## Facts

- Merrill Lynch employed Cornelius E. Callahan and John M. Polanshek, Jr. as financial analysts in its Burlington, Vermont office for approximately 15 and 18 years, respectively, and provided substantial training.
- As a condition of employment, each signed an agreement providing that, for one year after termination, he would not solicit clients he served or whose identities became known to him at Merrill Lynch.
- The agreements also stated that client names and addresses were Merrill Lynch’s property and must be treated as confidential during and after employment; the employees also annually assented to a privacy policy limiting disclosure of clients’ personal information without authorization.
- On April 25, 2003, Callahan and Polanshek (along with a client associate) resigned without notice and joined a nearby competitor, Wachovia Securities, Inc.
- At resignation, they serviced accounts exceeding $79 million in assets and generating over $801,000 in commission revenue for Merrill Lynch in the prior 12 months.
- Merrill Lynch alleged the defendants retained client contact information and used it to solicit former clients, violating contractual non-solicitation and confidentiality provisions and misappropriating trade secrets under the Vermont Uniform Trade Secrets Act (VUTSA).
- Merrill Lynch asserted harms including loss of clients and goodwill, unpredictability of future revenues, and damage to office morale with a risk of further employee departures.

## Issues

1. Whether Merrill Lynch was likely to prove the client list and related information qualified as a trade secret under VUTSA and was misappropriated by retention and use after resignation.
2. Whether Merrill Lynch was likely to prove breach of contractual non-solicitation and confidentiality obligations warranting interim enforcement.
3. Whether Merrill Lynch showed irreparable harm and otherwise satisfied the standard for a temporary restraining order and preliminary injunction.

## Decision

- The court denied Merrill Lynch’s motion for a temporary restraining order and preliminary injunction.
- The court found Merrill Lynch had not made a sufficient merits showing on the trade secret and contract theories to justify the requested restraints at the preliminary stage.
- The court concluded Merrill Lynch failed to demonstrate irreparable harm because the asserted injuries (lost commissions, goodwill effects, and morale impacts) were speculative and/or compensable through money damages.
- The court also considered client autonomy and the burden an injunction would place on defendants’ ability to compete and on clients’ freedom to choose their advisers.

## Legal Principles

- Preliminary injunctive relief requires a clear showing of irreparable harm and, depending on the formulation applied, likelihood of success on the merits (or serious questions going to the merits with the balance of hardships favoring the movant).
- Under VUTSA, information is a trade secret only if it has economic value from not being generally known and is subject to reasonable efforts to maintain secrecy; contractual labels of “confidential” or “property” are not dispositive.
- Basic client names and contact information that are known to clients or readily ascertainable may be insufficient, without more, to support trade secret protection at the preliminary-injunction stage.
- Alleged losses consisting primarily of commissions and other revenue expectations typically are reparable through damages; uncertainty in projecting future earnings does not, by itself, establish irreparable injury.
- In disputes involving professional-client relationships, courts may weigh clients’ right to choose service providers when assessing equitable relief restraining post-employment contact.

## Conclusion

The court refused to enjoin former financial advisers from contacting prior clients because Merrill Lynch did not show that the client contact information was likely a protectable trade secret or that the asserted business harms were imminent and non-compensable, and the equities favored avoiding restrictions that would limit competition and client choice.


Merrill Lynch, Pierce, Fenner & Smith Inc. v. Callahan, 265 F. Supp. 2d 440 (D. Vt. 2003)