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The Ayco Company, L.P v. Wolfgang K. Frisch

June 10, 2011




On May 24, 2011, Plaintiff The Ayco Company, L.P. ("Ayco" or "Plaintiff") filed this instant action seeking a temporary restraining order ("TRO") and preliminary injunction against Defendants Wolfgang Frisch and Stefan Oglevee ("the Defendants" or "Frisch" and "Oglevee"). Dkt. No. 1. Frisch and Oglevee are former employees of Ayco and resigned in May 2011 to work for UBS, an Ayco competitor. Specifically, Ayco alleges that Frisch and Oglevee breached the non-compete clauses of contracts that they entered into with Ayco, misappropriated confidential information and trade secrets, engaged in unfair competition, and breached fiduciary duties that they owed to Ayco. Id. In addition to damages, Ayco seeks injunctive relief pursuant to Rule 65 of the Federal Rules of Civil Procedure to prevent Frisch and Oglevee from engaging in this allegedly violative conduct. Id.; Pl.'s Mot. for a temporary restraining order and preliminary injunction (Dkt. No. 9) ("PI motion").

On May 25, 2011, the Court granted Plaintiff's request for a TRO enforcing a ninety-day non-compete agreement entered into by the parties. In doing so, the Court enjoined Defendants from using or divulging Plaintiff's confidential information and trade secrets; and requiring the immediate return of any such material in Defendants' possession. Dkt. No. 7. The Court has received additional submissions and held a Show Cause hearing on June 7, 2011, to determine whether a preliminary injunction enjoining the same conduct covered by the TRO through August 10, 2011, for Defendant Oglevee, and August 17, 2011, for Defendant Frisch, is warranted. Id.; see also Def.'s Opp. to PI Motion (Dkt. No. 19) ("Opposition"); Pl.'s Reply to Opposition (Dkt. No. 22) ("Reply"). Upon consideration of the submissions, oral arguments, and applicable law, the Court grants Plaintiff's request for preliminary injunctive relief.


Ayco is a financial services company that provides comprehensive financial counseling and education services for corporate executives and employees and wealthy individuals. Dunphy Aff. (Dkt. No. 9-1) ¶ 3; Clancy Aff. (Dkt. No. 9-2) ¶ 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. Clancy Aff. ¶ 6. Ayco was incorporated in the state of New York forty years ago, during which time it has achieved an extensive client base. Cavoli Decl. (Dkt. No. 22-1) ¶ 3. It has accomplished this 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.; Clancy Aff. ¶¶ 5-6. Ayco continues to service a number of these executives after they retire. Clancy Aff. ¶5.

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. Ex. H (Dkt. No. 22-9) ¶¶ 10-11, 17. Its affiliates include other investment advisors, insurance agencies, real estate brokerages, securities broker-dealers, commodities and future advisors, and banks. Id. ¶ 10. One affiliate, Mercer, is a broker-dealer and member of FINRA, but its "authority to do business is based on its own independent license with FINRA." Id. ¶ ¶ 14-15. Both Ayco and Mercer are wholly owned subsidiaries of The Goldman Sachs Group, Inc. Id. ¶ 14. Ayco is the sole limited partner of Mercer; Mercer's general partner, GS Ayco Holding LLC, is the sole limited partner of Ayco. Id. n.2.

Ayco hired Oglevee to work in its Albany office in September 1998, and Frisch to work in its California office in November 2000. Oglevee Aff. (Dkt. No. 15) ¶ 6; Frisch Aff. (Dkt. No. 16) ¶ 6. In May 1999, Oglevee was transferred to Ayco's California office and continued to work in that office for the remaining twelve years of his employment with Ayco. Oglevee Aff. ¶ 6. As a condition of employment, both Defendants were required to become licensed as registered representatives of FINRA. Oglevee Aff. ¶ 8; Frisch Aff. ¶ 9. On May 12, 2011, Oglevee resigned from Ayco to begin working for UBS Financial Services ("UBS"), in UBS's Newport Beach, California office. Oglevee Aff. ¶ 2. Frisch did the same a week later on May 19, 2011. Frisch Aff.¶ 2.

Both Defendants were initially hired to work as staff attorneys and became account managers in the course of their employment; neither brought financial counseling clients with him to Ayco when he was hired.*fn1 Clancy Aff. ¶ 9-11. Ayco trained the Defendants as account managers, and, over the years, they serviced many clients for Ayco. Id. ¶¶ 12-13. Many of these were Ayco clients prior to Defendants' joining the company. Id. ¶ 17. Only one of these clients had a pre-existing relationship with the Defendants, and only one of the corporate relationships that generated Defendants' client relationships was developed by the Defendants. Id. At the time of his departure from Ayco, Oglevee was responsible for approximately seventy-one clients in six different states, worth a total of $75.9 million in aggregate assets. Id. ¶ 15. When Frisch left Ayco, he was responsible for approximately seventy client relationships in four different states worth $135 million in aggregate assets. Id. ¶ 16. Both Defendants claim that they received little help from Ayco in recruiting clients and that they developed many relationships with Ayco's existing clients "because the relationship with Ayco had been damaged and [their] client skills were used to save the relationship." Oglevee Aff. ¶¶ 51-58; Frisch Aff. ¶¶ 43-49.

