A federal judge in Virginia has dismissed a lawsuit against Cambridge Investment Research by a wealth management firm seeking $8 million in damages after claiming that the large broker-dealer helped an advisor steal her business and clients back after she sold them.

A U.S. District Court judge ruled on Monday that the plaintiff, Colonial River Wealth Advisors of Midlothian, Va., was bound by arbitration by the Financial Industry Regulatory Authority. As it happens, a Finra arbitration panel had already gone against the plaintiff in 2022: Colonial Wealth had previously been forced to pay the advisor who left $2 million in damages last year after she told her own tale of woe about her broken relationship with the firm.

The motion to dismiss the federal case, handed down Monday, is the latest wrinkle in an ongoing, contentious case that got so nasty even a Finra arbitration panelist’s neutrality was called into question.

The case stems from Colonial River’s purchase of LPL-affiliated advisor Jayne Di Vincenzo’s firm Lions Bridge in March 2020. Colonial River put down 40% of the total $3.64 million purchase price with a deferred purchase agreement. According to her own court documents, Di Vincenzo was seeking a merger partner in 2019, and it was her broker-dealer, LPL, that put her in a room with another affiliate, advisor Devin Garofalo, head of his 13-year-old firm Colonial River. Di Vincenzo and Lions Bridge managed $170 million in assets, and the merger aimed to create an $850 million powerhouse.

As part of the deal, Di Vincenzo inked her name on restrictive covenant agreements saying she was not supposed to work with ex-clients or compete in certain geographical areas, Garofalo said.

Bad Honeymoon
The honeymoon didn't last long. The transition was seemingly a nightmare.

Garofalo and Colonial River claim problems quickly developed when Di Vincenzo dragged her feet changing the Lions Bridge name, delayed transitioning clients and domain names and retained insurance business she was supposed to transfer. They even accused her of setting up a puppet address in Savannah, Ga., to get around the agreement she couldn’t pursue business in the area.

Di Vincenzo, meanwhile, said that Colonial River and Garofalo immediately began to cut her off from her clients, stopping their communication so she couldn’t help them with the transition. She said that this hurt the orderly transfer of business and ended up breaching the purchase agreement—since the deferred purchase payments to her were getting smaller.

A Finra panel agreed with her. After she claimed breach of contract, breach of covenant of good faith and fair dealing, disparagement and defamation, the panel ordered Colonial River and Garofalo to cough up more than $2 million for failing to remit commissions and defaulting on the asset purchase agreement. They ignored Garofalo’s call for $12.5 million in a counterclaim that Di Vincenzo breached the agreement. Garofalo and team filed a petition to vacate the award in the Circuit Court of the City of Richmond, claiming that one of the arbitrators was compromised because he sat on the board of Old Point National Bank, an institution with which Di Vincenzo had a service agreement.

Colonial River claims that Di Vincenzo tried to circumvent the original agreement to essentially rebuild her business outside the confines of the contract. At first, the firm said she tried to elicit help from their broker-dealer, LPL, to do that. When that didn’t work, the firm claims Cambridge helped her steal back her business.

“LPL Financial declined Di Vincenzo’s offer to re-establish a broker-dealer relationship,” Colonial River’s 2022 complaint said. “Accordingly, Di Vincenzo found another broker-dealer, defendant Cambridge Investment Research Inc., with whom she entered into a new representative agreement. When applying to be a Cambridge representative, Di Vincenzo either concealed from Cambridge that she was subject to restrictive covenants and affirmative obligations vis-à-vis transitioning her former clients to Colonial River, or Di Vincenzo told Cambridge a half-truth, or Di Vincenzo provided the [asset purchase agreement] to Cambridge.”

Colonial River accused Cambridge of tortious interference by providing Di Vincenzo and her new firm, Fiduciary Edge, with brokerage services after learning that she violated her asset purchase agreement. Cambridge, it said, “conspired with her, acting in concert with her to facilitate additional breaches.” She then induced clients to move and had got them to transfer some $79 million to Cambridge’s platform by the time Colonial River filed its suit in November 2022.

“Despite receiving notice of Di Vincenzo’s illegal conduct, Cambridge continued doing business with her, and continued to accept transfers of client accounts held by LPL Financial and associated with purchasers and, upon information and belief, accepted new, diverted clients from Di Vincenzo,” said the Colonial River complaint.

The judge hearing the case, Roderick C. Young in the U.S. District Court of the Eastern District of Virginia, Richmond Division, spoke mostly about the jurisdiction in his dismissal of the case.

“Colonial River, having sought the advantages of Garofalo’s status as a Finra associated person by having previously arbitrated many of the claims at issue in this suit, now attempts to circumvent Finra’s arbitration requirements to obtain a more favorable outcome,” the judge said in his ruling.

When contacted by Financial Advisor asking about the dismissal, the attorney for Garofalo and Colonial River, Thomas M. Wolf of O’Hagan Meyer in Richmond, Va., noted Di Vincenzo’s work in the early 2000s for an expelled Finra firm, MICG Investment Management, and repeated the claim in the filing that Cambridge had wrongfully induced Colonial River employee Kristin Forbes to leave.

“Colonial River is going to appeal,” Wolf said in a phone call.

Di Vincenzo did not return a call for comment by press time, nor did her attorney or an attorney for Cambridge.