A Delaware District Courtroom has dominated {that a} non-compete settlement between Hightower and advisor Darren Reinig was unenforceable and void underneath California regulation.
Reinig’s movement to dismiss Hightower’s lawsuit in opposition to him was granted partially on Hightower’s claims across the non-compete violations. However Hightower can nonetheless battle claims he stole commerce secrets and techniques from the agency. Reinig nonetheless has an ongoing arbitration in opposition to Hightower with the American Arbitration Affiliation.
“Hightower simply shot themselves within the foot,” mentioned Robert “Robin” Traylor, Reinig’s lawyer. “They raised a difficulty that didn’t must be fought over, and that’s the validity and enforceability of their restrictive covenants. And Choose Andrews has simply determined that these restrictive covenants are unlawful and unenforceable.”
“Whereas we’re nonetheless evaluating the Delaware courtroom’s determination and our subsequent steps, our proceedings with Mr. Reinig are transferring ahead in arbitration the place we stay assured that we’ll prevail,” a Hightower spokesperson mentioned in a press release.
San Diego, Calif.-based Reinig was the founding associate of Delphi Personal Advisors, an RIA Hightower acquired in 2019 and merged with LourdMurray, one other California-based agency. Nevertheless, a number of years later, Reinig opted to go away and registered a brand new RIA with the SEC. When he started work at Hightower, Reinig signed a contract together with confidentiality, non-compete and non-solicitation mandates.
He was topic to a two-year non-compete, which ran by the tip of December 2023, in line with Traylor. Traylor mentioned they reached out to Hightower and tried to get them to acknowledge the non-compete had expired. However the agency now claims the non-compete rolls on eternally by a tolling provision.
“Hightower selected to reject any of these overtures, and so they picked a battle,” Traylor mentioned.
Within the Delaware courtroom determination, Choose Richard G. Andrews mentioned Hightower’s non-compete was void underneath California regulation. Underneath an exception to California regulation, if a restrictive covenant is made in reference to the sale of a enterprise, it’s authorized. Nevertheless, this exception is proscribed to the geographic scope of the bought enterprise. And since Delphi was headquartered in San Diego, “proscribing Reinig from participating in funding advisory enterprise all through the US is untenable,” the choice mentioned.
“What the courtroom says is, you’ve violated California regulation since you’ve tried to impose nationwide restrictive covenants,” Traylor mentioned.
Traylor mentioned the courtroom’s determination has implications for different California-based advisors.
“The logic applies much more broadly than that as a result of any state that has a California-like statute or relevant regulation that claims, ‘We don’t permit for restrictive covenants besides in restricted conditions just like the sale of the enterprise,’ the identical logic would apply,” he mentioned. “It’s an actual blow to their enterprise mannequin, which tries to tie up advisors and impede the chance that property underneath administration will switch away.”
“They’re making an attempt to make an instance of Darren Reinig to allow them to ship a message to the broader advisor neighborhood that when you attempt to go away Hightower, we’re going to make your life costly and litigious. And primarily, that message has now popped,” Traylor mentioned.
