Financial advisor's $2M award confirmed in court as M&A case drags on

A financial advisor's FINRA arbitration award of more than $2 million received confirmation in court, but the dispute between her and the buyer of her practice has spilled into other cases.

Devin Garofalo of Midlothian, Virginia-based Colonial River Wealth Management failed to prove that an arbitrator committed misconduct or displayed improper motives in the decision in favor of Jayne Di Vincenzo of Savannah, Georgia-based Fiduciary Edge Advisors, a Richmond city court judge ruled earlier this month. Garofalo's lawyer said he plans to appeal, and his business is also pursuing cases against her former brokerage, Cambridge Investment Research.

The March 2022 arbitration decision by a FINRA panel in Norfolk included one arbitrator who Judge Jacqueline McClenney said had a "minor direct relationship" with Di Vincenzo's business displaying a "faint" and "tenuous connection" prior to the case, she wrote in her opinion. Michael A. Glasser and two other arbitrators unanimously ordered $2.07 million in compensatory damages, unpaid commissions, attorney fees, expert witness costs plus interest based on Di Vincenzo's claims of breach of contract and other rule violations after the 2020 transaction.

"The court finds that the respondent has failed to put forward facts that objectively demonstrate such a degree of partiality that a reasonable person could assume that the arbitrator had improper motives," McClenney wrote in the June 8 decision. "The court finds that the respondent has failed to carry his burden of showing misconduct by arbitrator Glasser or resulting prejudice to the rights of a party. The court finds that the respondent failed to carry his burden of showing that the arbitrators exceeded their powers."

On those grounds, McClenney tossed Garofalo's petition to vacate the decision and confirmed the arbitration award. 

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"I am very happy with the outcome," Di Vincenzo, who had been affiliated with LPL Financial at the time of the deal and has since left Cambridge for Kestra Financial, said in an interview. "It was the right decision, legally sound."

Glasser should have disclosed a past business relationship between Di Vincenzo's firm and a bank where he was a shareholder and sat on the board of the bank's parent company, according to Garofalo's lawyer, Tom Wolf of Miles & Stockbridge. The judge's decision confirming the award "should not affect" a pending lawsuit filed by a subsidiary of Colonial River accusing Di Vincenzo and Cambridge of breaching the terms of the asset purchase agreement, Wolf said in an email. Garofalo has also filed a FINRA arbitration case against Cambridge.

"The legal question is whether the relationship was 'trivial' and whether the arbitrator's admitted misconduct of not making the required inquiry, and consequently submitting a false oath, prejudiced Devin's rights," Wolf said. "Devin had an absolute right to have that information disclosed so that he could make an informed decision in choosing arbitrators. FINRA rules do not put a time limit on relationships and interactions with parties that must be disclosed."

Representatives for Cambridge declined to comment on the case, citing a policy against commenting on litigation.

The case is a cautionary tale about the lengthy litigation that can ensue when an M&A deal falls apart and the difficulty of overturning arbitration decisions. 

Last year, Wells Fargo prevailed in an appeals court decision that threw out a rare ruling by a Georgia county court to vacate an arbitration award. In a different case filed by an advisor against a Cetera Financial Group branch manager she accused of breaching the terms of their sales agreement, a planner won an award to her for more than $500,000 earlier this year. It took her nearly five years fighting the arbitration case to get the award.

Cases involving failed succession plans or business transfers display why M&A advisory firm Advisor Growth Strategies frequently reminds registered investment advisory firm owners that "you can pay for the advice now, or you can pay for representation later," principal Brandon Kawal said in an interview. The need for "getting a great legal counsel involved early in the planning process" of any deals is "one of the things that's hard to ignore" amid the continuous flow of M&A transactions across the industry, Kawal said. 

"A lot more deals happened in the last five years than ever before," he said. "The probability just goes up that you're going to have disagreements, and these things will end up in some sort of legal proceeding."

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Di Vincenzo filed her case against Garofalo and Colonial River in September 2020, accusing them of breach of contract, breach of covenant of good faith and fair dealing, disparagement and defamation, fraud and misrepresentation, and tortious interference with business expectancy, according to the arbitration award. She sought a major part of the deferred payments under the February 2020 transaction selling her practice — which had $170 million in client assets from 330 households and $1.4 million in annual revenue — for $3.6 million.

Garofalo argued that Di Vincenzo broke that agreement by hiring one of Colonial River's employees and retaining clients who were part of the business she sold in the transaction. The pending case in Richmond's federal court accuses her and Cambridge of tortious interference and conspiracy. 

In trying to get the arbitration award overturned, Garofalo cited Glasser for "evident partiality" based on a relationship between Di Vincenzo and the bank's trust arm amounting to $12,876 in commissions paid five years before the beginning of the case, according to the judge's order.

The next hearing in the federal case is scheduled for June 27, court records show. The judge in that case had ordered a stay in the discovery phase of the matter earlier this month, until after a decision in the arbitration confirmation in the city court or on motions to dismiss filed by Cambridge and Di Vincenzo.