IP Law Daily TRO bars former E*TRADE consultant from using confidential information to solicit clients
Wednesday, September 5, 2018

TRO bars former E*TRADE consultant from using confidential information to solicit clients

By Thomas Long, J.D.

Financial services provider E*TRADE has been granted a temporary restraining order by the federal district court in Chicago, barring a former employee—a financial consultant—from using confidential information to solicit E*TRADE’s clients away from the provider and to her new employer, Morgan Stanley. There was evidence that the former employee accessed E*TRADE’s customer data shortly before she left the firm, and the court deemed it reasonable to infer that she accessed it in order to use the information in her new job after leaving E*TRADE. The former employee had contacted E*TRADE clients, and at least four had transferred their business to Morgan Stanley. According to the court, it appeared undisputed that E*TRADE had taken reasonable measures to ensure the confidentiality of its customer information. E*TRADE also was likely to establish that it was irreparably harmed by the loss of client accounts and that without emergency injunctive relief the former employee will continue to divert E*TRADE clients to Morgan Stanley (E*TRADE Financial Corp. v. Pospisil, September 4, 2018, Guzman, R.).

E*TRADE provided financial services to a wide variety of clients, primarily through E*TRADE’s website and mobile application. E*TRADE attracted most of its client through advertising, rather than direct solicitations by financial consultants, and most of E*TRADE’s accountholders conducted business over the Internet without ever speaking to an individual broker or consultant. E*TRADE had developed extensive client lists and databases, which were stored on a proprietary computer network and secured by password and user ID protections to prevent unauthorized access. E*TRADE limited access to client information to those employees who had a need to know it, and it required employees to agree to maintain the confidentiality of proprietary client information.

Defendant Heather Pospisil worked as a financial consultant for E*TRADE from December 2, 2013, until August 2, 2018, when she resigned her position to work for one of E*TRADE’s competitors, Morgan Stanley. Pospisil had access to information concerning E*TRADE’s 3.6 million brokerage clients. E*TRADE alleged that Pospisil was actively soliciting clients away from E*TRADE in direct violation of both her duty of loyalty and the nonsolicitation and nondisclosure agreement she entered into while an employee of E*TRADE. E*TRADE moved for a temporary restraining order (TRO) to prevent Pospisil from contacting or soliciting E*TRADE’s current or prospective customers.

According to E*TRADE, Pospisil accessed and downloaded an extensive list of client information two days before she resigned. Although E*TRADE’s declaration stated only that she accessed the data, she could have copied the information by hand or cut and pasted it using a word processing program, the court said. The circumstances under which Pospisil accessed the information were "suspicious," in the court’s view, because the number of client files Pospisil accessed on that single occasion accounted for 77% of all the documents she accessed during her final weeks of employment with E*TRADE.

"A reasonable inference is that she accessed this information in order to use it in relation to her imminent resignation and move to a competitor," said the court. "Supporting this inference is the further evidence that Pospisil contacted at least some of her E*TRADE clients either prior to and after her departure, at least four of whom then transferred their business to Pospisil shortly after she moved to Morgan Stanley." These accounts totaled some $4.2 million in managed assets and approximately $4.4 million in total assets, the court said.

The court rejected Pospisil’s contention that the customer data constituted publicly accessible information. "The Court is at a loss as to how one would easily duplicate E*TRADE’s customer lists by using only public information," stated the court. "Pospisil’s assertion that she looked up her clients’ contact information on publicly-available databases is a non-starter since she had to use the client lists as a starting point."

Pospisil acknowledged that she made phone calls to her specific clients whom she knew had a need for her services. She did not send a simple announcement, the court noted, distinguishing this case from others in which it was found permissible to contact clients in order to provide them with new contact information. Therefore, E*TRADE established at least a greater than negligible likelihood of success on the merits.

The court agreed with E*TRADE’s contention that it had no adequate remedy at law for the injuries it was suffering as a result of Pospisil’s wrongful conduct because the full extent and scope of E*TRADE’s losses were not ascertainable. The difficulty of pinning down what business had been or will be lost made E*TRADE’s injury "irreparable." The clients who had left E*TRADE for Morgan Stanley could not be forced to return to E*TRADE, and it was impossible to know how many more would be attracted to Morgan Stanley by Pospisil’s solicitations. The harm faced by E*TRADE outweighed any risk to Pospisil posed by injunctive relief, as Pospisil has already contacted by telephone all of her previous clients, the court said.

Accordingly, E*TRADE was entitled to a TRO, the court concluded. Pospisil was enjoined from further using E*TRADE’s confidential information and from further solicitation of E*TRADE’s clients. Pospisil was ordered to return all of E*TRADE’s confidential information as defined in her employment agreements.

This case is No. 1:18-cv-05908.

Attorneys: Jamie L. Filipovic (O'Hagan Meyer Law Firm) and Rhianna S. Hughes (Payne & Fears LLP) for E*TRADE Financial Corp. Jerry Michael Santangelo (Neal, Gerber & Eisenberg LLP) for Heather Pospisil.

Companies: E*TRADE Financial Corp.

MainStory: TopStory TradeSecrets IllinoisNews

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