Joint Venture Collapses Into FINRA Arbitration Slugfest Over Fee Division

August 8, 2012

In a Financial Industry Regulatory Authority Arbitration Statement of Claim filed in January 2010, Claimants Jones and Wealth Rescue Strategies asserted breach of contract; breach of fiduciary duty; tortious interference with contract; tortious interference with business expectancies; conversion; slander; constructive trust; unjust enrichment; and injunction. The causes of action relate to a joint venture agreement between the parties. In the Matter of the FINRA Arbitration Between Chris Leroy Jones and Wealth Rescue Strategies, Inc., Claimants/Counter-Respondents. vs. First Texas Alliance Corporation, NuSource Financial Group, Sally Thompson, Robert Wayne Thompson, and David Brownell Wheless, Respondents/Counter-Claimants (FINRA Arbitration 10-00375, August 3, 2012).


Claimants sought at least $500,000 in damages, punitive damages, costs and fees. Claimants further asked for the imposition of a constructive trust on the funds allegedly taken by Respondents Robert Wayne Thompson and Wheless. Also, Claimants sought temporary, preliminary and permanent injunctions prohibiting Respondents from modifying the documents pertaining to the fee division between Claimants and Robert Wayne Thompson, and ordering that Respondents restore the original fee division between Respondent Robert Wayne Thompson, Claimant Jones, and Claimant Wealth Rescue.

Respondents generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim, which alleged gross misrepresentations; bad faith; and vexatious litigation.  Further, Respondents sought that at least $44,000 in damages, costs, expenses, and fees.

SIDE BAR:  While FINRA arbitrations are often fairly simple matters, they can involve complicated and often oddball facts and legal maneuvers.  Consider this quote from the FINRA Arbitration Decision:

At the conclusion of Claimants' case, Respondent Sally Thompson made a Motion to Dismiss. The Claimants contested the motion. The Claimants' contention with respect to Respondent Sally Thompson was that she was named only so that community property could be attached under Arizona law in the event of an award against her husband, Respondent Robert Wayne Thompson. Since this was apparently something unique under Arizona law which the Panel determined was not the law of the case, the Panel detemnined to grant Respondent Sally Thompson's Motion to Dismiss.

Award

The FINRA Arbitration Panel found Respondent Robert Wayne Thompson solely liable to and ordered him to pay $100,000 to Claimant Jones.The Panel dismissed all claims against Respondents First Texas Alliance Corporation, NuSource Financial Group, Sally Thompson and David Brownell Wheless. Also, Claimant Wealth Rescue Strategies' claims were dismissed.
Bill Singer's Comment

If you're in the biz, you understand what this mess is about - so many joint ventures that were entered into with high hopes and good intentions crash and burn.  This was but another example.  One only needs to read the laundry list of causes of actions to take the temperature of how heated this dispute was.

When I counsel my clients on entering into such ventures, my opening points usually entail what I call the Dreaded D's: Death, Divorce, Disability, and Disqualification. Look at each of your partners and ask what happens if he or she dies, gets divorced, becomes disabled, or is disqualified from their career.  You may be surprised at how uncomfortable the ensuing conversations can get - but these are serious issues that must be tackled before you draft any organizational documents.

The next stop on the way towards formalizing these joint ventures and team deals is to prepare a Shareholder Agreement (or similar document geared towards the legal entity used in furtherance of the undertaking) and often aBuy-Sell Agreement.  These two documents create the mechanics that will limit or prevent the sale of anyone's ownership interest to undesirable outside parties and will set forth the path to be pursued when disputes require litigation/arbitration. Moreover, these agreements will provide for what happens if a team member is not pulling his or her weight and whether they may be deemed retired or disabled - or what is necessary to properly terminate a member.

Sadly - guess what - even with the most air tight of legal documents, things happen and you may still find yourself in litigation.  Nonetheless, the more time you spend drafting the agreements and understandings that will pave the way for your joint venture, the less likely it is that you will quickly find yourself sitting amidst ashes - not a guarantee but the odds are at least better.