Washington-based advisor claims another win in non-compete battle vs. Hightower

A former Hightower financial advisor in Bellevue, Washington, has claimed a key win in an arbitration case, with a panel ruling that the firm's attempt to enforce a non-compete clause was “designed more to punish [him] than to advance Hightower’s legitimate business interests.”

The ruling, handed down March 28, represents the latest turn in a legal dispute between advisor Lars Knudsen and his former firm.

The panel from the American Arbitration Association determined that the non-compete clause in Knudsen’s agreement was unenforceable as a matter of law, a decision that brings Hightower’s enforcement efforts to a halt after more than a year of litigation.

The arbitration is part of a broader conflict that began when Knudsen sued Hightower in March 2024, in King County, Washington. Hightower responded the following day by filing for injunctive relief in Illinois federal court, only to withdraw its suit just before a ruling on the enforceability of the restrictive covenants.

Following a furious legal back and forth, Hightower later attempted to revive its injunction request during arbitration, narrowing the scope of the covenants in question.

The arbitration panel, however, rejected Hightower’s bid to revise the agreement’s terms midstream. It noted that allowing the company to walk back its original language would “create a perverse incentive towards overbreadth or lack of clarity,” adding that the non-compete “is not reasonable even subject to the [limitations] proposed by Hightower.”

In a statement following the ruling, Dawn Mertineit, a partner at Seyfarth Shaw representing Knudsen, emphasized the significance of the panel's findings.

“In addition to the win on the merits of our claim, the panel of arbitrators found that not only was the non-compete unenforceable, but that Hightower was attempting to punish Lars, which has cost him financially and has impacted his long-standing sterling reputation as a trusted financial advisor,” she said.

The panel also denied Hightower’s request for a preliminary injunction related to the agreement’s non-solicitation provisions. It concluded that Hightower had failed to meet the burden of proof and limited the provision's scope. In doing so, the arbitrators affirmed Knudsen’s right to continue serving clients who proactively choose to work with him.

“The interest of the clients who wish to move their accounts with Knudsen must be respected, and consideration must be given to the right of the customer who, solely through his/her own efforts seek to retain the services of Knudsen,” the panel wrote in part.

The decision also addressed procedural concerns stemming from Hightower’s litigation tactics. The panel criticized the firm for unilaterally withdrawing its federal court case, saying that “at least part of the delay in presenting this request for preliminary injunction was caused by Hightower’s decision to voluntarily dismiss the federal case in which the request had been fully briefed and argued.”

Knudsen called the process “punishing” and 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."

A separate statement from counsel representing Hightower Advisors panned Knudsen's painting of the panel's order, noting how it "explicitly rejected Knudsen's efforts to invalidate Hightower's agreements under Washington's statute" and concluded the non-solicit covenant he had agreed to was "reasonable and enforceable."

"The Panel's Order ultimately turned on whether injunctive relief was warranted at this time because, as they noted, 'the vast majority of Customers have likely already been solicited.' " said Matt Henneman, Managing Partner, Henneman Rau & Kirklin LLP, in an emailed statement to InvestmentNews.

"Hightower is confident of its ability to recover meaningful damages at the conclusion of the arbitration proceeding,"  Henneman said. "To conclude that the Panel's Order was, in any significant manner, a rejection of Hightower's claims is a gross misreading of the Panel's decision." 

In a separate case, a federal judge in Delaware ruled in favor of former Hightower advisor Darren Reinig in January, finding that a non-compete provision tied to a California-based transaction violated state public policy and was therefore unenforceable.