UBS Financial Services Inc. v. Christenson

Filing 27

PRELIMINARY INJUNCTION. IT IS HEREBY ORDERED: Plaintiff's Request for Expedited Hearing on Emergency Injunctive Relief Pursuant to Local Rule 7.1(d) 7 is GRANTED IN PART and DENIED IN PART (Written Opinion). Signed by Chief Judge Michael J. Davis on 5/15/13. (GRR)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

UBS FINANCIAL SERVICES, INC.,
Plaintiff,

v.

PRELIMINARY INJUNCTION
Civil File No. 13-1081 (MJD/JSM)

TYLER CHRISTENSON,
Defendant.
Michael T. Roche, Schuyler Roche & Crisham PC, and Robert Bennett and Jeffrey
S. Storms, Gaskins, Bennett, Birrell, Schupp, LLP, Counsel for Plaintiff.
Livia E. Babcock and Laura C. Sands, Meagher & Geer, PLLP, Counsel for
Defendant.
I.

INTRODUCTION
This matter is before the Court on Plaintiff’s Request for Expedited

Hearing on Emergency Injunctive Relief Pursuant to Local Rule 7.1(d). [Docket
No. 7] The Court heard oral argument on May 15, 2013. For the reasons that
follow the Court grants the motion for a preliminary injunction, but modifies
Plaintiff’s requested relief to permit Defendant to inform his former clients of his
new contact information.
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A.

Factual Background
1.

Defendant’s Employment with UBS

Defendant Tyler S. Christenson (“Christenson”) is a Minnesota resident
and registered broker with the Financial Industry Regulatory Authority
(“FINRA”), holding Series 7 and 63 security industry licenses and a Series 65
investment advisor license. (Christenson Aff. ¶¶ 4-5.) Christenson worked for
Piper Jaffray from 1999 until 2005. (Id.)
In September 2005, Christenson joined Defendant UBS Financial Services
Inc. (“UBS”) as a financial advisor. (Christenson Aff. ¶¶ 2, 5.) He joined as a
partner to John Bloom, who was already a UBS advisor. (Id. ¶¶ 6-7.) Bloom and
Christenson negotiated to operate as a team. (Id. ¶ 7.) They agreed that their
already existing respective clients would become team clients under a team
representative identification number. (Id.) Initially, Bloom would receive 80% of
the commission and Christenson would receive 20% of the commission, but, over
time, Christenson’s percentage would increase to 40%. (Id.)
a)

2006 Team Agreement

After Christenson joined UBS, UBS required that he sign the Financial
Advisor Team Agreement (“2006 Team Agreement”). (Christenson Aff. ¶ 9;
Christenson Aff., Ex. 1, 2006 Team Agreement.) The 2006 Team Agreement had
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an effective date of January 1, 2006. (Id.) The agreement contains a one-year
non-solicitation clause, a confidentiality provision, and a mandatory arbitration
provision. (2006 Team Agreement ¶¶ 8(A), 15, 19.)
b)

RFAAs

After Christenson joined UBS, he was asked to sign a Receiving Financial
Advisor Agreement (“RFAA”), reflecting that if Christenson and a retiring UBS
advisor agreed, Christenson would buy the retiring advisor’s book of business
over time, paying the retiring advisor a gradually decreasing share of
commissions earned on the book of business until the clients were transitioned to
Christenson. (Christenson Aff. ¶ 17.) He signed one RFAA on December 28,
2005, and another on October 31, 2006. (Christenson Aff., Exs. 3-4.) Bloom and
Christenson bought the books of two retiring advisors under their joint team
representative number. (Christenson Aff. ¶ 18.)
c)

2009 Team Agreement

After the make-up of the team changed, the 2006 Team Agreement was
replaced with a Team Agreement dated June 1, 2009, which superseded all prior
agreements. (Christenson Aff., Ex. 2, 2009 Team Agreement ¶ 16.) The 2009

