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Law Offices of Jonathan M. Cooper

Why One Broker's Claim for Commissions Based on "Custom" Failed in NY


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1/1/2016
Jonathan Cooper
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It should be obvious.

But, based on the conduct I've recently seen by some companies facing threats of litigation, the point deserves some attention.

Here goes:

Just because a brokerage or consulting firm that you used to do business with claims that they are entitled to credit for any deals you subsequently close doesn't make it so.

Fortunately, a Federal Court in New York recently re-affirmed that rule in Obex Securities, LLC v. Healthzone Limited. In that breach of contract case, the plaintiff's agreement with the defendant company provided that it was entitled to receive a 9% commission, or "placement fee," for amounts invested in Healthzone by companies it was introduced to by plaintiff.

Although no such companies invested in the defendant - at least directly - a significant amount of money was ultimately invested in Healthzone.

Here's the tricky part: the company that arranged this investment (but not making the investment) was Westminster. And Obex had introduced Healthzone to Westminster.

Nevertheless, in granting Healthzone summary judgment and dismissing the breach of contract claim, the Court opined as follows:

"While Obex contends that it is customary in the financial services industry to award placement fees on investments obtained through indirect introductions, such alleged custom is irrelevant where there is an unambiguous contractual provision. It is undisputed here that: (1) Westminster never invested any money in Healthzone, and (2) Obex never introduced any entity other than Westminster to Healthzone. Therefore, under the Agreement, Obex has no claim for placement fees on any of the capital that was later invested in Healthzone by Westminster's clients. Moreover, because the Agreement was non-exclusive, Obex cannot argue that Healthzone acted unlawfully or in bad-faith by retaining Westminster as a second broker-dealer to secure investing clients."

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