## Facts

- Compass Bank employed Kenneth R. Hartley, Jr. as a Senior Portfolio Manager with direct responsibility for client relationships and investment accounts.
- Hartley executed an offer letter containing a two-year post-employment non-solicitation covenant.
- From 2001–2005, Hartley received stock option grants containing restrictive covenants, including non-solicitation and confidentiality terms.
- The 2004–2005 stock option agreements contained “step-down” provisions offering alternative durations (2 years/18 months/12 months) and alternative geographic scopes (including 25–50 mile radii) to permit enforcement of a narrower restraint if broader terms were unreasonable.
- The 2005 agreement’s Section 8(g) replaced prior stock-option restrictive-covenant language, making Section 8(g) the operative set of restrictions for purposes of enforcement.
- Hartley left Compass, formed Erisey Wealth Management, LLC, and began competing in the same general market.
- Compass alleged Hartley and Erisey solicited and serviced Compass clients within the restricted period and area and threatened Compass’s confidential information and goodwill.
- Compass sought a preliminary injunction to enforce the restrictive covenants and prevent further client diversion while the case proceeded.

## Issues

1. Whether Compass demonstrated a strong likelihood of success in enforcing the operative restrictive covenants under Arizona law, including the validity of step-down provisions.
2. Whether Compass showed a threat of irreparable harm absent injunctive relief (including loss of goodwill and client relationships).
3. Whether the balance of hardships and public interest favored issuance of a preliminary injunction.

## Decision

- The court granted Compass’s motion for a preliminary injunction.
- The court treated Section 8(g) of the 2005 stock option agreement as governing Hartley’s operative post-employment obligations.
- The court found Compass showed a strong likelihood of success that enforceable restrictive covenants existed and that Hartley’s competitive conduct likely violated at least a reasonable, narrowed version of those covenants.
- The court found irreparable harm because loss of client relationships and goodwill is difficult to quantify and not readily remedied by money damages.
- The court found the balance of hardships favored Compass because the injunction would primarily require Hartley to comply with limited contractual restrictions he accepted, while preventing ongoing harm to Compass.
- The court found the public interest favored enforcement of reasonable contracts protecting legitimate business interests.
- The court directed the parties to submit a joint statement proposing the specific injunctive terms.

## Legal Principles

- A preliminary injunction requires: (1) strong likelihood of success on the merits, (2) threat of irreparable harm, (3) balance of hardships favoring the movant, and (4) consistency with the public interest.
- Under Arizona law, post-employment restrictive covenants may be enforced when they are no broader than necessary to protect legitimate interests (including client relationships, goodwill, and confidential information) and are reasonable in duration and geographic scope.
- Contractual “step-down” provisions can support enforcement of a narrower restraint at the preliminary stage where the record indicates at least some lesser duration and geographic scope is likely reasonable and severable from broader alternatives.
- Loss of customer relationships and goodwill may constitute irreparable harm supporting injunctive relief in restrictive-covenant disputes.

## Conclusion

The court granted preliminary injunctive relief because Compass showed a strong likelihood of enforcing at least a narrowed version of the operative restrictive covenants, and because continued client diversion threatened non-quantifiable harm to Compass’s goodwill and customer relationships while a tailored injunction imposed limited, time-bound constraints consistent with contract enforcement and public policy.


Compass Bank v. Hartley, 430 F. Supp. 2d 973 (D. Ariz. 2006)