Barrett Financial of North Jersey, LLC v. Creative Financial Group of New Jersey
Posted on Categories Business & Employment, Court Decisions

By David C. Franceski, Jr.

*In the absence of an express contractual undertaking, the Court will not imply an obligation on the part of a terminating financial firm to “buy” the terminated agent’s business based solely on claimed lack of good faith and fair dealing. **Because New Jersey contract law requires proof of damage as an essential element, a jury’s finding of breach with “0” damages must be reversed.

Barrett Financial of North Jersey, LLC vs. Creative Financial Group of New Jersey, Nos. 13-5621 & 14-3316 (D. N.J., 5/10/19).

Plaintiffs, a former independent contractor for and exclusive agent of defendant life insurance company and its principal, terminated for allegedly submitting fraudulent H-1B visa applications on behalf of agents and brokers, brought a host of post-termination tort and contract claims for, inter alia, unpaid renewals, overrides and the value of the business left behind. Following a trial in which the jury found breaches by all parties on the contract claims and counterclaims before it but awarded plaintiff over $1 million and defendant nothing, both sides filed post-trial motions – plaintiffs to alter or amend the verdict to include pre-judgment interest and defendants for judgment as a matter of law or for a new trial.

The Court, finding the jury’s verdict “inconsistent” on a number of points, grants judgment as a matter of law to defendants on the breach of good faith and fair dealing theory supporting plaintiffs’ “value of business” claim, rejects defendants’ H-B1 visa counterclaim, denies plaintiffs’ pre-judgment interest claim without prejudice and orders a new trial. Turning first to plaintiffs’ claim that defendants had an obligation to compensate them for the value of the business left behind, the Court finds the evidence insufficient to support the jury’s verdict on the claim. As the Court notes, while New Jersey law supports the implied covenant of good faith and fair dealing to preserve an injured party’s right “to receive the fruits of the contract,” to redress bad faith performance, or to reverse a party’s arbitrary, unreasonable or capricious exercise of discretion granted by the contract, the facts do not support plaintiff’s theory that defendants owe him because they terminated him before purchasing or giving him the right to sell what he viewed as his business.

According to the Court, plaintiffs’ reliance on the contract’s “no assignment clause” and a history of plaintiff having bought out his one-time partner to impose such obligation is belied by (1) the bilateral unconditional termination clause in the contract (the notice provisions of which defendants honored), (2) the fact that the agency’s employees were expressly defendants’ employees, (3) the absence of any actual claimed breach of the assignment clause, which the Court aptly points out was designed to protect defendants from unapproved assignments, and (4) the fact that plaintiffs had not, after proper notice, found or even looked for another buyer. Defendants were entitled to judgment as a matter of law on the claim. The Court finds this further supported by obvious juror confusion in the jury’s verdict form, which expressly characterized the large award as for revenues due plaintiff upon reconciliation of certain set-off months but then assigned a damage figure from the “value of business” testimony of plaintiff’s expert.

For similar reasons the Court also, however, declines to award defendants a new trial on its claim that plaintiffs’ alleged H-1B visa violations excused them from continued payment of overrides. According to the Court, once again, the jury’s finding of a contract breach but no damage is inconsistent with New Jersey contract law, of which damage is a necessary element. As the Court further points out, defendants, in reporting plaintiffs’ termination to FINRA, failed to even mention it as a reason for termination, instead noting only “LOSS OF CONFIDENCE (NON-SECURITIES RELATED).” Finally, given the prospect of a new trial, the Court, without prejudice, denies plaintiffs’ request for pre-judgment interest as premature at this time.

(D. Franceski: Though any experienced trial attorney has experienced a Court allowing the jury a first crack at obviously weak claims repeatedly challenged with motions during trial, with so much juror “confusion” and “inconsistency,” one must wonder how well the jury was charged on those weaknesses. In retrospect the Court appears to give (or take?) some cover for that with the observation that “this case was not simple . . . wrought with accounting principles, financial terms, lengthy, spreadsheets, and intricate testimony.” But then again, what broker compensation case isn’t?)

(SOLA Ref. No. 2019-30-02)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis. 

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