Former Hightower advisor sues firm over noncompete restrictions

Case against RIA aggregator seeks relief and damages over allegedly over-broad interpretation of noncompete language.

A former advisor with Hightower is taking legal action against the firm over what he claims are overly restrictive and constraining non-compete clauses related to his past relationship with the firm.

In a document filed with the U.S. District Court for the Southern District of California, attorneys for Darren Reinig explained how Hightower was allegedly impeding their client’s ability to build a business after he left the firm.

Reinig’s relationship with Hightower began in 2019, when Hightower facilitated the merger of LA-based wealth management firm LourdMurray with Delphi Private Advisors – a firm Reinig helped found in 2009 – to create LMDP. After the merger, Reinig stayed on as the new entity’s chief investment officer.

The 2019 acquisition included a “standard protective agreement,” which contained broad non-solicitation, noncompete, and non-hire provisions. Under the non-solicitation and noncompete provisions, Reinig was prohibited from engaging with any business contacts or personnel related to Hightower or LMDP for 24 months after cutting off ties with Hightower.

In December 2021, Reinig decided to leave LMDP due to disagreements with the other principals. Hightower agreed to buy out his stake in the firm in exchange for cash considerations, among other terms. In buying Reinig out, Hightower retained the noncompete, non-solicitation, and non-hire clauses from the previous protective agreement.

After leaving Hightower, Reinig transitioned his clients to LMDP as part of a consulting agreement, then sought to pursue other business and work opportunities, mostly in California. According to Reinig’s attorneys, he followed the two-year noncompete restrictions stemming from the sale of his interests in LMDP, which expired on December 28, 2023.

But Hightower contends Reinig’s noncompete obligation should extend to December of this year or even December 2025. The firm argues those provisions should be extended by virtue of Reinig’s ongoing services to the firm after 2021, both through the consulting relationship and his work to transition clients to LMDP.

In the court filing, Reinig’s attorneys claimed this interpretation runs counter to California’s Business and Professions code.

Among other things, they argued that Hightower’s noncompete, non-solicitation, and non-hire language in its past contractual agreements was “expired,” “overly broad and unreasonable,” and “violates the strong public policy … in favor of open competition.”

Reinig is seeking relief on multiple counts in the case, including a judicial declaration to nullify the noncompete and non-hire clauses, an injunction preventing Hightower from trying to enforce those provisions, damages, and an award to cover the costs of his legal action.

The case against Hightower comes several months after the Chicago-based RIA revealed plans to lay off around 5% of its workforce as part of an “ongoing strategic realignment.”

“We remain confident in our financial stability and are committed to delivering exceptional service to our clients within the Hightower community as we move forward,” a spokesperson for the firm told InvestmentNews at the time.