In an unusual NASD arbitration settled last summer, a former Edward Jones broker has been barred permanently from accepting business from any prior clients unless those clients sign non-solicitation affidavits before they transfer accounts to him.
David Cass, of Sheboygan, Wis., was employed with Edward Jones until April '97 when he went to Merrill Lynch. In July '97, as part of an arbitration settlement with Jones, Cass agreed to what a Merrill Lynch spokesperson called a "severe restriction" wherein none of his client accounts could transfer without an accompanying affidavit signed by clients swearing that Cass did not "solicit" their business. The agreement stipulated that client affidavits must be forwarded to Jones no later than 24 hours after their execution.
The client affidavit requirement came on top of a three-month preliminary injunction that banned Cass from April 3, 1997, through July 12, 1997, from "soliciting or attempting to solicit any business from any customer of Edward Jones whom Cass served or whose names became known to Cass while he was employed by Edward Jones." Cass' family members were excluded.
A three-member NASDR arbitration panel issued a consent order in July that affirmed the preliminary injunction and asserted the affidavit requirement. The NASDR would not comment about the case or the use of client affidavits.
Edward Jones' attorney Larry Goldberg in St. Louis declined to comment on the case, as did Cass.
A spokesperson for Merrill Lynch says the stipulation, while severe and aggressive on Jones' part, is not unusual. "Having this kind of affidavit from clients is something our lawyers have seen in the industry. It's not in any way unprecedented," says Merrill's Bill Halden. Halden would comment no further about the use of affidavits in enforcing non-compete agreements.
But despite Merrill Lynch's downplaying of the incident, other securities attorneys say the move is not an ordinary, run-of-the-mill legal outcome, but represents some "adroit lawyering" on Edward Jones' part and a big loss for Merrill.
"That's a real harpoon in the side of Merrill Lynch," says Jonathan Schwartz, an attorney who represents brokers in Marina del Rey, Calif. "People don't like to sign affidavits, period. Clients don't know what solicit means and neither do attorneys. It generates a feeling of discomfort."