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Team Agreement also contained a non-solicitation clause, providing that
Christenson
will not solicit, for a period of one year from the date of termination
of the departing Team Member’s employment, any clients of UBS
Financial Services Inc. serviced by the Team; provided, however,
that unless otherwise prohibited by a non-solicitation provision in
another agreement, this provision does not apply to clients the
departing Team Member introduced to the Team either at its
inception or during its existence.
(2009 Team Agreement ¶ 11(A).) The 2009 Team Agreement required Bloom and
Christenson to annually designate which team clients would be deemed to have
been introduced to the team by each of them. (2009 Team Agreement ¶ 6.)
The agreement also contains a confidentiality non-disclosure provision,
applying to “nonpublic information concerning UBS Financial Services Inc.’s
financial data, strategic business plans, product development, customer lists,
customer financial information, marketing plans, and any other proprietary
information.” (2009 Team Agreement ¶ 21.)
The 2009 Team Agreement contained a mandatory arbitration clause;
however, the arbitration clause did not waive UBS’s right to seek injunctive relief
from a court for violation of the non-solicitation or confidential information
clauses of the 2009 Team Agreement. (2009 Team Agreement ¶¶ 17, 22.)

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d)

Change to Senior Wealth Strategy Associate Position

In January 2010, UBS began to terminate low producers. (Christenson Aff.
¶ 21.) Bloom told Christenson that his production was too low, and that, in order
to avoid termination, he should move to the position of Senior Wealth Strategy
Associate. (Id. ¶ 22.) Bloom promised Christenson would be salaried, but he
would receive a bonus based on the revenue generated by the team clients, and
his annual compensation would still be a percentage of the team revenue – in fact
it would be 35%. (Id. ¶ 22.) Christenson claims that Bloom represented that,
besides the change to compensation, nothing else in their relationship or
Christenson’s relationship with customers would change. (Id.)
Christenson alleges that, in reliance on Bloom’s representations, he agreed
to the change. (Christenson Aff. ¶ 23.) Christenson avers that he did not sign
any documents associated with the change, and he was not advised that the
change would terminate his producer status. (Id. ¶ 23.) Christenson’s duties and
interactions with clients did not change. (Id. ¶ 24.)
e)

The End of Christenson’s Relationship with UBS

In early 2013, UBS branch manager Roger Burton met with Christenson for
his review, criticized his performance, and presented him with a lower
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compensation package. (Christenson Aff. ¶¶ 28-29.) Christenson began
considering leaving UBS to join another firm. (Id. ¶ 31.)
On May 2, 2013, before Christenson made a final decision to leave UBS,
Burton called him into another meeting. (Christenson Aff. ¶ 31.) Christenson
was suspicious when he got the meeting invitation, so he prepared a resignation
letter and a list of team clients with whom he worked. (Id.) At the meeting,
Burton told him that UBS was moving him to administration and would need to
move out of his office into a cubical. (Id.) He ordered Christenson to sign a
document agreeing to various changes in his position and refused to allow
Christenson to leave with the document or to review it with anyone. (Id.)
Christenson refused to sign and resigned. (Id.) Christenson avers that, before he
resigned, he did not tell any clients that he was leaving UBS; nor did he solicit
them. (Id. ¶ 32.)
After resigning, Christenson became a registered representative with LPL
Financial and an independent contractor advisor with Investors Financial Group
(“IFG”). (Gaarder Aff. ¶ 3.) In connection with his resignation from UBS,
Christenson admits that he prepared and took a list of his clients and their basic

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contact information. He provided a copy of the list to UBS. (Christenson Aff. ¶
33.)
2.

The Protocol for Broker Recruiting

UBS and LPL are signatories to the Protocol for Broker Recruiting.
(Babcock Aff., Ex. A, Protocol for Broker Recruiting (“Protocol”).) Under the
Protocol, a registered representative moving from one Protocol firm to another
may take “the client name, address, phone number, email address, and account
title of the clients that they serviced while at the firm.” (Protocol at 1.) The
registered representative may freely solicit his former clients. (Id.) If a registered
representative is a member of a team and leaves, any written team agreement
governs; however, in no event will the registered representative be precluded
from soliciting those clients that he introduced to the team. (Id. at 2.) If no
written agreement exists, then a registered representative who has been a
member of the team for four or more years may solicit all team clients. (Id.)
3.

Clients at Issue
a)

Clients Christenson Will not Solicit

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Christenson agrees that he will not try to solicit team clients that worked
more closely with Bloom than with him, and he did not include such clients on
the client list that he took from UBS.
b)

Clients UBS Agrees Christenson Can Solicit

UBS and Christenson agree that Christenson may solicit clients included in
the 2005 list of clients introduced by Christenson that is attached to the 2006
Team Agreement. UBS also agrees that Christenson may solicit clients that he
introduced to the team while he was a financial advisor.
c)

Disputed Clients

Twelve clients were joint clients of the Bloom Group team that were served
by and worked with Christenson. Christenson seeks to solicit these clients, and
UBS contends that he cannot. Fifty-six clients are clients that the Bloom Team
purchased from two retired advisors. Christenson seeks to solicit these clients,
and UBS contends that he cannot. These sixty-eight clients are referred to as the
Disputed Clients.
B.

