Key Witness Walks Out Of Finder Fee Arbitration

November 12, 2014

For some companies, there is a buyer out there, somewhere, but for the fact that the identity of that interested party is unknown. To the rescue of these beleaguered organizations are individuals and companies that go out and beat the bushes. Of course, those finders generally want a fee for their efforts.  More often than not, it's a happy marriage of someone in need with someone in the know. In the end, the firm seeking a buyer gets one and the finder earns a fee.  Sometimes, however, there's a dispute about whether the finder found the buyer and earned the fee. Consider this recent example.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in March 2013, Claimant Greene Holcomb & Fisher LLC ("GHL") asserted
  1. breach of contract;
  2. fraudulent misrepresentation;
  3. negligent misrepresentation;
  4. interference with contractual relationships;
  5. wrongful/intentional interference with prospective advantage;
  6. successor liability pursuant to Minn. Stat, § 513.44 (Uniform Fraudulent Transfer Act);
  7. equitable relief pursuant to Minn. Stat. § 513.47 to pierce corporate veil and hold shareholders liable;
  8. violations of Minn. Stat. § 302A.551 and 302A.557;
  9. equitable estoppel;
  10. promissory estoppel;
  11. quantum meruit;
  12. quasi-contract;
  13. unjust enrichment; and
  14. breach of duty of good faith and fair dealing.
Claimant sought  $788,500.01 in actual/compensatory damages; interest, attorneys' fee, and costs. In the Matter of the FINRA Arbitration Between Greene Holcomb & Fisher, LLC, Claimant, vs. ATM Network, Inc., Cardtronics USA, Inc., Cardtronics, Inc., Philip Rock, James B. Hovland, Kurt D. Duhn, Chad E. Woolson, Tom James, and Donald W. Poluha, Respondents - AND - ATM Network, Inc., Counter-Claimant, v. Greene Holcomb & Fisher, LLC, Counter-Respondent (FINRA Arbitration 13-00914, November 6, 2014).


Respondent ATM generally denied the allegations; asserted various affirmative defenses; and filed a Counterclaim asserting breach of duty of good faith and fair dealing and intentional interference with contractual relations. Respondent ATM sought $1 Million in actual/compensatory damages; attorneys' fees, and costs.

Performance Fees

According to the presentation of facts in the Arbitration Decision, it appears that ATM was looking for a buyer for itself and had retained GHF to locate interested parties and set in motion whatever was needed to close a deal. In furtherance of that undertaking, there appears to have been an Engagement Letter ("the Agreement"), oral contracts, and an Amendment to the Engagement Letter between GHF and ATM.  Claimant GHF alleged that it did what it had been retained to do and was owed a fee for its successful efforts. Quite a dispute arose about who found whom and who owes what, if anything, to whom.

A Paragraph of Confusion

Sadly, the Decision offers us a jumble of facts attempting to explain the precise nature of the disputed deal:

GHF alleged that it acted diligently and in good faith, and invested substantial time, effort, and costs as ATM's exclusive agent to prepare, promote the sale of, find a buyer for, and close the sale of ATM. GHF also alleged that it invested substantial time, effort, and costs in preparing ATM and its management team for the sale process, including the creation of substantial marketing materials regarding ATM. GHF alleged that after receiving the full benefits of GHF's efforts and utilizing GHF's work product for more than twelve months, including the negotiated sale to Seven Bank, Philip Rock devised a scheme to avoid paying GHF its fees and costs by circumventing GHF's exclusive agency rights and selling ATM directly to Cardtronics, which constituted a material breach of the agreement. GHF alleged that ATM breached its obligations to inform GHF of Cardtronics' renewed interest as a potential purchaser of ATM, regarding the potential sale of ATM, and of material developments regarding ATM and Cardtronics, in an effort to avoid paying GHF its fee.

Using a combination of inference and implication, it appears that the guts of this dispute is over whether Claimant GHF spent over 12 months putting together the sale of Respondent ATM to some entity that appears to be "Seven Bank." Having purportedly presented a "negotiated sale" of ATM to Seven Bank, Claimant alleges that Respondent Philip Rock circumvented Respondent's "exclusive" arrangement with Claimant GHF and sold Respondent to some entity referred to as "Cardtronics."

Who, What, When, Where, Why, And How?

