November 28, 2018
In today's blog, we come across a relatively short FINRA Arbitration Decision that proves how interesting cases can sometimes come in small packages. By way of a tease but without a spoiler, imagine that X and Y agree to a 50/50 split of a commission on a joint-production account. Just before that split is to occur, however, Y exits the picture and can no longer share in the commission. Does X have the right to retain 100% of that commission?
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2017, associated person Claimant Barsegyan asserted breach of contract, unjust enrichment, and conversion in connection with what the FINRA Arbitration Decision characterizes as "an alleged logistical error resulting in Respondent receiving a share of Claimant's commissions." Claimant sought at least $100,000 in compensatory damages plus interest, costs, and fees. In the Matter of the FINRA Arbitration Between Lilit Barsegyan, Claimant, vs. [REDACTED], Respondent (FINRA Arbitration 17-00290, November 16, 2018).
NOTE: In the sole discretion of the BrokeAndBroker.com Blog and following the initial publication of this article, we have REDACTED the name of the Respondent.
Respondent generally denied the allegations and asserted various affirmative defenses.
The Implied Argument . . . Argument?
The sole FINRA Arbitrator offered this insight into the matter at issue:
Claimant has satisfactorily proven that there was an implied argument between herself and Respondent to split the commission on Jackson policy #9220. Respondent acknowledged as much when he caused her to be listed as the co-producing agent on the policy. By no fault of Claimant, this documentation was not completed in time for her to receive half of the $80,000.00 commission that was ultimately paid to Respondent after the license of Claimant's brother (the prior co-producing agent) was deactivated, disqualifying him, by company policy, from receiving any portion of that commission. Had the license of Claimant's brother not been deactivated, Respondent would have received only $40,000.00. By quirk of circumstance, he received $80,000.00 and was thereby unjustly enriched by $40,000.00 to the detriment of Claimant.
Accordingly, the Arbitrator found Respondent liable to and ordered him to pay to Claimant Barsegyan $40,000.00 in compensatory damages. plus $7,519.63 in pre-judgment interest; and ordered Respondent to reimburse Claimant $225 in filing fees.
Bill Singer's Comment
Online FINRA BrokerCheck records as of November 28, 2018, disclose that Claimant Lilit Barsegyan was first registered in 2012; and that Respondent was first registered in 2010; and that both were registered with the same FINRA member firm during the times relevant to the arbitration. I'm not going to name that firm here because it's pretty much an innocent bystander.
As to the FINRA Arbitration's findings, I'm not quite sure what the Arbitrator meant when he stated that Claimant proved that there was an "implied argument between herself and Respondent to split the commission . . ." An implied "argument"? I re-read the currently posted Decision and, sure enough, that's exactly what was published. As I am wont to do, I became obsessed with trying to figure out what an implied argument is . . . and at some point, it dawned on me that the Arbitrator likely mis-typed "agreement," and some auto-correct program altered it into "argument." After that, FINRA's quality control just didn't proofread the proposed Decision and it was published and posted with the nonsensical "implied argument." The other possibility is that there was, indeed, an "implied argument" between Lilit Barsegyan and Respondent -- which would return me to my state of befuddlement absent some explanation about what they were arguing over and which aspects were express and which were implied.
This case starts off with the premise that Respondent and Claimant Barsegyan's brother were co-producers on the account at issue. Just for the hell of it, I did a search in BrokerCheck and found that an Arthur Barsegyan was registered from October 2013 to October 2016 at the same brokerage firm where Claimant Lilit Barsegyan and Respondent were also registered.
In any event, Respondent and Claimant's brother were supposed to evenly split an $80,000 commission; however, the brother's license became "deactivated," which allegedly disqualified him pursuant to company policy from receiving his half of the commissions. Under such circumstances, there are regulatory rules and compliance policies that often require that Respondent not share any transaction-based compensation with an unregistered individual; and, accordingly, he could be entitled to keep the whole commission. On the other hand, and this is the very issue in dispute, there could have been a superseding agreement (or "superseding argument") by which Respondent had agreed to pay Claimant Lilit Barsegyan the $40,000 portion of the commission. When it comes to whether there was any proof of such a superseding agreement, the Arbitrator points to the fact that Respondent acknowledged that he caused Lilit Barsegyan "to be listed as the co-producing agent on the policy." Unfortunately, the paperwork that was to implement the co-producing relationship was not timely submitted and the entire $80,000.00 commission was paid to Respondent.
Finally, I noted that the Arbitrator only found that Respondent had been "unjustly enriched," and not that he had converted the $40,000 commission portion in dispute. Given the facts, that strikes me as a correct conclusion. It's not so much a question of whether Respondent had wrongfully taken and converted Claimant Barsegyan's property as to whether there was a bona fide agreement that obligated him to retain only half of the commission. In light of industry policies, I can certainly appreciate a registered person's reticence in paying any transaction-based compensation to a third-party given the facts that the first designated payee had become unregistered and the necessary paperwork to transfer the 50% share to another registered person had not been timely filed.