The founders of an affiliate firm of Focus Financial Partners have won a temporary restraining order against the New York, N.Y.-based RIA after suing their former firm for withholding their management fees, claiming Focus unlawfully tried to obtain their proprietary personal information and threatened to fire an employee.
Levi McMellian and Brian Chastain are the founders of CFO4Life Group in Coppell, Texas, an accounting and tax practice they started in 2006 and which was formerly affiliated with LPL Financial. Expanding into wealth management, they left LPL in 2012 and eventually joined Focus Financial in 2017. At the time, McMellian cited Focus’s M&A resources and Focus lauded CFO4Life’s client service model and growth trajectory
As detailed in McMellian and Chastain’s lawsuit filed in a Texas district court last Thursday, Focus bought “substantially all the assets” of CFO4Life’s RIA business. The parties signed a management agreement where McMellian and Chastain would manage the RIA assets and get a fee from Focus each month.
According to the filing, Focus Financial paid the fee up until last November but stopped and now owes the defendants about $1.1 million in unpaid fees.
In the suit seeking a temporary restraining order and temporary injunction, the plaintiffs also alleged that Focus began trying to get access to their “private books and records” and personal and proprietary information such as tax returns, bank statements and cancelled checks.
McMellian and Chastain claim such activity breached the management agreement the parties signed as the information wasn’t “in connection with the business and performances of services” connected to the business Focus bought from the plaintiffs.
The TRO the plaintiffs won last week granted would prevent Focus Financial from accessing the plaintiffs’ personal data and information regarding outside business activities.
A hearing is set for August 20th where the CFO4Life team will argue for a permanent injunction.
In its lawsuit, the plaintiffs alleged that Focus Financial eventually resorted to “bullying tactics” when they failed to get the information they demanded through “proper channels.”
For example, the advisors said Focus Financial earlier this month went to their information technology vendor, PCS International and “demanded” that PCS turn over to Focus Financial and its forensic firm access to the advisors’ “systems and data, without limitation.”
McMellian and Chastain said Focus Financial went to PCS behind their backs “to obtain through the back door what the management agreement does not permit through the front.”
“It is instructive to note,” the plaintiffs said in the filing, “that defendants and their counsel have not subpoenaed any of the requested information nor taken any legal measure to obtain the information,” because they don’t have any legal rights to it.
For their part, the plaintiffs maintained that they “have not refused any lawful inspection of the business records.”
According to the suit, the parties agreed to mediation in July, but Focus Financial “turned the dispute extra-contractual and began scorching the earth with its self-help bullying tactics.”
Focus, for example, issued a litigation-hold notice to all CFO4Life employees who are managed by the advisors and “threatened to terminate the employment” of a worker who failed to comply with their “request’” for information, according to the lawsuit.
The lawyers representing each party declined to comment on the lawsuit.