A federal judge in Alabama has dismissed a lawsuit brought against Ohio National by five individual broker-dealer reps. The lawsuit pertains to Ohio National entities’ decision to stop payment of trail commissions on certain variable annuity products last year.
ProEquities rep Ansley "Trip" Whatley, LPL Financial rep (formerly of Raymond James) Susan Moore, Securities America advisor Tracy Lentz, NEXT Financial’s Keith Bowers and LPL FA Chris Noone all sued Ohio National entities for breach of contract, among other claims, in November of last year. The reps argued they were third-party beneficiaries of the selling agreement between Ohio National entities and their broker-dealer firms for the sale of the variable annuities in question.
Ohio National entities sought to dismiss the breach of contract claim by arguing that individual reps weren't intended third-party beneficiaries of the selling agreement “because the plain language of the Selling Agreements forecloses a finding that such agreement was entered directly or primarily for the benefit of individual representatives, like Plaintiffs.”
And Chief U.S. District Judge Emily Marks agreed with Ohio National.
In a memorandum opinion and order, Judge Marks concluded the individual reps had failed to establish that they “qualify as intended third-party beneficiaries under the Selling Agreements.”
“Even accepting the factual allegations as true and construing them in the light most favorable to the Plaintiffs, the Court concludes that they fail to plausibly state a claim for breach of contract,” Judge Marks opined.
“We are pleased with the dismissal of this suit. We believe the Court has reached the right decision as the individual registered representatives who filed this suit are not parties to Ohio National’s selling and servicing agreements. We hold ourselves, the relationships we build, and the products we deliver to the highest standards of quality,” an Ohio National company spokesperson said via email.
“We have no comment except that we are reviewing the matter of whether to file an appeal,” Jonathan Waller, an attorney representing the reps, said.
This is not the first time that Ohio National has succeeded against individual reps in the trail commission matter. In October this year, a federal judge in Ohio ruled against LPL Financial rep Lance Browning and Triad Advisors rep Stephen Cook. Both reps have now appealed the decision in their respective matters before the U.S. Court Of Appeals for the Sixth Circuit.
Judge Marks referenced the decisions in the “nearly-identical” Browning and Cook cases in her own analysis.
“The analysis in Browning and Cook is on point and persuasive,” said Judge Marks in her opinion, after taking into account that in both those cases the Ohio court had determined that the reps did not qualify as intended third parties to the selling agreement and therefore had no standing to enforce the contract.
Individual reps have had little success in the trail commission matter against the Ohio National entities. Of the three such cases so far, outcomes in two cases have gone against the reps and one has gone in favor.
In April 2019, a federal court ruling in Massachusetts ruled that Commonwealth Equity Services advisor Margaret Benison had the right to compel arbitration against Ohio National for stopping trails for variable annuities.
And while things haven't gone in their favor so far, lawyers for reps are saying it's not game over quite yet.
"We’re only in the early rounds of this bout. The Court’s decision in Whatley is unfortunate, but not unsurprising given the outcome of our case. To date, two judges have decided that representatives have standing to sue Ohio National and two judges decided that representatives can’t. There is a split of authority across the country. The issue is hardly settled. This new decision will not have an impact on our appeal. Ultimately, the Sixth Circuit Court of Appeals will take a fresh look at the facts and decide the issue with no deference to the lower court rulings. Our firm remains committed to fighting for financial representatives to have their day in court to challenge Ohio National’s termination of their trail commissions," says B. Nathaniel Garrett of Helmer, Martins, Rice & Popham, who is representing Cook in the Ohio case that was dismissed earlier and is currently up for appeal.