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Advisors Financial Center, L.L.C. v. Gary Goldberg Planning Services


September 3, 2009


On appeal from Superior Court of New Jersey, Law Division, Bergen County, Docket No. L-1381-05.

Per curiam.


Argued May 5, 2009

Before Judges Collester, Graves and Grall.

Following a trial to the court on a complaint and counterclaim asserting claims arising from a dispute over division of annual fees paid by investors, a final judgment in the amount of $224,738.84 was entered in favor of defendants/ third-party plaintiffs Gary Goldberg Planning Services, Inc. and Gary Goldberg (collectively GGPS) on their cross-claim against plaintiff Advisors Financial Center, L.L.C. (AFC). The parties had resolved prior litigation concerning the fee dispute, which was dismissed after they reached a "Compromise and Settlement Agreement" on July 19, 2004 (CSA). The court rejected AFC's claim that GGPS breached a provision of the CSA that entitled AFC to terminate its relationship with GGPS. The court also rejected GGPS's third-party claims alleging tortious conduct on the part of third-party defendants Charles Lieberman and Kevin Kern, all affiliated with AFC, and GGPS's claim that AFC fraudulently secured the CSA. The court denied the parties' respective claims for award of counsel fees and costs pursuant to the CSA. AFC appeals, and GGPS cross-appeals.*fn1

Substantially for the reasons stated by the trial court in its written decision of April 13, 2007, we affirm the dismissal of AFC's claim that GGPS breached the CSA so as to entitle AFC to terminate that agreement.*fn2 We modify the court's determination as to GGPS's entitlement to fees under the parties' several agreements to give effect to paragraphs three and five of the CSA, but otherwise affirm those determinations substantially for the reasons stated in the trial court's decision because they are supported by the evidence. R. 2:11-3(e)(1)(A). Our modification requires a remand for reconsideration of the amount of the judgment and warrants reconsideration of counsel fees available pursuant to the CSA.

These facts are relevant to our decision that modification is necessary to give proper effect to the CSA. AFC provides money management services for individuals and institutions, and GGPS is in the business of providing financial advice to individuals and institutions and referring its clients to other financial service providers. AFC was established in 2001 when Goldberg was under investigation by the United States Security and Exchange Commission (SEC). AFC was initially operated by Kern and a co-worker who were at that time affiliated with GGPS. Subsequently, Charles Lieberman and his son Michael joined AFC.

On June 6, 2001, AFC and GGPS executed an "Agreement Between Adviser and Solicitor" (solicitor's agreement). In that agreement, GGPS acknowledges its "desire[] to refer potential clients to AFC" and AFC acknowledges its "wish[] to obtain referrals of potential clients for advisory services." To that end, they formulated a "fee arrangement."

The solicitor's agreement provides for AFC to pay GGPS "a cash referral fee as determined in accordance with" a schedule attached to the agreement. The schedule is "based on the value of the assets of those clients referred to and placed under the control of AFC." The schedule describes the fee charged to clients as a percentage of assets in the client's account and a fee paid to GGPS, also stated as a percentage of assets in the client's account. The percentage varies with the type and value of the client's account as do the parties' respective shares of the percentage fee.

The June 2001 solicitor's agreement also provides for payment of "subsequent compensation" in accordance with the same schedule. That "subsequent compensation" is the subject of this dispute. The relevant paragraphs of the solicitor's agreement provide:

Subsequent compensation to [GGPS] shall be based on the value of the client's account(s), adjusted for any contribution or withdrawals by the client and for any subsequent capital appreciation or depreciation in the value of assets under AFC's management........ Provided this Agreement is not terminated for cause pursuant to Section IV B. hereof, AFC agrees to continue the payment of earned referral fees to [GGPS] so long as the referred client's assets remain under the management of AFC pursuant to an investment advisory agreement between AFC and the Client, subject, however, to the conditions [stated relevant to GGPS's status with the United States SEC].

Despite the fee schedule, the parties adopted a practice of "discounting" fees for some clients. In those cases, they accepted payment of their proportionate shares of the discounted fee.

The fees payable to the parties are deducted from the clients' accounts by a "clearing house." Depending upon the "clearing house" utilized for a particular account, the total amount deducted is paid to either GGPS or AFC. That practice leaves the recipient to divide the parties' respective shares of the fee. Disputes arose over the timeliness of GGPS's delivery of payments it received and AFC's role in shifting accounts from a clearing house that sent client fees to GGPS to a clearing house that sent fees to AFC and its affiliates.

Over time some clients referred to AFC by GGPS moved their accounts from GGPS to other advisors in which the principals of AFC had an interest. And, several brokers employed by GGPS left that organization and took with them clients they had referred to AFC while at GGPS.

On July 14, 2003, the parties executed a resolution in an attempt to address their disputes. In part pertinent here, it includes a provision prospectively modifying the fee arrangement. It states: "Effective Q4 2003, AFC will be paid 80 basis points for assets managed on behalf of GGPS."*fn3

Following the adoption of the resolution, the fee disputes continued. As a consequence, in June 2004, AFC filed a complaint in the Law Division. The CSA was entered to resolve the continuing fee disputes and the litigation. As indicated above, its was executed on July 19, 2004 and resulted in dismissal of that litigation.

