United States District Court, D. Connecticut
RULING ON MOTION FOR TEMPORARY RESTRAINING
A. Bolden United States District Judge
7, 2016, Westport Resources Management, Inc.
("WRM") filed a Complaint [Doc. No. 1] seeking a
temporary restraining order against the defendant,
Christopher James DeLaura, pending an expedited arbitration
action against DeLaura before a Financial Industry Regulatory
Authority ("FINRA") arbitration panel. The
Complaint alleges a claim for breach of contract against
DeLaura. On June 7, 2016, WRM also filed a motion for
temporary restraining order ("Motion for TRO")
[Doc. No. 4] and a motion for waiver of security or bond
[Doc. No. 5]. The Court held a hearing on WRM's Motion
for TRO on June 15, 2016. For the reasons discussed below,
the Motion for TRO is GRANTED.
FINDINGS OF FACT
upon the parties' submissions and the information
presented at the June 15, 2016 hearing, the Court finds the
James DeLaura worked for both WRM and Westport Resources
Investment Services, Inc. ("WRIS") (together,
"Westport Resources" or "the company").
WRM, an S corporation registered in the State of Connecticut,
is in the discretionary asset management business, and
receives fees based on the assets it manages for its clients.
It is a registered "Investment Adviser" firm with
the Securities and Exchange Commission ("SEC"). WRM
has a board of directors, holds annual shareholder meetings,
and has salaried employees, as well as individuals who earn
fees based on a percentage of the assets that they manage and
who must be registered as investment adviser agents.
C corporation registered in the State of Connecticut, is an
SEC- and FINRA-registered broker-dealer that transacts trades
of stocks, bonds, and mutual funds, and generates income from
commissions on these transactions. WRIS has its own board of
directors, holds annual shareholder meetings, and employs
independent contractors, known as "registered
representatives, " who earn commissions.
WRIS occupy a common physical space and share office
equipment, but maintain the costs and expenses of doing
business on their own separate books and records. There is an
expense sharing agreement between the two entities, providing
for the allocation of payroll and other related, shared, or
specified expenses between them. There is overlap between the
clients of WRM and WRIS, although the degree of overlap is
not exact. WRM manages assets on behalf of its clients by
providing investment advice, and WRIS executes trades on
behalf of its clients. While more than 90% of WRM's
clients are also clients of WRIS, there are a significantly
lower percentage of WRIS clients who are also clients of WRM.
In other words, there are some clients of Westport Resources
who seek simply to make trades through WRIS and do not also
seek investment advice from WRM, and some clients who seek
investment advice from WRM but do not also seek to make
trades through WRIS.
WRIS hired Mr. DeLaura in 2010 as a Financial Planning
Specialist, with an annual base salary of $115, 000. In
addition to having experience providing financial planning
advice, Mr. DeLaura also held broker licenses beneficial to
WRIS. In 2012, Mr. DeLaura gained the additional
responsibility of managing portfolios at WRM. As part of that
transition, Mr. DeLaura and WRM (but not WRIS) executed an
Investment Adviser Fee Sharing Agreement, which provided that
Mr. DeLaura would receive compensation from WRM a follows: a
share of the net asset advisory fee revenue earned by the
Global Tactical Asset Allocation ("GTAA")
investment strategy for the accounts assigned to him, but not
in any event less than $30, 000 per quarter; and $25, 000 per
year for continuing to service current clients of WRM
regardless of whether they had assets in the GTAA investment
of this agreement, Mr. DeLaura agreed that, for a period of
one year following separation from WRM, he would not solicit
any client of WRM. He also agreed that, at the termination of
his employment with WRM, he would return all confidential
information, including client lists and client account
information, to WRM. The agreement also provided that any
dispute between WRM and Mr. DeLaura would be resolved by
arbitration according to FINRA arbitration rules, and that
WRM would be entitled to injunctive relief from a court of
competent jurisdiction to keep Mr. DeLaura from violating
this agreement while the arbitration is pending. In addition,
the agreement allowed either party to terminate the agreement
upon at least thirty days prior notice.
point, the company also named Mr. DeLaura Chief Operating
Officer for both WRM and WRIS. He received a salary for this
role, which involved administrative responsibilities. The
expense of Mr. DeLaura's administrative work was
allocated 100% to WRM.
DeLaura never received any commissions from either WRM or
WRIS. He earned income from a salary for his services as a
Financial Planning Specialist and Chief Operating Officer and
fees paid on an independent contractor basis for his work as
an investment adviser and portfolio manager for WRM.
number of firms in the securities industry have adopted The
Protocol for Broker Recruiting (the "Broker
Protocol"). The stated goal of the Broker Protocol is to
further clients' interests of privacy and freedom of
choice in connection with the movement of their registered
representatives between firms. The Broker Protocol forecloses
any liability a departing registered representative or his or
her new firm may incur by reason of the registered
representative taking certain information with him or her
upon leaving one signatory firm for another. WRIS is a
signatory to the Broker Protocol, but WRM is not.
26, 2016, Mr. DeLaura gave a letter of resignation to John
Vacarro, the Chief Executive Officer of both WRM and WRIS.
However, he addressed the letter to Mr. Vacarro only in his
capacity as C.E.O. of WRIS, and, in it, resigned his position
with WRIS, effective immediately. The letter contained no
reference to Mr. DeLaura's position with WRM. In the
letter, Mr. DeLaura invoked the protections of the Broker
Protocol, and stated that, consistent with the Broker
Protocol, he was providing a list of clients whose accounts
he serviced while at WRIS. The list contained 32 clients and
102 accounts, a significant portion of WRM's business.
Mr. DeLaura's resignation letter further stated that he
had accepted a position with Fieldpont Private Bank &
DeLaura began working immediately for Fieldpoint upon
resigning from WRIS. Indeed, he contacted and began
soliciting WRM clients, who also were WRIS clients, on the
list that same day. Clients began contacting Westport
Resources as early as the next ...