Another Court Uses Protocol For Broker Recruiting To Defeat TRO Litigation Against Transitioning Advisers' ACAT Efforts

Merrill Lynch suffered another defeat, this time against brokers who had transferred their book of business to Bear Stearns.

While Bear Stearns is not a signatory to the agreement that allows brokers at participating firms to move client accounts between those firms without fear of TRO litigation, the federal court in Ohio was persuaded that Bear Stearns should benefit by that agreement. The court stated that Merrill Lynch could not prove a critical element for its injunction action, irreparable harm, because by the agreement "Merrill tacitly accepts that such an occurrence [brokers' ACAT of accounts] does not cause irreparable harm." The court also rejected Merrill's argument that it would lose customer trust and goodwill, reasoning that by the protocol, Merrill and industry peers "are well aware of, and content with, the idea that brokers will leave and take client lists with them." The agreement "significantly undercuts the notion that such behavior destroys customer goodwill", wrote the court.

Source: Merrill Lynch v. Brennan et al. (2007)