According to the court’s decision, Chairman of the Retirement System’s board William Adams signed Pension Consulting Agreements and other documents for Smith Barney. The agreements have an arbitration clause that says contract disputes must be resolved by arbitration. Smith Barney moved to remove the case from court and have the court direct the board to proceed through arbitration.
However, the board argued that Adams lacked authority to execute the account agreements, and the court agreed. The board adopted agreements after approval of the full board and after submission to outside counsel. Any decisions under the agreement also had to be approved by the full board.
The board noted that Smith Barney was present at its meetings where agreements were approved, and Adams was not held out as having an authority to execute modifications. The court said Smith Barney knew Adams lacked the authority and lacked a reasonable basis to assume he did.
Even if the board had held out Adams as having any authority, the court said, the Florida statues regarding police and firefighter pension boards, requiring majority vote to execute agreements, would prevail.
The pension system decided in July 2007 to bring a suit against its consultant if no settlement could be made (see “Pension Fund Files Complaint Against Adviser“). In its suit, the system alleges damages in an amount the board estimates to exceed $9 million.
The board also says it was “deprived of” more than $116,000 in connection with fixed-income securities transactions and incurred damages of greater than $90,000 in connection with alleged “excess charges.” The suit charges Smith Barney with breach of contract, breach of fiduciary duties, fraud, and negligent misrepresentations.
The pension system claims the consultant erroneously provided misleading investment reports to the board, misled the board regarding facts concerning performance of the fund’s investment managers and portfolio, and engaged in conflicts of interest in connection with fixed-income and equities securities transactions.
The latest court decision is available here.