LPL Holdings Inc. and three broker-dealer subsidiaries have sued Pacific Life Insurance Co., claiming the latter is in breach of contract and trying to duck paying potentially millions of dollars of settlements and awards stemming from rogue brokers.
In its lawsuit, which LPL filed Friday in New York State Supreme Court in Manhattan, LPL states that “it is apparent that Pacific Life is merely seeking to avoid its express contractual obligations” over the payment stemming from arbitration claims.
In 2007, LPL bought three broker-dealers from Pacific Life for about $100 million in cash and stock. According to the LPL lawsuit, Pacific Life, as part of the deal's purchase and sale agreement, agreed to indemnify LPL from settlements judgments, awards and defense costs from investor claims against the three firms for actions occurring prior to the closing of the deal.
So far, Pacific Life has ponied up “millions of dollars of settlement and defense costs related to” investor claims, the lawsuit states. However, the firm has suddenly switched tactics, the lawsuit claims, and refused in October to pay $57,000 to fund a settlement involving one of the broker-dealers LPL acquired, Associated Securities Corp.
Pacific Life also sold Mutual Service Corp. and Waterstone Financial Group Inc to LPL.
The dispute over which company is responsible for paying investors first came to light in LPL's quarterly earnings report this month. In the report,
LPL made veiled references to the dispute.
According to the lawsuit, Pacific Life has been searching for a way to cut its liabilities for months. In March, it told LPL that it had no obligation to cover an arbitration award of $8.4 million that had been issued against Associated Securities, according to the lawsuit. When LPL and Associated Securities challenged that position, Pac Life “abandoned” its argument and paid for the settlement.
Spokespeople from both LPL and Pacific Life said the lawsuit would not affect their continued business relationship.
“As happens from time to time in the best of business relationships, LPL and Pacific Life disagree on the interpretation of a certain contractual provision,” Pacific Life spokeswoman Milda Goodman wrote in an e-mail. “This dispute will now be resolved by the courts, and will not disrupt the ongoing favorable business relationship between LPL, their financial advisers, and Pacific Life.”
Likewise, an LPL spokesman, Joseph Kuo, said the company did not expect the dispute to have an effect on the relationship between the company and Pacific Life.