Upon being hired, both Defendants signed Employee Agreements Regarding Confidential and Proprietary Information and Materials. Compl. Ex.'s A, B (Dkt. Nos. 1-1 and 1-2). 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);*fn2 an altered compensation scheme for account managers; and a grant to account managers of access to certain confidential information. Cavoli Decl. ¶ 19. On June 29, 2010, Oglevee signed this Agreement; Frisch signed the Agreement on July 1, 2010. Compl. Exs. A and B (Dkt. Nos. 1-1 and 1-2) ("Agreement"). Under the Agreement, Ayco stipulated that it would provide Defendants with resources for acquiring, soliciting, and servicing clients, and "establishing and developing goodwill with Ayco's Clients and Prospective Clients on behalf of Ayco." Agreement § 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 Defendants to acknowledge that, in connection with their employment, Ayco would provide them 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, Defendants agreed to "maintain the confidentiality of all Ayco Proprietary Information that [they have] received," use such proprietary information solely for purposes authorized by Ayco, and, upon their termination, immediately return all of Ayco's property to the company. Id.

Under the Agreement's Termination clause, Defendants agreed that they would give Ayco ninety days notice of termination, during which time they would remain Ayco employees and continue to receive their base salary or salary draw, but would no longer participate in Ayco's 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 ofTermination 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 28, 2010, Frisch signed an additional Trade Secrets, Confidentiality and Company Property Agreement ("TSA"), which Oglevee also signed on August 6, 2010. Compl. Exs. C and D (Dkt Nos. 1-3 and 1-4). 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. TSA at 1. 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. § I.B. Finally, 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 . . . ." Id. § I.C.

Defendants' alleged breaches of the Agreement and TSA form the basis of this action. Plaintiff alleges that Defendants breached the non-compete, goodwill, and confidentiality provisions, and by virtue of their employment at UBS, will inevitably divulge Ayco's confidential and proprietary information. PI Mot. at 11-12, 21. Plaintiff further asserts that Frisch and Oglevee "appear to have surreptitiously misappropriated substantial amounts of Ayco client information just before they left. Defendants accessed and printed information from Ayco's computer system relating to a number of clients in the days and weeks prior to his resignation." Clancy Aff. ¶ 3. Plaintiff's employees have stated that the company's printing logs indicate that Frisch as well as Oglevee printed out unusually large amounts of documents in the weeks prior to their respective departures. Veronica Lay Aff. (Dkt. No. 22-10) ¶¶ 7-13; Jim Lang Aff. (Dkt. No. 22-11) ¶ 5. A number of these documents were printed from Ayco's Client Database and Private Wealth Management ("PWM") Database, both of which contain information about, inter alia, their clients' assets, contact information, the pricing of Ayco's services to these clients, and "client relationship reports" with detailed information about clients' investments. Lay Aff. (Dkt. No. 22-10) ¶¶ 7-13;Clancy Aff. ¶¶ 38-44, 47-51. Both databases are also password-protected, and Ayco's Client Database requires employees before they access it to click "OK," and thereby agree, that "information contained in this database constitutes the confidential, trade secret and proprietary business information of Ayco." Lay Aff. ¶ 11. Additionally, on May 9, 2011, three days before his resignation, records show - and Oglevee admits - that he printed his entire Outlook contact list, which contained non-public client contact information. Oglevee Aff. ¶ 62. Plaintiff further notes that at least one of Frisch's clients and five of Oglevee's have advised Ayco that they are moving to UBS, and that others have indicated to Ayco that they are considering doing the same. Id. ¶¶ 57-61.

Defendants deny printing and taking documents from Ayco to ease their transition to UBS, stating that their accessing clients' information in the days and weeks prior to their resignations was done in the normal course of business working for Ayco. Oglevee Aff. ¶¶ 60-73; Frisch Aff. ¶¶ 51-61, 64-71. Oglevee does admit to having had "Compensation Reports," which contain, inter alia, client contact lists, the names of Plaintiff's corporate and individual clients, confidential information regarding clients' accounts with Goldman Sachs and Fidelity Securities and the amount of assets in those accounts, and Ayco pricing and fee information for its clients. Oglevee Aff. ¶ 79; Cavoli Decl. ¶¶ 26-27. While contending that he has a right to this information, pursuant to the TRO, he entrusted to his attorney all of the Compensation Reports in his possession; Oglevee's attorney subsequently provided these materials to Ayco. Oglevee Aff. ¶ 79; Cavoli Decl. ¶¶ 25-26. With regard to Ayco clients moving to UBS, both Defendants attribute these clients' choices to their own performance as account managers, and argue that their clients "should be free to do business with whomever they feel will best address their needs and provide the services they seek." Frisch Aff. ¶ 82; Oglevee Aff. ¶ 85.

Defendants additionally claim that the agreements upon which Ayco relies were presented to them on a "take it or leave it basis," that if they did not sign them, they would be fired. Oglevee Aff. ¶¶ 19-23; Frisch Aff. ¶¶ 14-16. They characterize the agreements as unfair because they prevent Defendants from pursuing their chosen profession and Defendants' clients from working with the financial advisors of their choice, and because the agreements do not ...

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