An American Arbitration Association panel has ruled against Chicago-based Hightower Holdings in its efforts to enforce a non-compete agreement, according to WealthManagement.com.
The matter involves one of the firm’s former advisors, Lars Knudsen from Washington state, who was fired last year and subsequently accused of diverting funds, stealing company secrets and violating a non-compete clause.
The arbitration panel ruled that Hightower was trying to prohibit Knudsen from conducting business in areas of the country where Hightower wasn’t located, adding that the non-compete seemed “designed more to punish Knudsen than to advance Hightower’s legitimate business interests.”
In their ruling, the arbitrators said “Although Hightower argued at the hearing that there are reasons to preclude Knudsen from joining an entity that has a physical location within 100 miles of Seattle, in proximity to Hightower’s office there, it offered no explanation why the covenant should apply within 100 miles of Scottsdale, where Hightower does not even have an office.”
The decision marks the latest development in the ongoing dispute between the two sides. A year ago, Knudsen and his firm filed their own suit against Hightower. Knudsen alleged that the firm “hijacks” advisors’ books of business and corners them into signing legally unenforceable restrictive covenants before pushing that advisor out on pretextual grounds. He also accused Hightower of running a disinformation campaign against him.
Hightower later dropped its claims against Knudsen, days before a judge was scheduled to rule on the enforceability of the contract provisions. But the company said it would continue to pursue its case before an arbitrator.
While Hightower lost its bid to enforce the non-compete agreement, the arbitrators also ruled against the RIA’s request for a preliminary injunction to enforce a non-solicitation agreement, stating that while the clause was “reasonable and enforceable,” most customers covered by the rule “have likely already been solicited.”
In a statement, Knudsen accused Hightower of prolonging the dispute for retaliatory reasons. “This is a case that showcases Hightower’s vindictive behavior – threatening me with ongoing lawsuits and threatening my former clients with legal action all to hurt me,” he said, stressing that all he wanted from the beginning was “a swift and fair resolution to the dispute with Hightower.”
Hightower’s Counsel Matt Henneman, a managing partner with Henneman Rau & Kirkin, said Knudsen’s view of the panel’s decision was “at best, misleading.”
Henneman contends the arbitrators rejected Knudsen’s attempt to invalidate the agreements under Washington state statute, and noted that the panel considered the non-solicitation agreement reasonable and that the decision of non-solicitation turned on the fact that most customers had already been reached.
“In light of the Panel’s Order explicitly confirming the available contractual monetary remedy, and its recognition of Knudsen’s admissions that he has already violated his obligations under the SPA, Hightower is confident of its ability to recover meaningful damages at the conclusion of the arbitration proceeding,” Henneman said.
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