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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 ...

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