Merrill Accuses Dynasty of Reneging on Arbitration
Merrill Lynch claims that Dynasty Financial Partners is walking back its pledge to arbitrate disputes involving OpenArc Corporate Advisory, a $129 billion Dynasty-backed breakaway RIA.
The wirehouse originally filed its suit against OpenArc, Dynasty and custodian Charles Schwab in September, alleging that the parties orchestrated a premeditated “corporate raid” to launch the firm, while the defendants claimed Merrill never negotiated in good faith regarding the advisors’ departure.
According to court documents, the case paused last fall after the parties agreed to resolve the issues in FINRA arbitration. However, Merrill now argued in a filing in Atlanta federal court last week that Dynasty “reneged on its agreement to arbitrate.”
Merrill claims that after the hearing, when the wirehouse sought a temporary restraining order that paused the case, Dynasty “quietly” claimed it never consented to FINRA arbitration. It also never informed Merrill, either during the original hearing or in the months since, that it didn’t consent to arbitration.
Instead, Merrill claimed Dynasty first informed them it wouldn’t arbitrate on Jan. 14, leaving the wirehouse at what it called “a procedural impasse.” According to Merrill, Dynasty’s “lack of candor” was “shocking,” and the firm knew what it was doing.
“It stayed silent because if it informed the Court that it did not consent to arbitrate, it could affect not only the Court’s decision on Merrill’s motions for a TRO and expedited discovery, but also the Court’s decision whether to stay the proceedings as to all parties – and that is exactly what happened,” Merrill’s attorneys wrote.
OpenArc declined to comment, while a spokesperson for Dynasty said that the federal judge had denied an emailed request from Merrill requesting to lift the stay in the federal case, and that Merrill had now filed its formal motion asking the same.
“Dynasty strenuously disagrees with Merrill’s continuing mischaracterizations at every point in this matter, and we are preparing our response to this most recent attack,” they said.
The Atlanta-based team’s move to leave Merrill last fall and open an RIA was an industry blockbuster, essentially standing up a ready-made mega RIA that would typically take years and multiple acquisitions to build.
Senior Managing Partner Erik Bjerke and several other OpenArc founders made up the bulk of Merrill’s Global Corporate and Institutional Advisory Services unit; to create OpenArc, the advisors lifted most of the GCIAS team with them.
The firm is majority-owned by senior leadership, with Dynasty holding a less than 20%, non-controlling minority stake, akin to its typical setup. Dynasty CEO Shirl Penney also took a board seat on the new firm.
In response, Merrill sued the leading players, including OpenArc, Dynasty, and the firm’s leaders (including Bjerke). Merrill claimed that the team was part of one of the firm’s “specialty” practice groups, offering advice to UHNW individuals, families, and institutions, and that the advisors were given existing relationships by the firm.
The wirehouse claimed the defendants conspired to poach Merrill’s business while violating the Protocol for Broker Recruiting (which allows advisors to move between firms and take certain client information without the threat of litigation).
But Dynasty and the OpenArc team fired back, claiming they’d followed Broker Protocol procedure, and that the wirehouse hadn’t listened to the team’s calls for further investment, claiming they’d lost out on $45 million in lost revenue.
Bjerke and the other defendants also argued that when Merrill learned the team was leaving, it launched negotiations to keep them. But Merrill allegedly “hoodwinked” the team by filing their initial lawsuit and leaking it to the press before the firm’s founding was publicly announced, leaving much of the public’s first knowledge of the firm to be via Merrill’s lawsuit.
According to court documents, Merrill claims Dynasty’s sin is one of omission, citing several transcribed moments from the September court hearing in which the firm’s counsel could have interjected to clarify that Dynasty would not acquiesce to being part of an arbitration proceeding.
In the same order staying the proceedings pending arbitration, the court denied Merrill’s motion for a temporary restraining order, arguing the wirehouse didn’t meet the burden necessary to show “the extraordinary remedy of a preliminary injunction” was needed.
In an interview with Wealth Management, Bjerke called the court’s original decision to reject Merrill’s temporary restraining order request “a defining moment for OpenArc, for the independent movement and for the industry at large.”
According to Merrill, Dynasty sent the court a letter on Feb. 5, claiming it cannot be required to arbitrate without its consent because it is not a FINRA member firm. But Merrill contended that at the prior court hearing, Dynasty, “either explicitly or implicitly,” consented to arbitration.
“Merrill’s position, simply, is that Dynasty cannot now, because it is strategically convenient, withdraw that consent to avoid arbitration and overall accountability for its’ conduct,” the motion read.
Merrill proposed several solutions, including that the court reverse its prior motion and allow the lawsuit to proceed, or that it mandate Dynasty to participate in FINRA arbitration.