Breach of contract by multi-level marketing company. $6 million arbitration award.
Mutli-level marketer of financial/insurance products says company screwed him out of downstream earnings, improperly terminated his agreement after 16 years.
- Case Name: Artak Daldumyan v. World Financial Group, Inc.
- Court and Case Number: : American Arbitration Association, ICDR Case No. 50210300165; District Court for the Central District of California, Case No. CV 15-04855-AB
- Date of Verdict or Judgment: Monday, November 23, 2015
- Date of Arbitration Award : Friday, November 06, 2015
- Date Action was Filed: Thursday, February 28, 2013
- Type of Action: Breach of Contract
- Judge or Arbitrator(s): Arbitration Panel: Hon. Alice D. Sullivan (Ret.), Hon. Warren C. Conklin (Ret.) and Hon. Rudolph J. Gerber (Ret.) (dissenting in part); Federal Court Judge: Hon. Andre Birotte, Jr.
- Plaintiffs: Artak Daldumyan
- Defendants: World Financial Group, Inc.
- Type of Result: Arbitration Award
- Gross Verdict or Award: $6,133,651.01
- Award as to each Defendant:
Award in favor of Claimant Artak Daldumyan and against Respondent World Financial Group, Inc. as follows: $5,241,273.35 as damages for breach of contract; $703,575.00 for attorneys' fees; $72,855.86 for expert fees and costs; $115,946.80 as reimbursement for administrative fees and expenses paid of the International Centre for Dispute Resolution. Post award interest at 6.25% running from the date of the Panel's Partial Final Award and continuing to run until the Final Award is paid or judgment entered.
- Trial or Arbitration Time: 7 days
- Post Trial Motions & Post-Verdict Settlements: Motion to Vacate Partial Final Award, filed by World Financial Group, Inc., on June 26, 2015 in District Court, Central District of California; denied per Order dated August 19, 2015. Unopposed Motion to Confirm Arbitration Award, filed by Artak Daldumyan on November 20, 2015 in District Court for the Central District of California; granted on November 23, 2015. Final Judgment, entered on November 23, 2015, by Hon. Andre Birotte, Jr., United Stated District Judge.
- Attorney for the Plaintiff:
Law Offices of Richard M. Foster by Richard M. Foster, Sylvia Sultanyan and David Euredjian, North Hollywood.
- Attorney for the Defendant:
Hunton & Williams LLP by Kirk A. Hornbeck, Los Angeles.
Facts and Background
- Facts and Background:
In June 1996, Claimant Artak Daldumyan entered into an “Associate Membership Agreement” (“AMA”) with World Marketing Alliance, Inc. (“WMA”), a multi-level marketing company. The AMA provided for, among other things, “vested” commissions; that is, subject to certain conditions, upon termination of the AMA, Daldumyan would be entitled to continue receiving commissions from his hierarchy. Between 1996 and 2001, Daldumyan was an associate of WMA and, from June 2001, of Respondent World Financial Group, Inc. ("WFG"), which acquired select assets of WMA, including Daldumyan's AMA.
Between 1996 and 2012, Daldumyan established, grew and maintained a hierarchy comprised of close to 5,000 recruits, about 500 of which were licensed to sell insurance. By 2011, Daldumyan held the title of Executive Marketing Director (“EMD”) and was earning a significant income from WFG business.
In November 2011, one of Daldumyan's recruits, who was downline in Daldumyan's hierarchy, was terminated by WFG "for cause" and therefore divested of his vested commissions. Pursuant to the hierarchical structure of WFG, the AMA agreement and the WFG rules and guidelines, the hierarchy maintained by the terminated associate was supposed to "roll-up" to Daldumyan. WFG instead decided to give the hierarchy to the terminated associate's brother, who was further down in the hierarchy from the terminated associate, therefore violating the hierarchical structure of the company and WFG's own rules, and breaching the contract Daldumyan had with WFG. Daldumyan complained to WFG for this improper “roll down”.
Shortly after Daldumyan lodged a complaint regarding the November 2011 improper “roll down” of the terminated associate's hierarchy, WFG began to investigate Daldumyan. In August 2012, WFG terminated Daldumyan's contract and divested him of his vested commissions from the business Daldumyan had spent 16 years to build. Daldumyan initiated arbitration with the American Arbitration Association pursuant to the arbitration provision of the contract between Daldumyan and WFG.
- Plaintiff's Contentions:
Daldumyan argued that WFG's “roll-down” of the terminated associate's hierarchy to an associate downline in the hierarchy was a violation of WFG’s multi-level marketing structure, which is a hierarchical structure; and further that such a transfer violated the contract between Daldumyan and WFG, as well as WFG's own rules and procedures.
Daldumyan further argued that the purported investigation lodged by WFG was initiated in retaliation to Daldumyan's raising issues with WFG's decision to give the terminated associate's hierarchy to his brother, instead of letting it roll-up to Daldumyan as it was supposed to.
Daldumyan further alleged that WFG and various entities involved were alter egos of one another and that his termination by Transamerica Financial Advisors, Inc. ("TFA"), an affiliate of WFG, was a sham termination orchestrated by WFG and its executives.
During discovery, it became apparent that one of WFG's key executives voted to terminate Daldumyan from TFA even though he was not an employee or an executive of TFA. The purported investigation by TFA took place out of WFG's headquarters in Johns Creek, Georgia. Daldumyan alleged that WFG had no basis to terminate his contract and further that it had no basis to divest him of his vested commissions from his business.
- Defendant's Contentions:
WFG argued that its decision to transfer the terminated associate's hierarchy down to his brother instead of letting it roll up to Daldumyan did not constitute a breach of the contract between the parties, claiming that WFG can, at its "sole discretion" effect such transfers at any time.
WFG also contended that it acted within its rights by terminating and divesting Daldumyan, claiming that TFA was a "Preferred Company" within the meaning of the contract between the parties; therefore, WFG argued that it could simply rely on the judgment and investigations by TFA to terminate and divest Daldumyan. WFG further argued that the contract between the parties was terminable at will.