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Court Upholds Arbitrator's Ruling, OrdersEquity Fund Manager to Pay $7.8 Million

MICHELLE TUCCITTO SULLO, The Connecticut Law Tribune

April 19, 2016

A Superior Court judge has upheld a private arbitrator's decision to award $7.8 million toprivate equity fund investors and their lawyers.

At the time of the award last fall, it was described as one of the largest civil theft awards inthe state's history. In a decision dated April 11, Superior Court Judge Robert Genuarioupheld the decision by the arbitrator, retired Superior Court Judge Elaine Gordon.

The litigation dates to 2012 and involves two investment firms, Glenrose Holdings LLC andAsym Energy Investments LLC, which focus on energy-related projects in Texas andOklahoma. The principal in both firms is Gregory Imbruce of New Canaan. The investorsclaim Imbruce improperly took $1.6 million over the years by claiming expenses notauthorized under partnership agreements, such as "acreage management fees" and"success fees."

After Gordon rendered the award for the plaintiff investors, Imbruce and his companiessought to vacate it on multiple grounds. They claimed the arbitration was tainted by thearbitrator's partiality, that Gordon lacked authority to enter a monetary award, and that sheexceeded her powers under the arbitration agreements.

Genuario denied the defendants' application to vacate the award, and granted the plaintiffs'application to confirm it. "There is no indication whatsoever that the arbitrator failed to applythe law," Genuario wrote.

Jonathan Whitcomb of the Stamford firm Diserio, Martin, O'Connor & Castiglioni, who waspart of the legal team that represented the investors, said he is pleased with the decision."Judge Genuario rightfully found that none of the grounds for [vacating] existed here,"Whitcomb said. "The attack on Judge Gordon's impartiality was particularly frivolous. Shecould not have been more fair and objective."

The plaintiffs have yet to receive any of the award, according to Whitcomb.

Richard Gora of Monroe, who represents Imbruce and the companies, could not be reachedfor comment. When Gordon first issued the award, Gora said Imbruce had a history ofgetting results for investors, and he characterized the legal dispute as part of a corporate"takeover battle."

In his decision, Genuario noted the Federal Arbitration Act provides that a court may vacatean arbitration award on certain grounds, such as if an award was procured by corruption orfraud, if there is evidence of partiality or corruption on the part of the arbitrator, or if thearbitrator was guilty of misconduct or exceeded her powers. The defendants argued thatGordon should have disclosed her participation in a divorce arbitration proceeding, forexample, but Genuario found no evidence of impartiality.

"The divorce arbitration involved an attorney who represented some of the defendants in acompletely unrelated matter," Genuario wrote. "To suggest that the arbitrator would harborsome bias or partiality against a party because of her participation in an arbitration involvingan attorney who happened to represent certain of the parties in an unrelated matter strainscredibility."

The defendants also argued that the award should be vacated because "the arbitratorexceeded her powers under the arbitration agreements," and they claimed Imbruce neveragreed to arbitrate any claim against him personally.

Genuario disagreed with this argument too. "A party simply cannot participate in arbitration,submit filings that indicate a willingness to arbitrate claims, await a decision and whenunhappy with the decision, challenge the arbitrator's authority," Genuario wrote.

Madoff Ties

Imbruce is a well-known figure in financial circles, having previously worked for disgracedhedge fund manager Bernard Madoff. Imbruce is also known to Connecticut regulators. Thestate Banking Department has previously cited him and several Stamford-based investmentcompanies he operated for securities violations, such as for allegedly selling unregisteredsecurities and acting as an unregistered investment adviser. Court records show he signed aconsent order and paid an administrative fine of $75,000.

The latest dispute dates back about five years. Investors removed Imbruce as manager ofthe Glenrose Holdings and Asym Energy funds. Imbruce objected to his removal. Thecompanies' partnership agreement required such disputes to be handled through privatearbitration.

Some investors sided with Imbruce, and brought claims against the majority investors,claiming the majority acted in breach of fiduciary duties. The majority investorscounterclaimed against Imbruce, alleging securities fraud, civil theft and breach of fiduciaryduties.

Gordon's ruling denied Imbruce's claims against the majority investors, threw out the claimsof the Imbruce backers, and awarded the majority investors $7.8 million.

According to Whitcomb, Gordon's finding of civil theft means she found his side provedImbruce charged partners expenses that weren't authorized under partnership agreements.

Gordon found Imbruce and his companies, "without legal authority, wrongfully, fraudulently,and/or in breach of their fiduciary duties," caused the investors to suffer $1.6 million indamages. Gordon also found these damages were caused by civil theft, and she awardedtreble damages of $4.8 million. Gordon indicated she found evidence of multiple andrepeated violations of the Connecticut Uniform Securities Act and violations of theConnecticut Unfair Trade Practices Act. She awarded attorney fees and costs, whichrepresented an additional $3 million, bringing the total award to $7.8 million.

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