An update was reported by AdvisorHub in the ongoing legal battle between Dynasty Financial Partners and Merrill Lynch involving a raiding dispute.
Merrill Lynch has alleged that Dynasty and Charles Schwab & Co. supported a “premeditated corporate raid” to lure a team of former advisors who left Merrill’s Global Corporate & Institutional Advisory Services team and broke away to form an RIA called OpenArc Corporate Advisors. Merrill also claims that Dynasty reneged on an agreement to arbitrate the matter in a Financial Industry Regulatory Authority forum.
Dynasty has now responded with its own legal action in federal court, denying the accusation that it reneged on the agreement because it asserts it never consented to arbitration in the first place.
Dynasty filed a brief asking a judge to reject Merrill’s attempt to either force it to arbitrate or lift a stay in the case so litigation against the RIA backer and service provider can proceed. Dynasty argued that Merrill based its motion on “willful misstatements” about a prior court order and a September hearing.
Dynasty alleges that Merrill’s motion to enforce arbitration was made in bad faith and that the firm had misstated facts about the judge’s arbitration order in an email to the court. The brief contends that Merrill Lynch’s request is disingenuous because it recognized that the judge granted a motion that only OpenArc and its individual defendants had filed agreeing to arbitrate.
A spokesperson for Merrill Lynch responded the firm just wants the opportunity to litigate its claims against Dynasty. “As our previously filed motion states, we are simply seeking the right to pursue our claims against Dynasty in the appropriate forum,” the spokesperson said in a statement.
In October the court stayed the litigation after it denied Merrill’s motion for a temporary restraining order against the defectors. The motion by Dynasty states that Merrill made “gross distortions of the record” informally during oral arguments, and that the company “was and remains aware that there is no arbitration agreement between it and Dynasty.” It also contends Merrill has admitted Dynasty can’t be compelled to arbitrate because Dynasty is not a FINRA member.
Merrill in mid-February argued that Dynasty should be compelled to participate in the FINRA arbitration, claiming the firm had effectively consented during the earlier hearing.
Dynasty accuses Merrill of taking statements from the hearing out of context to argue that the firm implicitly agreed to FINRA jurisdiction. Arbitration agreements must be in writing under federal law and cannot be created through silence or implication, the filing argued.
Dynasty also said that Merrill is trying to “enforce” an order that never required it to arbitrate in the first place. Dynasty noted that it is not a FINRA member broker dealer and therefore cannot be compelled to arbitrate absent a written agreement, which it said does not exist.
Merrill Lynch filed a lawsuit accusing OpenArc, Dynasty, and Schwab of running a “premeditated corporate raid” to lure advisors from the wirehouse to form a $129 billion RIA, contending that “strong-arm tactics” were used. “Upon information and belief, the individual defendants and the corporate defendants have been collaborating to divert the GCIAS business from Merrill and open a Dynasty and Schwab-affiliated registered investment advisor,” the lawsuit said.
The firm sought an injunction barring the defendants from, among other actions, soliciting or contacting Merrill clients or prospects they came to know while at the firm or encouraging Merrill employees to leave. Merrill said it could suffer “irreparable harm” without intervention from the court.
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