Hightower Advisors lost a round in federal court in a legal battle with one of its former advisors, reports AdvisorHub.
The matter involves Darren Reinig, who provided financial services and investment advice through the firm from July 2019 to December 2021. District Court Judge Richard G. Andrews in Delaware dismissed Hightower’s claims that Reinig breached a non-compete agreement when he opened a new firm in February 2024.
Hightower had sought a temporary restraining order blocking Reinig from soliciting his former clients to join his new advisory firm. Andrews found that Hightower’s non-competition agreements are void under California law and blocked the firm from enforcing them against Reinig.
Reinig, based in California, was the founding partner of Delphi Private Advisors, an RIA Hightower acquired in 2019 and merged with LourdMurray, another California-based firm. Several years later, Reinig left and registered a new RIA with the SEC. When he began work at Hightower, Reinig signed a contract including confidentiality, non-compete and non-solicitation mandates.
He filed suit against Hightower last year seeking to pre-emptively invalidate the non-compete and non-solicitation agreements, which he contended were illegal because they were too broad and included unreasonable restrictions on employees.
Hightower then sued Reinig, accusing him of violating those agreements by transferring customers to his new registered investment advisor. Hightower claimed that it was exempt from California’s ban on non-compete agreements because state law includes a carve-out for instances in which a business has been purchased.
Andrews said the law allows companies to prohibit an individual from competing in a similar business in the specific area where the business was sold but added that “restricting Reinig from engaging in investment advisory business throughout the United States is untenable.”
A Hightower spokesperson said the firm is still evaluating its next steps in court but will continue with arbitration, where it has a claim for a permanent injunction and damages.
“While we are still evaluating the Delaware court’s decision and our next steps, our proceedings with Mr. Reinig are moving forward in arbitration where we remain confident that we will prevail,” the spokesperson said.
“I never wanted a public dispute in this matter, and tried many times to reach an amicable resolution with HighTower prior to any litigation,” Reinig said in a statement. “I appreciate Judge Andrews’ ruling.”
The decision “calls into question whether any of [Hightower’s] restrictive covenants for any of their advisors throughout California had any validity whatsoever,” Reinig’s lawyer, Robert M. Traylor, told AdvisorHub. “The answer is they don’t.”
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