Judge Sides With Dynasty Over Merrill in OpenArc Legal Fight
A federal judge ruled against Merrill Lynch’s attempts to restart paused litigation involving OpenArc Corporate Advisory, a massive $129 billion breakaway affiliated with Dynasty Financial Partners.
In the previous motion, Merrill argued that the case against OpenArc, its key players and Dynasty needed to be restarted because Dynasty was reneging on alleged promises to be a party to FINRA arbitration proceedings related to the case.
Dynasty argued that they’d made no such promise and that the wirehouse misread an earlier order by the federal judge in the case, which paused the litigation while the parties fought it out in arbitration.
In this week’s ruling, Atlanta District Federal Judge Victoria Calvert agreed with Dynasty, arguing that while Merrill Lynch “may have assumed that all of the parties were going to arbitration,” the earlier order was “plainly limited.”
The saga started last fall, when Erik Bjerke and other principals in Merrill’s Global Corporate and Institutional Advisory Services team became frustrated with what they described in court documents as Merrill’s lack of investment in the division.
After years of talks, they launched OpenArc, a $129 billion Atlanta-based RIA, majority-owned by senior leadership with minority backing from Dynasty. The firm launched as a mega-RIA that would typically take years (and multiple acquisitions) to create.
OpenArc moved independent (with Dynasty support) as one team, with 77 advisors, 95 corporate clients and more than 10,000 individual and family relationships, according to the firm’s website.
Merrill responded quickly by filing a federal lawsuit in Georgia, alleging that OpenArc leadership launched a premeditated “corporate raid” when starting the new firm and breached non-solicitation contractual obligations in the process, including by taking client information. The suit also named Dynasty and firm custodian Charles Schwab as defendants.
The federal judge denied a temporary restraining order, but according to court documents, the case paused last fall after the parties allegedly agreed to resolve the issues in FINRA arbitration. In March, Merill pressed to reopen the case, claiming Dynasty “reneged” on an agreement to arbitrate.
However, Dynasty accused the wirehouse of legal “sleight of hand” in its arguments, claiming Dynasty was never a party to the agreement to arbitrate, and that Merrill should have known that Dynasty was not a FINRA-registered member and wouldn’t be party to the proceedings.
Dynasty also claimed that Merrill’s counsel, when asked during proceedings who was participating in the arbitration process, wrongly stated that “everyone is going,” and that Dynasty shouldn’t be bound to arbitration by “negative consent.”
According to Calvert, Merrill argued that Dynasty’s failure to notify the Court that it didn’t consent to FINRA jurisdiction amounted to consent, and that many other statements during the court hearing could lead the Court to believe Dynasty had consented.
“However, the excerpts included in (Merrill’s) Motion are devoid of the context necessary to clearly construe them in (Merrill’s) favor,” she wrote. “And the Court is not convinced that Dynasty’s statements (or silence) at the hearing, without more, are sufficient to establish consent to be bound to FINRA arbitration.”
In a statement, a Dynasty spokesperson lauded the court’s “well-reasoned decision denying Merrill Lynch’s unfounded and mischaracterized attacks on Dynasty and the entire independence movement.”
A Merrill spokesperson said, the firm was “aware of the Court’s procedural decision, and we will continue to vigorously litigate our claims against all of the defendants in both court and arbitration on the merits.”
