Non-Competition Restrictions Upheld on Investment Adviser

March 5, 1999

The United States Court of Appeals for the Third Circuit recently overturned a District Court decision in favor of a trust fund seeking to do business with an IA in contravention of a non-competition agreement between the IA and its former hedge fund.  The trust fund, which had been a client of the former hedge fund, argued unsuccessfully that the hedge fund had breached its fiduciary duties to the trust fund by preventing it from moving its assets to the IA’s new hedge fund.  In respect of ERISA plan assets, the trust fund argued that the hedge fund had breached its fiduciary duties under ERISA, and with respect to non-ERISA assets, under the Investment Advisers Act.  Although the District Court had found in favor of the trust fund on both counts, the Court of Appeals overturned the decision.  As a result for the foregoing, the IA and its new hedge fund were prevented from doing business with the trust fund for a period of five years, in accordance with the terms of the non-competition agreement between the IA and its former hedge fund. 

For additional information on this topic, you may contact Howard A. Neuman or Carol Spawn Desmond.