A broker of LPL Financial Inc. has won an important round of legal sparring with Ohio National Life Insurance Co., with a judge ruling that the broker's class-action lawsuit over variable annuity trail commissions should move forward.
U.S. magistrate judge Stephanie Bowman ruled that Ohio National's motion to have broker Lance Browning's case tossed out should be denied. Mr. Browning, suing on behalf of other LPL brokers, alleged the insurer acted unlawfully last year when it terminated trail commissions paid to brokers who'd sold certain variable annuity products.
The judge's ruling took the form of a recommendation to the U.S. District Court for the Southern District of Ohio. Ohio National has the opportunity to file an objection, and the district court will weigh the material to issue its final determination on whether to proceed.
Ohio National spokeswoman Lisa Doxsee said the firm disagrees with the ruling and intends to file an objection.
Dennis Concilla, an attorney representing the plaintiff, said the district court often sides with the recommendations of magistrate judges. If that happens, the case would head to trial.
"Obviously, we're pleased. The court agreed with us on virtually all the points we raised," said Mr. Concilla, who heads the securities practice group at Carlile Patchen & Murphy. "This is a significant step."
Mr. Browning's case, filed Nov. 6, was among the first against Ohio National in the wake of its decision to stop paying trail commissions to brokers who had sold clients variable annuities with a guaranteed minimum income benefit rider. Mr. Browning, who has been an LPL broker since 2012, is set to lose around $89,000 a year as a result of the decision.
The insurer faces legal challenges from more than 10 parties, including brokers and a number of broker-dealers, over the new commission policy, which the firm announced in September.
The legal issue at the center of the Browning case is whether LPL brokers are intended third-party beneficiaries of the selling agreement between Ohio National and LPL, the nation's largest independent broker-dealer.
Ohio National contends the individual advisers who filed this suit don't have standing to sue because they aren't parties to the insurer's selling and servicing agreements. The contracts, the insurer said, are with broker-dealers, who in turn contract with the individual advisers and pay commissions to them directly. Mr. Browning argues he and other LPL brokers are third-party beneficiaries because the intended relationship between Ohio National and LPL can't function without the role of brokers.
The magistrate judge sided with the plaintiff, ruling June 28 that the case should move forward because LPL brokers have a claim as intended third-party beneficiaries.
The ruling is significant in that it could prompt individual advisers at other broker-dealers to file lawsuits of their own, Mr. Concilla said.
Geoffrey Moul, an attorney at Murray Murphy Moul & Basil who represents broker-dealer Veritas Independent Partners in a separate lawsuit, said the ruling also bodes well for other outstanding lawsuits against Ohio National.