Arbitration of Two Properties – January 2012
A FINRA arbitration panel ruled in favor of a national broker dealer and one of its registered representatives, both of which were represented by Parker MacIntyre attorneys J. Steven Parker, Robert D. Terry and their previous firm, in a case alleging deficient due diligence in connection with the sale of Tenant In Common interests in real estate. The arbitrators granted Respondents’ motion to dismiss, also recommending an award of attorneys’ fees in favor of the firm and its representative.
The arbitration claims arose from the sales of interests in two real estate tenancies in common in commercial real estate. The first investment was jeopardized what the sole tenant defaulted on its lease. Investors’ interests were jeopardized, but the issuers put together a rescue deal that all TIC owners accepted. As part of that deal, investors released multiple parties. Counsel for Respondent successfully persuaded the panel of arbitrators that Claimants claims were covered by the release.
The second investment, a medical facility in Houston, Texas, was still performing at the time Claimants filed the arbitration. The Claimants complained, however that some of their distributions had been placed in escrow for future repairs. The panel of arbitrators was persuaded that the complained-of event – the payment into escrow – was not attributable to its clients, the broker-dealer and the registered representative, but rather was the result of affirmative actions by the Claimants and their co-owners.
“Due diligence claims are on the rise,” said Parker MacIntyre partner J. Steven Parker. “It is important for a firm to establish and maintain adequate due diligence procedures before offering any type of alternative product. Even when such procedures are employed, there is no guarantee that investments will not fail or at least under-perform.”
Mr. Terry added, “demonstrating that the firm followed proper due diligence procedures to an arbitration panel is critical when faced with a claim of negligence or fraud. There is no substitute for good recordkeeping and disclosure by the firm and its representatives.”
The case is FINRA arbitration number 11-00106.