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Manager Disputes Non-Compete Pact

Lawyers are scheduled to appear in a Boston court Friday to argue over whether James D. McCall, a portfolio manager at Pilgrim Baxter & Associates, should be allowed to leave the firm and join Merrill Lynch & Co.

McCall filed suit May 14 against Pilgrim Baxter of Wayne, Pa. and its parent company, United Asset Management of Boston, saying that a non-compete agreement which McCall has with Pilgrim Baxter is not binding. Pilgrim Baxter and UAM filed a counter-suit also on May 14 asking a Massachusetts state court judge to uphold McCall's non-compete agreement.

A judge is expected to hear arguments Friday over whether McCall should be permitted to leave Pilgrim Baxter, said Steven L. Manchel, a lawyer for McCall. As of last Wednesday, McCall continued to work at the firm, Manchel said. McCall manages several Pilgrim Baxter mutual funds and separate accounts.

The suit is the second in Massachusetts state court in the past two years which challenges the extent to which a non-compete agreement limits a portfolio manager who wants to change jobs. In February, 1998, a Massachusetts court ruled that Arnold Schneider, a former portfolio manager at Wellington Management Company of Boston, could open his own firm but could not take former Wellington clients with him.

A state appeals court upheld the ruling. Manchel said the McCall case is unlike the Schneider matter because McCall is not taking clients with him and because McCall disclosed his plans to look for another job months before attempting to move to Merrill Lynch. McCall alleged in a complaint dated May 13 that he told Pilgrim Baxter about his plans to look for another job in October and that the firm did not object.

McCall's allegations "are an attempt to break a valid and enforceable contract," said Tucker Hewes, a spokesperson for Pilgrim Baxter and UAM, in a statement. He declined further comment.