Procedural Background

UBS filed a Complaint against Christenson in this Court on May 8, 2013.
The Complaint alleges Count 1: Breach of Contract – Christenson’s Breach of the
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Team Agreement; Count 2: Breach of Contract – Christenson’s Breach of the
RFAAs; Count 3: Breach by Christenson of Fiduciary Duties Owed to UBS; and
Count 4; Unfair Competition.
On May 9, UBS filed this current motion for emergency injunctive relief.
UBS requests that the Court enter a preliminary injunction pending resolution of
this matter by a FINRA arbitration panel. It asks that the Court enjoin
Christenson from soliciting any clients that he did not introduce to UBS, bar him
from using any information regarding UBS clients, and require him to return all
confidential information to UBS.
II.

DISCUSSION
A.

Standard for a Preliminary Injunction

The Eighth Circuit Court of Appeals has established the standard for
considering preliminary injunctions. Dataphase Sys. Inc. v. CL Sys., Inc., 640
F.2d 109, 113 (8th Cir. 1981) (en banc ). This Court must consider (1) the threat of
irreparable harm to the moving party if an injunction is not granted, (2) the harm
suffered by the moving party if injunctive relief is denied as compared to the
effect on the non-moving party if the relief is granted, (3) the public interest, and
(4) the probability that the moving party will succeed on the merits. Id.
B.

Probability of Success on the Merits
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1.

Application of the Protocol

Christenson argues that UBS cannot enforce the non-solicitation provisions
in the Team Agreements or the RFAAs based on the Protocol. The Court
concludes that it is likely that the Protocol does not apply here because the
Protocol does not supersede a written financial advisor team agreement. Instead,
it explicitly provides that the ability to take contact information and solicit clients
subject to those agreements is controlled by the terms of those written
agreements. Because it is likely that a valid team agreement exists here, the
Protocol is unlikely to apply.
2.

Breach of the RFAAs

The Court concludes that UBS is not likely to succeed on its claim that
Christenson breached the RFAAs. Section 4(a) of the RFAA prohibits the
Receiving Financial Advisor – Christenson – from soliciting, accepting or
conducting business, disclosing Customer information, or otherwise doing
business or dealing with Customers of Received Accounts “at any time.”
(Christens Aff., Exs. 3-4 ¶ 4(a). However, Section 4(e) states that Section 4’s
restrictions only apply so long as Christenson is employed by UBS:
Except as set forth in the following paragraph, the terms of this
Section 4 shall remain in effect at all times during which Receiving
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FA is in the employ or retained as an independent contractor or
consultant of the Firm, including any successors of the Firm.
(Id. ¶ 4(e).) Given that the two sections appear to contradict one another, the
Court interprets the contract in a way that harmonizes the two sections by
interpreting the 4(a) restrictions to apply at any time, so long as Christenson is
still employed by or associated with UBS. This interpretation is also supported
by Minnesota law requiring an ambiguous contract to be construed against the
drafting party, here, UBS. Moreover, UBS’s interpretation – that the restrictive
covenant in Section 4 applies forever – is unreasonable, and Minnesota law
requires restrictive covenants to be reasonable as to geographic scope and
duration. Also, UBS’s interpretation is extremely broad, and would bar
Christenson from accepting a client’s attempt to transfer his account to him, in
violation of FINRA Rules. Thus, the Court concludes that it is likely that the
RFAAs’ restrict covenant provisions do not apply Christenson at this time.
3.

