* Claims Idaho brokers produced more than half of branch revenue
* One veteran Smith Barney broker also served as branch manager
* Stifel brokers said they abided by industry protocol
NEW YORK, May 29 (Reuters) - Morgan Stanley has asked an Idaho court to prohibit three brokers it says generated over half the revenue at its Coeur d'Alene branch from contacting former colleagues about joining them at a Stifel Nicolaus & Co. office they have set up in the same city
The office's producing branch manager, Michael Armon, and two associates resigned from Morgan Stanley on May 9, causing "upset, anxiety, insecurity, uneasiness and concern" at "a relatively small office" that had only six advisers, according to a May 17 filing in U.S. District Court for the District of Idaho by the brokerage. The brokers who left oversaw about $229 million of client assets and generated about $1.7 million of revenue annually, the filing said.
Morgan Stanley seeks return of all company and client documents from the advisers and asked the court to ban them from destroying any records or documents that could be used in an arbitration proceeding that is being arranged. It also asked to enjoin them from contacting the three brokers and their support staff still working at the Morgan Stanley office.
Brokerage firms fight fiercely to retain and recruit top brokers and requests for restraining orders are common. The Idaho case, however, brings up some unusual issues, lawyers said. Most significantly, it could help distinguish between illegal "raiding" of a branch and acceptable recruiting practices that are largely orchestrated by branch managers.
Those practices were codified several years ago in a "Protocol for Broker Recruiting" that big firms initiated to lower their legal costs and that has now been signed by more than 800 firms, including Morgan Stanley and Stifel. It allows brokers who give notice to take with them only the names, addresses, phone numbers, e-mail addresses and account type of clients in return for not being sued.
The protocol does not absolve one firm from decimating a branch office of another, however, according to a lawyer who helped write the document and sought anonymity since he has worked with both Morgan Stanley and Stifel.
"The whole point is to allow brokers to move with their clients as long as they don't take impermissible data. Does it matter if they got a suggestion from a branch manager to make a move?" said Patrick Burns, a lawyer who specializes in helping advisers move from large firms.
Armon, who has worked for more than 34 years at Morgan Stanley and its Smith Barney predecessor, said in a filing that he did not violate the producing branch manager employment agreement he signed in 2008 with Smith Barney.
Armon's Smith Barney employment agreement also prohibits him as a branch manager who has clients from soliciting employees within 100 miles of their new branch for 18 months.
The issues relating to raiding are likely to be decided by arbitrators in a Financial Industry Regulatory Authority forum once the Idaho judge rules on Morgan Stanley's request for a temporary restraining order on the brokers.
Steven Andersen, a Boise-based lawyer who represents the brokers, said the court has orally denied Morgan Stanley's requests regarding the return of data but has temporarily enjoined them from contacting current Morgan Stanley employees.
He also said that the parties have begun negotiations to pick an arbitration panel to decide further issues.
Stephen Thomas, the Boise attorney representing Morgan Stanley, did not return a call for comment.
Stifel, which is based in St. Louis and is part of Stifel Financial, has defended itself in more than six arbitrations in recent years involving alleged abuses in recruiting brokers from Wells Fargo Advisors.