Federal Judge Rules Hightower Cannot Enforce Noncompete Agreement

A federal judge has ruled that Hightower cannot enforce a noncompete agreement against former advisor Darren Reinig, who left the firm and later launched his own RIA.

The decision, issued by Judge Richard Andrews of the U.S. District Court in Delaware, determined that the noncompete clause Hightower sought to enforce was unenforceable under California law.

“Under California law, noncompete clauses are illegal, absent the application of a specific exception,” Judge Andrews wrote in his ruling.

While the court dismissed some of Hightower’s claims, it allowed the firm to file an amended complaint by February 8, specifically regarding allegations that Reinig misappropriated trade secrets such as client lists, contact details, and proprietary investment strategies.

Hightower maintains that the case is far from over.

“While we are still evaluating the Delaware court’s decision and our next steps, our proceedings with Mr. Reinig are moving forward in arbitration, where we remain confident that we will prevail,” a spokesperson for the firm stated.

Implications for Wealth Advisors

The ruling underscores the challenges firms face in enforcing noncompete agreements, particularly in states like California, where such clauses are generally prohibited.

The case is also unfolding against the broader backdrop of regulatory scrutiny on noncompetes. The Federal Trade Commission attempted to implement a nationwide ban on most noncompete agreements in April 2024, but the regulation was struck down in August following legal challenges. With the current administration unlikely to revive the effort, advisors and firms must navigate a patchwork of state laws governing restrictive covenants.

Background on the Dispute

Reinig joined Hightower in 2019 when the aggregator acquired Delphi Private Advisors, a San Diego-based RIA in which he held a 50% stake. Following the acquisition, Hightower merged Delphi with another advisory firm, Lourd, creating LourdMurray.

Reinig remained with Hightower through December 2021, selling his stake in LourdMurray and assisting with client transitions until his formal departure at the end of 2022.

Hightower alleges that Reinig violated his separation agreement when he launched Torren Management in February 2024. According to a June regulatory filing, the San Diego-based RIA manages $147 million across five high-net-worth clients.

Reinig’s Response

Reinig addressed the dispute publicly via LinkedIn, asserting that he fulfilled his contractual obligations before starting Torren Management.

“I sold my LourdMurray interests, transitioned my clients, and complied with the agreed-upon two-year noncompete term before launching Torren in February 2024,” he wrote, emphasizing that his firm is “definitely not a breakaway.”

Reinig also noted that he had attempted to resolve the dispute privately.

“In 2023 and early 2024, I made multiple efforts to avoid a public dispute with Hightower Advisors to no avail,” he stated. “I remain hopeful that a resolution can be achieved so that we can all move on.”

Key Takeaways for RIAs

For independent advisors and RIAs, the case serves as a critical reminder of the evolving legal landscape surrounding noncompete agreements. While California has long prohibited such clauses, similar restrictions could emerge in other states, particularly as regulatory agencies continue to scrutinize restrictive employment contracts.

Advisors contemplating transitions should ensure that separation agreements comply with applicable state laws and be mindful of potential legal challenges when launching new ventures. Meanwhile, firms seeking to protect client relationships may need to rely more heavily on trade secret protections and nonsolicitation agreements rather than traditional noncompetes.

As the case between Hightower and Reinig moves into arbitration, it highlights the increasing importance of careful contract structuring and legal risk assessment in advisor transitions.

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