Breach of the Team Agreements

The Court finds that UBS is likely to succeed on the merits of its claim of
breach of the Team Agreements because it appears that Christenson took contact
information for clients that he admittedly did not introduce to the team with the

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stated intention of soliciting those clients. The Court further concludes that it is
likely that the Team Agreements will be deemed enforceable.
a)

Enforceability of the Team Agreements

Christenson argues that the 2006 Team Agreement is unenforceable for
lack of consideration because he was required to sign that agreement after he had
already started working for UBS. See, e.g., Overholt Crop Ins. Service Co. v.
Travis, 941 F.2d 1361, 1368 (8th Cir. 1991) (“Minnesota requires independent
consideration when a restrictive covenant is entered into after an individual has
begun working for an employer.”). UBS argues that there was sufficient
consideration for the 2006 Team Agreement because Christenson gained an
independent benefit from the agreement – the right to share in Bloom’s clients
and commissions. At this very early stage of the litigation, it appears likely that
there was sufficient consideration for the 2006 Team Agreement in the form of
access to commissions from Bloom’s clients.
Christenson notes that, although the 2009 Team Agreement provided that
Bloom and Christenson were supposed to create lists of team clients, identifying
who introduced the client, no list was made. He concludes that, because no list
was made, the 2009 Team Agreement does not address Christenson’s ability to
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solicit clients that have not been properly designated and the Protocol applies.
At this early stage of the proceedings, it appears that there is no dispute
regarding which clients Christenson introduced to the team, so the failure of
Bloom and Christenson to prepare the required lists is not a material breach of
the contract.
b)

Solicitation

Christenson now represents that he is amenable to agreeing that he will
not solicit the clients in dispute; however, he would like to simply send an
announcement to them with his new contact information. The Court agrees that
this solution is supported by the facts and case law.
The Team Agreements, which are likely enforceable, bar Christensen from
soliciting clients that he did not introduce to the team for one year. Specifically,
they bar Christenson from directly or indirectly initiating “any contact or
communication, of any kind whatsoever, for the purpose of inviting,
encouraging or requesting a client, or that may have the effect of inviting,
encouraging or requesting a client . . . to transfer his or her [UBS] account(s) to
the departing Team Member or his or her new employer.” (2006 Team
Agreement ¶8(c); 2009 Team Agreement ¶ 11(c).) Thus, Christenson is barred
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from solicitation. However, there is a difference between soliciting and
contacting. The Team Agreements do not bar all contact. The Court concludes
that a neutral announcement of Christenson’s new employer and contact
information to the former clients with whom Christenson worked, and who are
listed on the Protocol list that Christenson provided to UBS, is permissible and
reasonable. See, e.g., Wells Fargo Investments, LLC v. Bengtson, No. 0:07-cv3192 (MJD/AJB), 2007 WL 2007997, at *2 (D. Minn. July 9, 2007); Wells v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 919 F. Supp. 1047, 1053 (E.D. Ky. 1994). This
announcement must not encourage clients to leave UBS; nor may it tout
Christenson’s new employer.
c)

UBS’s Confidential Information

UBS claims that Christensen possesses client information beyond Protocol
information, such as specific information regarding finances. While Christensen
may retain the Protocol information regarding the former clients that he listed on
the Protocol list provided to UBS, in order to provide a generic announcement to
those clients, he may not possess or reveal any other confidential client
information.

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4.

Breach of Fiduciary Duty

There is no evidence that Christenson solicited clients before his
employment with UBS ended. Thus, UBS is unlikely to succeed on a claim that
he breached his fiduciary duty to UBS.
5.

Unfair Competition

There is no evidence that Christenson solicited clients before his
employment with UBS ended. Additionally, Christenson provided UBS with a
list of clients that he intended to contact, so UBS was immediately able to
compete for their business. UBS has not shown that it is likely to succeed on a
claim of unfair competition.
C.

Threat of Irreparable Harm

UBS faces the threat of irreparable harm to its good will and client
relationships if Christenson solicits clients he is not entitled to solicit. See
Benfield, Inc. v. Moline, 351 F. Supp. 2d 911, 918 (D. Minn. 2004). Additionally,
the release of confidential client information will cause irreparable harm because,
once shared, that private information cannot be “un-shared.”
D.

Balance of the Harms

Without the injunction, UBS is unable to enforce its bargained-for benefits,
and could unfairly lose clients and confidential information. This harm is
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significant. However, given the size of UBS, this harm would not be catastrophic
to it. With an injunction, Christenson will be held to the contracts to which he
agreed. However, he faces losing clients and, therefore, income, which could be
a significant financial harm. The harm to Christensen, UBS, and the clients is
minimized if Christensen is held to his obligations to not solicit and to return any
confidential information, yet Christenson’s former clients receive a neutral
announcement that their former advisor has new contact information.
E.

