiaries of The Goldman Sachs Group, Inc. Ayco is the sole limited partner of Mercer; Mercer's general partner, GS Ayco Holding LLC is the sole limited partner of Ayco. Id. ¶ 13.

On September 1, 2005, Ayco hired Defendant to work as a financial analyst in its Dallas, Texas office. Roe Aff. (Dkt. No. 4-3) ¶¶ 5-9. As a condition of employment, Ayco required Feldman to become licensed as a registered representative of FINRA. Feldman Aff. (Dkt. No. 11-2) ¶ 9. Feldman, a then-recent law school graduate, had no prior experience as a financial analyst and brought no new clients to Ayco upon joining the company.*fn2 Ayco provided Feldman with training, and over the years, he serviced many clients for Ayco. Many of these were Ayco clients prior to Feldman's joining the company. Others, Feldman solicited and cultivated for Ayco during his employ. All but one, however, came directly from Ayco or from a corporation that Ayco assigned him to service. At the time of his departure, Feldman was acting as an Account Manager and serviced seventy-seven Ayco clients. Roe Aff. ¶¶ 10-12; OSC Tr. at 22:19-21. According to Feldman, many of the existing clients were ready to leave Ayco before he took over their accounts; many of the new clients were attracted to Ayco only because of his efforts, and he received little help from Ayco in recruiting them. Feldman Decl. ¶ 31-32, 36.

Upon being hired, Feldman signed an Employee Agreement Regarding Confidential and Proprietary Information and Materials. That agreement was revised in 2010 to include a new non-compete provision; a reduced non-solicitation period following termination (from two years to six months);*fn3 an altered compensation scheme for account managers; and a grant to account managers of access to certain confidential information. Cavoli Decl. (Dkt. No 24) ¶ 10. On July 1, 2010, Feldman signed the revised agreement ("Agreement"). Dkt. No. 1, Ex. A. Under the Agreement, Ayco stipulated that it would provide Feldman with resources for acquiring, soliciting, and servicing clients, and "establishing and developing goodwill with Ayco's Clients and Prospective Clients on behalf of Ayco." Id. § II.A.1. The Agreement's "Goodwill" clause continues,

In consideration for Ayco's promise, specified in § II.A.1. above, the Employee agrees to use the resources provided by Ayco solely to acquire Clients, solicit Prospective Clients, build relationships and goodwill with Ayco's Clients and Prospective Clients solely on behalf of Ayco.... Employee further agrees not to misappropriate or otherwise use Ayco's goodwill with its Clients for the benefit of any entity or individual other than Ayco....

Id. § II.A.2.

The Agreement required Feldman to acknowledge that, in connection with his employment, Ayco will provide him with certain valuable and confidential information and trade secrets, created and developed at Ayco's expense and not generally known within the financial services industry, which information includes, but is not limited to, information regarding the identity, assets, financial needs and preferences of Clients and Prospective Clients, information regarding the financial affairs, personnel matters, products, and operating procedures, of Ayco, its employees, its Clients and certain third parties... and numerous forms, documents, written materials and computer programs created and developed by Ayco for the purpose of rendering Services to its Clients and Prospective Clients, and the proprietary methods, formulas, plans and other work product which they represent.

Id. § II.B.1. By signing, Feldman agreed to "maintain the confidentiality of all Ayco Proprietary Information that he has received;" use such proprietary information solely for purposes authorized by Ayco; and, upon his termination, immediately return all of Ayco's property to the company. Id.

Under the Agreement's Termination clause, Feldman agreed that he would give Ayco ninety days notice of termination, during which time he would remain an Ayco employee and continue to receive his base salary or salary draw, but would no longer participate in its compensation plan. Id. § II.D. The clause contains a non-compete provision which reads,

In the event the Employee terminates employment before the expiration of the Notice of Termination Period or terminates employment without giving notice, employee covenants that for the balance of the Notice of Termination Period or, if no notice is given, ninety (90) days... the Employee will not associate (including but not limited to association as an individual, sole proprietor, officer, employee, partner, director, consultant, agent or advisor) with any Competitive Enterprise in the United States where, in connection with such association, Employee is engaged in providing [financial counseling, brokerage, estate, tax and insurance planning and/or asset management services], and the period of the restrictions provided for in paragraph 11.A.3 above shall be increased, if no notice is given, by ninety (90) days... or the unfulfilled balance of the Notice of Termination Period if notice has been given.

Id. § II.D.

Finally, the Agreement provides that,

Employee further acknowledges that the restrictions contained herein are reasonable and necessary to protect the legitimate interests of Ayco and do not impose any greater restraint than is reasonably necessary to protect the confidential information, goodwill, training, and other business interests of Ayco and that the enforcement by Ayco of the provisions contained herein, will cause no undue hardship on the Employee. Employee further acknowledges that in the event of a breach of the provisions of this Agreement, Ayco will not have an adequate remedy at law. Employee therefore agrees that Ayco shall be entitled to temporary, preliminary, and permanent injunctive relief for any violation of Sections II A, B, C and D.

Id. § II.E.2.

On July 9, 2010, Feldman signed an additional Trade Secrets, Confidentiality and Company Property Agreement ("TSA"). Dkt. No. 1, Ex. B. The TSA reiterates the importance of Ayco's relationship with its clients, and it expressly states that by virtue of an employee's employment with Ayco, that employee will be entrusted with confidential and proprietary business and financial information belonging to Ayco and its clients. Id. The TSA defines and gives examples of "Trade Secrets" and "Confidential Information" which include, client lists (whether prepared by you or others at Ayco, and including client information contained within performance reviews or compensation documents), information regarding the identity, assets, financial needs and preferences of clients and prospective clients, information regarding the financial affairs, personnel matters, products, and operating procedures of Ayco, its employees, its clients, its parent entities, and other related third parties... and numerous forms, documents, written materials and computer programs created and developed by Ayco for the purpose of rendering services to its clients and prospective clients, and the proprietary methods, formulas, plans and other work product.

Id. The TSA requires a signatory to "agree to use Ayco Proprietary Information solely for the purposes authorized by Ayco... [and] further agree not to take, retain, disclose, misappropriate, or otherwise use Ayco Proprietary Information for your personal benefit or for the benefit of any entity or individual other than Ayco...."

Feldman resigned abruptly on September 24, 2010 to begin working for UBS Financial Services ("UBS"), in UBS's Dallas, Texas office. Dkt. No. 18-1. Soon thereafter, Feldman received a letter, dated September 29, 2010, signed by an Ayco Senior Human Resources Administrator, acknowledging Feldman's termination pursuant to his letter of immediate resignation and enclosing Feldman's "final paycheck" for hours earned through September 24, 2010 and unused benefit time. See Dkt. Nos. 18-1, 18-2.

Feldman's alleged breach of the Agreement and TSA forms the basis of this action. Plaintiff alleges that Defendant has breached the non-compete, goodwill, and confidentiality provisions, and by virtue of his employment at UBS, will inevitably divulge Ayco's confidential and proprietary information. PI Mot. at 9-19. Plaintiff further asserts that Feldman "appears to have surreptitiously misappropriated substantial amounts of Ayco client information just before he left. Feldman accessed and printed information from Ayco's computer system relating to a number of clients in the days and weeks prior to his resignation and surveillance photos show Feldman leaving Ayco's office on the day before ...


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