You might ask what was involved with the Seven Bank deal. You might ask why that deal apparently fell apart. You might ask who the hell Respondent Rock was. You might ask where this Cardtronics suitor came from.  Frankly, I'd ask all of that and more -- unfortunately, either the arbitrators didn't think we would be interested enough to want to ask questions and receive answers, or the arbitrators didn't think the questions mattered but failed to explain to us why the queries were of no consequence.

SIDE BAR:  According to Cardtronics' website:

Cardtronics is the world leader in managing self-service financial kiosks, providing the physical conduit through which consumers interact with their funds and financial institutions while moving about the real world of everyday life. Our focus is on providing the management and operational expertise used by the world's highest-profile and most influential banking and retail brands to provide remote financial access to their customers.

According to the ATMNetworks website:

ATM Network doesn't just offer ATM machines for sale - we develop long-lasting, win-win relationships. We are an ATM company that provides full-service ATM programs, including hardware, software, transaction processing, maintenance, reporting, marketing, training and on-going customer service.
We are a Master ATM Distributor, which means that we are able to offer the most competitive pricing on all of the most popular ATMs in the industry.
The independent ATM industry has been booming since the early 1990s, but even within that group ATM Network stands out. We are one of the fastest-growing ATM companies in the country because we are dedicated to meeting our customers' every need.
ATM Network was founded in Minneapolis in 1996, and quickly became known as one of the most innovative companies in the business. Our management team has deep experience in the independent ATM industry; our founder, Phil Rock, has been a leader in the industry since its beginning. We have partnered with more than 5,000 merchants who have profited greatly from an ATM Network program.
We know how the industry works, and are committed to developing ATM programs that provide the greatest benefit to our merchant partners.

According to an August 8, 2012 press release "Cardtronics Acquires Assets of ATM Network / Company Establishing Leading Presence in All Segments of Independent ATM Market":

HOUSTON, Aug. 8, 2012 (GLOBE NEWSWIRE) -- Cardtronics, Inc. (Nasdaq:CATM) today announced that its wholly owned subsidiary, Cardtronics USA, Inc., has acquired all the assets of ATM Network, Inc., including its merchant contracts, customer relationships, online store and web properties, and its Minnesota-based head office. ATM Network's management team and employees are expected to join Cardtronics. The transaction was signed and closed on August 7.

ATM Network-founded in 1996, privately owned and headquartered near Minneapolis-provided ATM services to independent merchants, primarily on the local level. Expanding beyond its upper Midwest origins, ATM Network grew into a nationwide company, boasting a merchant client count topping 6,000. With that client base drawn from all 50 United States plus Washington, D.C., ATM Network had more than 6,200 (largely) merchant own-and-load ATMs under contract. . .

No, Neither, Nor

For some odd reason, the Decision focuses more on what allegedly did not happen rather than what did happen.  We are told, for example, that Respondent ATM alleged that:
  • no deal was consummated during the exclusive period of the Agreement;
  • no deal was entered into with a qualified buyer during the tail period of the Agreement; and
  • neither Cardtronics USA, Inc. nor its affiliates were qualified buyers pursuant to the Agreement.
The net effect of those arguments was that Respondent ATM asserted that Claimant GHF was not entitled to a performance fee upon the sale of ATM to Cardtronics.  All well and fine -- but all overwhelmingly conclusory in nature.

Track Record

In contradistinction to Respondent's position, Claimant GHF asserted that it had acted diligently and in good faith, and invested substantial time, effort, and costs as ATM's exclusive agent to
  • prepare,
  • promote the sale of,
  • find a buyer for, and
  • close the sale of ATM.
GHF also alleged that it invested substantial time, effort, and costs in preparing ATM and its management team for the sale process, including the creation of substantial marketing materials regarding ATM.

Cut 'em Loose

The Arbitrators determined that Respondents: Cardtronics USA, Inc., Cardtronics, Inc., Philip Rock, James B. Hovland, Kurt D. Duhn, Chad E. Woolson, Tom James, and Donald W. Poluha, were not FINRA members nor persons associated with FINRA members; and, further, that there was no contract to arbitrate disputes with these entities or individuals. in light of the fact that these cited respondents did not submit to FINRA jurisdiction, the arbitrators declined to adjudicate any claims against them.