Public Interest

The public has an interest in enforcing contracts, including covenants not
to compete. Additionally, the public has an interest in allowing consumers to
choose the advisor with whom they would like to do business, an interest
acknowledged by FINRA Rules. By granting the preliminary injunction, yet
allowing Christenson to inform his former clients of his whereabouts, the Court
balances these two competing public interests.
Accordingly, based upon the files, records, and proceedings herein, IT IS
HEREBY ORDERED:
Plaintiff’s Request for Expedited Hearing on Emergency Injunctive
Relief Pursuant to Local Rule 7.1(d) [Docket No. 7] is GRANTED IN
PART and DENIED IN PART as follows:

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1.

Defendant Tyler S. Christenson (“Christenson” or
“Defendant”) is immediately enjoined and restrained, directly
or indirectly, and whether alone or in concert with others,
including any officer, agent, representative, and/or employee
of his new employer, Investors Financial Group, LLC, or its
clearing firm, LPL Financial, from soliciting any business from
any client serviced by John Bloom or the Bloom Wealth
Management Group during Christenson’s prior employment
with UBS other than those clients that Christenson introduced.
Defendant may send a neutral announcement of his change in
employer and new contact information to the Disputed
Clients.

2.

Defendant is further enjoined and restrained, directly or
indirectly, and whether alone or in concert with others,
including any officer, agent, representative, and/or employee
of his new employer, Investors Financial Group, LLC , or its
clearing firm, LPL Financial, until such time as an expedited
arbitration is held on UBS’ claim for permanent injunctive
relief as provided under FINRA Rules from:
A.

Using, disclosing, or transmitting for any purpose
(including but not limited to solicitation of said clients),
any information contained in the records of UBS
relating to all customers introduced to Christenson by
Bloom under their Financial Advisor Team Agreement
and/or customers Christenson serviced or assisted the
Bloom Wealth Management Group in servicing during
his employment with UBS but did not introduce, with
the exception that he may retain the Protocol approved
information on the Disputed Clients in order to use that
information to send a neutral announcement of his
change in employer and new contact information to
those Disputed Clients; and

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B.

3.

Destroying, erasing, or otherwise making unavailable
for further proceedings in this matter, or in any
arbitration proceeding between the parties, any records
or documents (including data or information
maintained in computer, electronic, or digital media) in
his possession or control which were obtained from or
contained information derived from any UBS records,
which pertain to clients Christenson served or whose
names became known to him while employed by UBS,
or which relate to any of the events alleged in the
Complaint in this action.

Defendant, and anyone acting in concert or participation with
him, specifically including his counsel and any agent,
employee, officer or representative of Investors Financial
Group, LLC and/or LPL Financial, LLC is further ordered to
return to UBS’s counsel any and all records, documents
and/or other types of information pertaining to UBS
customers (“Customer Information”), whether in original,
copied, handwritten, computerized (including computer
software, disks, computer hard drive and/or any other type of
computer or digital information storage devices) or
memorialized in any other form, within twenty-four (24)
hours of notice to Defendant or his counsel of the terms of this
Order, with the exception that Defendant may retain the
Protocol approved information on the Disputed Clients in
order to use that information to send a neutral announcement
of his change in employer and new contact information to
those Disputed Clients. Additionally, Defendant may retain
the Protocol information on the clients that both parties agree
Defendant is permitted to solicit. Defendant’s counsel is
permitted to keep a copy of the returned Customer
Information for “attorneys’ eyes only” for use in defending
this proceeding and/or in arbitration before FINRA Dispute
Resolution.

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4.

Any and all Customer Information within Defendant’s possession,
custody or control that is contained in any computerized electronic
or digital form, including on computer software, disks, computer
hard drive, and/or any other type of computer or digital information
software device, returned pursuant to Paragraph 3 above shall be
permanently deleted by a UBS representative. Defendant, and
anyone acting in concert with him, is precluded from reconstituting
or in any way restoring any Customer Information deleted pursuant
to this paragraph and returned to UBS pursuant to Paragraph 3
above.

5.

Pursuant to § 13804 of the FINRA Code of Arbitration
Procedure and §§ 3 and 4 of the Federal Arbitration Act, the
parties are directed to proceed toward expedited arbitration
on the merits of the controversy before a full Panel of
arbitrators.

6.

This Order shall be effective upon the posting of a bond by
UBS in the amount of $1,000 and shall last until the
completion of FINRA arbitration of UBS’ claim for permanent
injunctive relief.

Dated: May 15, 2013

s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court

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