From Boardroom To Courtroom

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January 1, 2011 Download as PDF

Originally published by Daily Local News.

Jason E. Murtagh deals in a world of corporate intrigue, trade secrets and confidential information.

And he likes it.

The attorney for the Paoli-based boutique employment law firm of Rubin Fortunato & Harbison P.C. recently prevailed on behalf of a Montana brokerage firm that claimed it was the victim of employee raiding.

Murtagh’s client, a Merrill Lynch office in Bozeman, Mont., claimed the Morgan Stanley office there had hired five of its six financial advisers and two of its three client associates in May 2009.

In June of that year, Merrill Lynch filed an arbitration claim against Morgan Stanley and the individual advisers.

An evidentiary hearing was held in Bozeman over several days this past fall when Murtagh and his team successfully argued that the actions of Morgan Stanley constituted a raid of the Merrill Lynch office.

“It’s a high burden to overcome,” Murtagh said of raiding cases. “For instance, I can open a gas station across the street from you but I can’t hire all 10 of your employees. We want people to be able to compete with one another but you can’t do it unfairly.”

Murtagh argued the arbitration claim before the Financial Industry Regulatory Authority, or FINRA. In November, an arbitration panel awarded Merrill Lynch $552,875 in compensatory damages and $400,000 in punitive damages and assessed all forum fees against Morgan Stanley.

“It was the longest three-and-a-half weeks of my life,” Murtagh, 35, joked of his time in Montana during a recent interview. “Actually, it was a wonderful time and a beautiful area.”

For securities firms, claims of raiding are significant. But not simply because of the money at stake, Murtagh said.

After the Protocol for Broker Recruiting was adopted in 2004, legal claims before FINRA have decreased. Most claims that do arise settle quietly in mediation, and arbitration panels that once heard a multitude of claims on a regular basis will now pass down just a handful of decisions in an entire calendar year.

“The fact that a claim is even heard is noteworthy, and the disputes that do make it before a panel are often high stakes, like in this matter,” Murtagh said.

But beyond the securities industry, today’s economy has seen similar high-stakes claims in other industries find their way to litigation as companies work harder than ever to grab their share of the market.

Murtagh’s firm has seen this in a number of different types of companies involving trade secret issues, including:

A case involving a former employee who walked out with a folder of confidential documents at the end of each day for over a month until he had assembled an entire box of confidential trade secrets at home.

Another case involving an employee who hid documents in a computer program and e-mailed them to a family member, something later discovered by Murtagh’s team with the use of computer forensics.

A case in which employees spent several hours late one night loading their cars with boxes of documents — something the firm discovered after obtaining security camera footage from the garage where the employees had parked their cars.

“What we often see is an employee who has been with a company for a substantial period of time who gets a better offer or who goes out on their own,” Murtagh said. “People do walk out all the time with customer lists.”

No sector remains untouched: manufacturing, retail, pharmaceutical, even food.

One of the most widely publicized cases in 2010 involved an executive with Bimbo Bakeries, the company that makes Thomas’ English muffins. The executive was barred by a court from taking a job with rival company Hostess because of “suspicious conduct” involving files accessed from his laptop.

As the executive was one of just a handful of individuals with the secret recipe for the muffins and their trademark “nooks and crannies,” the court favored the company’s right to guard its secrets against the executive’s right to switch jobs, Murtagh said.

Companies should take a close look at their employee manuals and employment contracts to ensure they contain certain rights and protections.

There should be enforceable non-compete and non-solicitation agreements put in writing during the initial hiring process, Murtagh said. Employers can also put in stipulations that prohibit an employee from encouraging other employees from leaving their firm for another.

“People have a right to work, the courts don’t want to take that away, but businesses have the right to protect themselves,” he said. “Most businesses are faced with this at some level or another.”

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