ING Life Ins. and Annuity Co. v. Gitterman, Slip Copy, 2010 WL 3283526 (DNJ August 18, 2010)

Plaintiffs ING Life Insurance and Annuity Company (“ILIAC”) and ING Financial Advisors (“IFA”) (collectively, “Plaintiffs” or “ING”), sought to enjoin defendants, all of whom were former employees of ING, from soliciting clients to withdraw certain accounts from ING, pending the resolution of a FINRA Dispute Resolution Proceeding. The Court initially granted a preliminary TRO enjoining defendants from: (1) “soliciting, inducing or attempting to induce any customers of Plaintiffs (or their affiliated companies) to sell or transfer assets from any ING Life Insurance and Annuity Company (“ILIAC”) account, product or security” and (2) “taking any action designed to effectuate the sale or transfer of assets from any ILIAC account, product or security, including, but not limited to submitting or assisting others in submitting account withdrawal forms to ILIAC.”  The District Court further ordered Plaintiffs to post a surety bond to pay the costs and damages sustained by any party found to have been wrongly enjoined or restrained.

After a full hearing, the District Court found as follows.

Prior to April 2010, each Defendant was employed by ING either as an investment advisor, a career agent, a registered representative, or was employed in more than one of these capacities. That During the period of defendants’ affiliation with ING, defendants serviced ILIAC’s account in New Jersey’s Alternative Benefit Program (“ABP”), a defined contribution retirement program available to eligible employees of New Jersey’s public institutions on higher education.  Until Defendants’ affiliation with ING terminated in May 2010, defendants were responsible for servicing the accounts of more than 2,000 ILIAC customers with assets invested in the ABP. In February 2010, with ING’s knowledge, several of the defendants set up their own Registered Investment Advisory firm (“GAWM”) and affiliated with an independent broker-dealer as registered representatives. As a result, many of the clients now in issue established investment advisory and/or brokerage accounts with Defendants off of the ING platform.

In May 2010, the affiliation between the defendants  and ING was terminated, with an arrangement that would allow ING to maintain relationships with the defendants’ clients with respect to these clients’ investment in ING’s New Jersey ABP. With respect to every other aspect of the clients’ portfolios, ING agreed to, and assisted in, facilitating their transfer from ING to the new group’s new broker dealer and to GAWM.

Although defendants did not initially sign a restrictive covenant when they first became affiliated with ING, they did sign contracts with ILIAC and/or IFA that contained a non-solicitation clause. The contracts contained a provision providing that defendants “shall not for a period of [one or] two years thereafter, directly or indirectly by or through any partner, associate, agent, employer, employee or firm action on the Agent’s behalf: (i) advise, induce or attempt to induce any contract-holder of the Company [ILIAC] to cancel, replace or allow to lapse any annuity contract or security issued by the Company or its affiliates …” All of the defendants signed covenants substantially similar to this provision.

Upon these facts, the District Court denied the motion, finding that Plaintiffs could not sufficiently demonstrate that there is a likelihood of success on the merits of their claims, specifically holding that “[m]erely being in contact with former clients does not constitute solicitation,”citing Mona Elec. Group, Inc. v. Truland Service Corp., 56 Fed.Appx. 108, 110 (4th Cir.2003); Prudential Securities, Inc. v. Plunkett, 8 F.Supp.2d 514, 520 (E.D.Va.1998); Bayly, Martin & Fay, Inc. v. Pickard, 780 P.2d 1168, 1175 (Okl.1989); and Aetna Bldg. Maintenance Co. v. West, 39 Cal.2d 198, 246 P.2d 11 (1952).  The Court further found that there was no question that defendants needed to be in contact with Plaintiffs’ clients, as they provide financial advice to these clients on many non-ABP investments unrelated to ING’s business interests.

Most notably, the Court rejected Plaintiff’s assertion that defendants were, in fact, soliciting clients related to ING’s business interests, finding that “[the] … only evidence of solicitation Plaintiffs have provided is a single affidavit from an ING employee indicating that, through her communications with clients, it appears that Defendants’ have recommended that Plaintiffs’ clients switch to a different, competing ABP product. Plaintiffs’ declaration summarily refers to client communications, without indicating the number of such communications or providing documentation of such communications.” The District Court also rejected as only “circumstantial” that several client accounts withdrew from ING in a short time frame from defendants’ departure. The Court expressly found that such departures do no “necessarily indicate[] that [the clients] were solicited or encouraged to leave.” To punctuate the finding, the Court provided the hypothetical example that “…these clients may have determined, upon learning of the termination of the [defendant-ING] relationship, that they no longer wanted to remain with ING. A non-soliciting statement from the defendants or ING, then, could have triggered clients to defect, and they are entitled to do so.”