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ING Life Insurance and Annuity Company v. Gitterman

2010 WL 3283526 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

CONTRACTS; NON-SOLICITATION — Injunctive relief will not be awarded to a party claiming that a former business partner is violating a non-solicitation provision in their contract where such an order would be overly broad and could restrict the business partner from taking certain actions not related to soliciting former shared customers.

A business provided financial advice and planning services to New Jersey college and university employees. A time came when it became affiliated with a life insurance and annuity company. During the period of affiliation, the business serviced the life insurance company’s accounts in a New Jersey defined contribution retirement program available to eligible employees of New Jersey’s public institutions of higher education. That program provided retirement benefits, life insurance, and disability coverage. Until the affiliation ended ten years later, the advisory and planning business was responsible for servicing the accounts of more than 2,000 customers.

In the year the affiliation was terminated, the business advised the life insurance company that it was setting up its own registered investment advisory firm and affiliating with an independent broker-dealer as a registered representative. As a result, many of the insurance company’s 2,000 customers established investment, advisory, and/or brokerage accounts with the advisory business after leaving the life insurance company’s platform. When the affiliation subsequently ended, the life insurance company was allowed to maintain relationships with those customers as to their defined contribution retirement program. With regard to every other aspect of the portfolios, the advisory company assisted with the transfer to a new broker-dealer and to the business’ new registered investment advisory firm. The life insurance company and the new broker-dealer entered into a limited selling agreement. It authorized the advisory business to continue servicing and soliciting defined contribution retirement program clients. The agreement, however, prohibited the advisory business from soliciting these clients to join new retirement program plans. The advisory business refused to sign the agreement, and the life insurance company severed its ties with it. At the inception of the relationship, the advisory business had signed a non-solicitation clause for its employees, effective for either one or two years.

Ultimately, the life insurance company filed a motion to permanently prohibit the advisory business from causing its customers to transfer to other accounts. The advisory business’s defense was that it had not solicited clients to withdraw from the advisory company’s defined contribution plan. It claimed it was necessary for it, as a fiduciary when rendering investment advice, to consider and discuss the whole of their client’s assets including the customer’s defined contribution plan accounts.

The Court denied the insurance company’s motion, finding the life insurance company did not sufficiently demonstrate a likelihood of success on the merits. It held that the advisory firm’s merely being in contact with former clients did not constitute solicitation. The Court found the insurance company’s motion summarily referred to client communications without indicating the number of communications or providing documentation of such communications. It also found that a non-soliciting statement from the advisory business or from the life insurance company also could have triggered a customer to withdraw its assets from the defined contribution plan, and the customer would have had the right to do so.

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