The CSA includes a broad release of prior claims. Paragraph three, "Releases," provides that with the exception of two specific accounts - "the Lifshey account [and] the Dreskin account" - the parties "irrevocably release each other... from any and all legal or equitable claims, causes of actions, liabilities, damages, obligations, liens, contract claims, claims for economic damage and non-economic losses and demands of any kind emanating from the prior business relationships... through the date of this [CSA]."

In preserving their respective claims to fees for the Lifshey and Dreskin accounts through the CSA, the parties agreed to submit those claims to an arbitrator who was identified in the CSA.

While the CSA released claims for fees due prior to its execution, it did not terminate the parties' obligation with respect to prospective fees. The CSA confirms the parties' intention to proceed, from the date of that agreement forward, pursuant to their prior agreement and the CSA.

The release provides that it is subject to the parties' "respective rights... to enforce the terms of this CSA, and the Agreement, as that Agreement may be modified by this [CSA]." The CSA defines the term "Agreement" to mean the "Agreement dated June 6, 2001 entitled 'Agreement between Adviser and Solicitor.'"

The CSA modifies the June 6, 2001 agreement, with respect to prospective fees of specified clients. Paragraph six provides:

Effective June 25, 2004 at 12 noon, AFC commits and has committed to cease and desist any effort to move clients identified in the Client List attached as Exhibit "B" from leaving the control and dominion of GGPS, particularly with reference to the clearing firm to pay management fees and commissions as provided for in the Agreement between Advisor and Solicitor. To the extent any clients from the list in Exhibit "B" were in fact "moved" to a different clearing firm, the names of those clients shall be enumerated in Exhibit "C" and same shall be certified by AFC or its principals.... Further, with respect to the clients enumerated in Exhibit "C" the fee structure paid to GGPS shall without exception remain in place. AFC has no authority to change the fee structure, i.e. GGPS receiving the excess over 80 basis points based upon the fee structure in place on June 1, 2004.

The trial court concluded that the CSA did not "extinguish" the provisions of the solicitor's agreement addressing "subsequent compensation." The court also determined that AFC was obligated to pay fees owing to GGPS for periods prior to the CSA and set forth standards for determining the applicable rate based upon the solicitor's agreement and the resolution as modified by the parties' practice of discounting fees.

Although the trial court resolved the legal issues arising under the terms of the parties' several agreements, the judge did not determine the amount owed. With respect to calculation of the fees due under the parties' agreements, the court directed:

GGPS is entitled to a judgment for commissions and interest to be calculated pursuant to the findings of this Court. If the parties can stipulate an amount for that judgment, they should submit an order to the Court within ten days or that matter should be submitted to their agreed upon arbitrator,... for an accounting and final calculation pursuant to the rulings contained herein.

No stipulation was entered, and the parties proceeded to arbitration as directed by the court. Although AFC objected to the referral by letter to the court, there is no indication in the record provided to us on appeal that a motion for reconsideration was filed. Similarly GGPS submitted a letter to the court objecting to the arbitrator's interpretation of the court's written decision prior to the arbitrator's decision fixing the amount of fees, but GGPS did not seek reconsideration or clarification.

We conclude that the trial court erred by failing to give effect to the third and sixth paragraphs of the CSA. The parties agreed the CSA would be interpreted in accordance with New York law. And, under New York law, the terms of the unambiguous release incorporated in this agreement resolving litigation and the provision fixing rates for specified clients should be given effect. See Greenfield v. Philles Records, Inc., 780 N.E.2d 166, 171 (N.Y. 2002) (holding that a "written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms"); Hackett v. Milbank, Tweed, Hadley & McCloy, 654 N.E.2d 95, 102 (N.Y. 1995) (discussing New York's "strong policy considerations favoring the routine enforcement of voluntary settlements").

By force of the release included in their settlement, neither AFC nor GGPS was entitled to an award for fees payable on or before July 19, 2004. Further, as to accounts within paragraph six, the rate specified in that paragraph applies to prospective fees. There is no evidence that the parties' practice of discounting fees was applied to these clients after the CSA. Accordingly, we remand the matter to the trial court for reconsideration in conformity with this opinion.

Because neither party properly raised an objection to the court's order directing them to resolve the amount of the fee dispute before an arbitrator, we decline to address the objections raised on appeal. Neider v. Royal Indem. Ins. Co., 62 N.J. 229, 234 (1973). Should that issue arise on remand, the court must address it in accordance with statutes, court rules and decisional law governing appointment of arbitrators and special masters.

AFC's objections to the trial court's evidentiary rulings and its rulings on motions to intervene and sever lack sufficient merit to warrant discussion in a written opinion.

R. 2:11-3(e)(1)(E).

The trial court may reconsider its decision to deny both parties' counsel fees pursuant to the CSA in light of this decision and the court's ultimate determination, including the award of counsel fees on appeal which must abide that determination. See R. 2:11-4.

Affirmed in part and remanded for further proceedings in conformity with this opinion.

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