SIDE BAR:  As to why these parties were named in a FINRA arbitration in the absence of any FINRA member firm registrations or associations is not explained in the Decision.  Of course, all trials do involve tactics and strategies; and lawyers sometimes hope to gain leverage by naming parties who may or may not be subject to the applicable jurisdiction -- or may or may not be amenable to having a grievance adjudicated in a particular forum.  Many a winning position starts out with a risky gambit; on the other hand, a poorly played opening can doom the game from the start. Whatever the desired effect sought by naming these respondents, it appears that the Arbitration Panel got it right and refused to pull all these fishes in with the haul of Claimant GHF's widely-cast net.

Going Through The Motions

On or about August 11,2014, Respondent ATM filed a Motion for Summary Judgment. On or about August 20, 2014, Claimant GHF filed an Opposition to Respondent ATM's Motion. On or about August 25, 2014, Respondent ATM filed a Reply Memorandum of Law in Support of its Motion for Summary Judgment.

On or about September 4, 2014, a pre-hearing call was held for oral arguments on the Motion. The Panel issued an Order denying Respondent ATM's Motion. The Order also stated: "The Panel unanimously reaffirms the Chairperson's previous ruling and wording on the Order dated August 22, 2014. The hearing scheduled for September 23-26, 2014 will be expected to proceed."

On or about September 24, 2014, Respondent ATM filed a Request for Recusal and/or Removal of all three arbitrators on the Panel. On or about September 24, 2014, Claimant filed an Opposition to Respondent ATM's Request.

On or about September 24, 2014, the Panel denied the Request for Recusal. Pursuant to the Industry Code Rule 13407, the Director of Arbitration reviewed the parties' positions regarding the removal of the three Arbitrators and denied the application.

At the hearing, Claimant made the following four motions:
  1. Claimant's Motion in Limine to Exclude Certain Evidence and for an Adverse Inference
  2. Claimant's Motion in Limine to Exclude Respondent's Hearing Exhibits 232, 233 and 234.
  3. Claimant's Motion in Limine to Exclude Evidence Re: Respondent's Counterclaim and to Dismiss it with Prejudice; and
  4. Claimant's Motion for a Direct Award, which was made because Respondent's witness, Philip Rock, walked out of the hearing while under oath and never returned. His representative advised the Panel that they would no longer cooperate with the hearing.
The FINRA Arbitration Panel granted Motions 2, 3, and 4; but denied Motion 1.

SIDE BAR: Witness Rock walked out of the hearing and never returned, and, for good measure, he declined to cooperate any further.  Now that's just not going to augur well for Respondent ATM.  When the head of the company that was sold walks out during testimony at a hearing seeking to address the circumstances of that company's sale and its ultimate liability for a finder's fee, you know that a lot -- and I mean a lot -- of adverse inferences are going to be drawn by the arbitrators. You also suspect that Claimant's counsel had a huge grin on his or her face.  And don't forget that following Rock's departure, the Panel granted Claimant GHF's Motion for a Direct Award. Somewhere, someplace, there was the unmistakable sound of "ka-ching."


On October 2, 2014, the parties were notified that the Panel set a deadline of October 10, 2014, for Claimant to submit an Affidavit for Attorneys' Fees. On or about October 8,2014, Claimant's post-hearing submission was sent to the Panel for consideration.

The FINRA Arbitration Panel found Respondent ATM Network, Inc. liable to and ordered it to pay to Claimant GHF:
  • $788,750.00 in compensatory damages as the full amount of the commission in question pursuant to the terms of the Agreement with 10% per annum interest on the award of compensatory damages from March 20, 2014 through payment in full;
  • $20,000.00 in costs of capped expenses that Claimant was owed pursuant to the terms of the Agreement with 10% per annum interest on the award of compensatory damages from August 7, 2012 through payment in full;;
  • $1,250.00 as reimbursement for the non-refundable portion of the filing fee;
  • $10,690.51 in costs;
  • $245,407.50 in attorneys' fees pursuant to the terms of the Agreement;
The Counterclaim of ATM Network, Inc. was denied and dismissed with prejudice.

Bill Singer's Comment

In the end, a resounding victory for Claimant GHF. 

I should not have had to dig up so much about the underlying acquisition of ATM by Cardtronics and the managerial role of Philip Rock.  The arbitrators owed us at least that much content and context. A little bit more effort and a little bit more quality control from FINRA would have made a big difference in rendering this Decision more understandable.