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Westport Resources Management, Inc. v. Delaura

United States District Court, D. Connecticut

June 23, 2016



          Victor A. Bolden United States District Judge

         On June 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.


         Based upon the parties' submissions and the information presented at the June 15, 2016 hearing, the Court finds the following facts:

         Christopher 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.

         WRIS, a 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.

         WRM and 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.

         WRM and 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 strategy.

         As part 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.

         At some 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.

         Mr. 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.

         A 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.

         On May 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 & Trust.[1]

         Mr. 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 ...

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