Salomon Smith Barney Inc. v. Vockel
137 F. Supp. 2d 599 (2000)
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Rule of Law:
Under the doctrine of unclean hands, a plaintiff is barred from obtaining equitable relief, such as a preliminary injunction, if it has engaged in the same unconscionable conduct of which it now complains and that conduct has an immediate and necessary relation to the matter in litigation.
Facts:
- In 1994, while Stewart M. Vockel, III was employed as a financial consultant at Merrill Lynch, he was recruited by Salomon Smith Barney Inc. ('Smith Barney').
- At Smith Barney's direction, Vockel provided his Merrill Lynch client account statements to Smith Barney before his resignation.
- Smith Barney used this information to prepare and pay for solicitation packages to be sent to Vockel's Merrill Lynch clients.
- On Smith Barney's advice, Vockel resigned from Merrill Lynch on a Friday afternoon in October 1994 and, with Smith Barney's assistance, successfully solicited nearly all his clients to transfer their accounts.
- Upon joining Smith Barney, Vockel signed an employment agreement promising to keep client information confidential and not to take any records with him if he left.
- In April 2000, while still employed by Smith Barney, Vockel provided account statements for 254 of his Smith Barney accounts to a competitor, Paine Webber.
- Paine Webber prepared solicitation packages, including pre-printed account transfer forms, which were mailed to Vockel's Smith Barney clients.
- On April 28, 2000, Vockel resigned from Smith Barney, taking newly printed client lists and financial statements with him, and began calling clients to solicit them to move to Paine Webber.
Procedural Posture:
- Salomon Smith Barney Inc. ('Smith Barney') filed a lawsuit against its former employee, Stewart M. Vockel, III ('Vockel'), in the United States District Court.
- Smith Barney simultaneously initiated an arbitration proceeding against Vockel with the National Association of Securities Dealers seeking monetary damages.
- In the district court action, Smith Barney filed a motion for a preliminary injunction to prevent Vockel from using client information.
- The district court denied Smith Barney's initial request for a temporary restraining order.
- The district court then held a hearing on the motion for a preliminary injunction.
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Issue:
Is a plaintiff barred by the doctrine of unclean hands from obtaining a preliminary injunction to prevent a former employee from soliciting clients using confidential information, when the plaintiff previously encouraged and assisted that same employee in engaging in identical conduct against a prior employer?
Opinions:
Majority - Bartle, District Judge
No. A plaintiff is barred by the doctrine of unclean hands from obtaining a preliminary injunction where its own prior conduct is tainted with the same inequitableness relative to the matter for which it seeks relief. Smith Barney cannot obtain an injunction because it actively encouraged and abetted Vockel in the exact same conduct against Merrill Lynch in 1994. The court found that Smith Barney instructed Vockel to take confidential client information, prepared solicitation packages, and advised him to resign on a Friday to facilitate the transfer of accounts. Having profited from this 'unconscionable behavior' for years, Smith Barney now seeks the court's help to prevent the same conduct. The court concluded that Smith Barney's past misdeeds have an 'immediate and necessary relation to the equity that it seeks,' and therefore, the court will not aid a wrongdoer, regardless of the defendant's improper behavior.
Analysis:
This case serves as a powerful illustration of the equitable maxim that 'he who comes into equity must come with clean hands.' The decision establishes that a party's own past conduct, when directly related to the subject matter of the lawsuit, can completely bar it from obtaining equitable remedies like an injunction. For firms in the financial services industry, this ruling underscores the risk that aggressive and potentially tortious recruiting practices may prevent them from later enforcing confidentiality or non-solicitation agreements against those same employees. It demonstrates that courts will scrutinize a plaintiff's historical behavior and will refuse to grant extraordinary relief to a party that is hypocritically complaining about conduct it previously sanctioned and benefited from.
