Judicial Ruling: Merrill Lynch's Effort to Reinitiate OpenArc/Dynasty Litigation Fails

Federal Judge Rejects Merrill Lynch's Motion to Revive Lawsuit

A federal judge recently issued a ruling against Merrill Lynch's endeavors to reactivate a paused lawsuit involving OpenArc Corporate Advisory, a substantial entity with $129 billion in assets, affiliated with Dynasty Financial Partners.

Merrill Lynch's Prior Argument for Litigation Resumption

In a previous filing, Merrill Lynch contended that the lawsuit against OpenArc, its key executives, and Dynasty needed to be resumed due to Dynasty's alleged failure to uphold commitments to engage in FINRA arbitration proceedings pertinent to the case.

Dynasty's Counterargument and the Court's Interpretation

Dynasty countered that no such commitment was made and that Merrill Lynch misinterpreted an earlier judicial order that had temporarily halted the litigation, directing the parties towards arbitration. This week, Federal Judge Victoria Calvert of the Atlanta District concurred with Dynasty, noting that while Merrill Lynch "may have presumed that all of the parties were going to arbitration," the preceding order was "plainly limited."

Genesis of the Dispute: OpenArc's Formation and Merrill's Response

The conflict began last autumn when Erik Bjerke and other leaders within Merrill's Global Corporate and Institutional Advisory Services division expressed dissatisfaction with Merrill's perceived lack of investment in their sector. Following extensive discussions, they established OpenArc, a $129 billion Atlanta-based Registered Investment Adviser (RIA), primarily owned by its senior leadership with a minority stake held by Dynasty. This firm was launched as a mega-RIA, a scale typically achieved through years of growth and multiple acquisitions.

Merrill Lynch's Allegations and Initial Legal Actions

Merrill Lynch promptly initiated a federal lawsuit in Georgia, accusing OpenArc's leadership of executing a premeditated "corporate raid" and violating non-solicitation agreements by appropriating client information. The lawsuit also named Dynasty and Charles Schwab, the firm's custodian, as co-defendants. Although the federal judge denied a temporary restraining order, the case was paused last fall after the parties reportedly agreed to pursue resolution through FINRA arbitration. In March, Merrill sought to reopen the case, asserting that Dynasty had "reneged" on an arbitration agreement.

Dynasty's Defense Against Arbitration Claims

Dynasty, however, accused Merrill Lynch of employing a legal "sleight of hand," maintaining that Dynasty was never a party to the arbitration agreement. They argued that Merrill should have recognized that Dynasty, not being a FINRA-registered member, would not be subject to such proceedings. Dynasty further claimed that Merrill's counsel, when queried about arbitration participants, erroneously stated that "everyone is going," and that Dynasty should not be compelled into arbitration through "negative consent."

Judicial Analysis of Consent and the Final Decision

Judge Calvert noted that Merrill Lynch argued Dynasty's failure to explicitly reject FINRA jurisdiction constituted consent, and that various statements during the hearing could lead the court to infer Dynasty's agreement. Nevertheless, Calvert concluded that the presented excerpts lacked the necessary context to unequivocally support Merrill's position. She stated, "And the Court is not convinced that Dynasty's statements (or silence) at the hearing, without more, are sufficient to establish consent to be bound to FINRA arbitration." A Dynasty spokesperson praised the court's "well-reasoned decision," while a Merrill spokesperson affirmed the firm's intention to "vigorously litigate our claims against all of the defendants in both court and arbitration on the merits.