Tuesday, April 08, 2008, 4/08/2008 12:01:00 PM

Federal Judge Permits Bear Stearns Producer to Work for Morgan Stanley - No Preliminary Injunction on Alleged Confidential Information Theft

By Todd
Portfolio Media is reporting that a judge has denied a bid by Bear Stearns & Co. Inc. for a preliminary injunction in a case it brought to fight a move by one of its Boston-based executives to rival Morgan Stanley & Co. Inc.

Judge Nathaniel M. Gorton of the U.S. District Court for the District of Massachusetts said in an order Friday that no irreparable harm would befall Bear Stearns if an injunction wasn't issued. He said the firm would likely succeed on the merits of its breach of contract claim but not in the rest of the case.

Bear Stearns filed the lawsuit when it learned that Douglas A. Sharon, the executive director of the investment bank's private client services group in its Boston office, was moving to a post at Morgan Stanley in the wake of the Bear Stearns collapse. Sharon was the Boston office's top employee, annually generating about $5.2 million in commissions and managing more than $867 million in assets for Bear Stearns clients, the complaint said. Sharon resigned from Bear Stearns on March 17, just one day after the dramatic buyout of Bear Stearns by JP Morgan was finalized.

The lawsuit Bear Stearns filed alleges that Sharon violated the terms of his employment agreement, which require him to give 90-days' notice before leaving the company. Bear also claims that Sharon tried to lure Bear Stearns clients and employees to Morgan Stanley. Bear Stearns alleges that Sharon left the firm with significant amounts of Bear's confidential information, including client statements. Judge Gorton issued a temporary restraining order at the end of March, saying that Bear Stearns had shown that its case was likely to succeed on the merits and that if a temporary restraining order was not issued the company could suffer irreparable harm.

In deciding whether to convert the temporary restraining order into a preliminary restraining order, Judge Gorton said that the evidence that Sharon misappropriated Bear Stearns' confidential information and solicited his colleagues and clients to follow him to Morgan Stanley is “sparse to negligible.”

Sharon said that he printed documents in the days before he left so that he could work through the weekend and reassure clients that their savings were safe. He denied that he was taking the information with him as Bear Stearns alleged.The judge noted that most, if not all, of Sharon's clients have transferred their accounts from Bear Stearns to Morgan Stanley. But there's no evidence of any effort on Sharon's part to persuade his clients to take any action other than to protect the security of their assets.

“The plaintiff was suspicious of the circumstances under which Sharon left its employment and it drew not unreasonable inferences about his contact with colleagues and clients, but it can point to no direct evidence of wrongdoing,” the judge wrote. However, the judge said that there is a likelihood that Bear Stearns will succeed with its the breach-of-contract claim.

Judge Gorton said, though, that to win injunctive relief Bear Stearns needs to show that it would suffer irreparable harm without an injunction.The judge said that in light of the pending Financial Industry Regulatory Authority arbitration in the matter, the hardship to Bear Stearns of permitting Sharon to resume his employment at Morgan Stanley is minimal. And Sharon could lose professional standing if the injunction were issued, the judge said.

The case is Bear Stearns & Co. Inc. v. Sharon, case number 1:08-cv-10505, in the U.S. District Court for the District of Massachusetts. Mr. Sharon is ably represented by a friend of WombleTradeSecrets, Mike Boudett of Boston's Foley Hoag firm.

This isn't the first case Bear Stearns has fought on this front, see http://www.nytimes.com/reuters/business/business-bearstearns-employees.html?_r=1&oref=slogin and it certainly won't be the last. We'll report back on how the legal system addresses the Bear Stearns people who jump ship.

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