(CN) – Two investors are not bound to the hold-harmless agreements they signed because the bank failed to defend its right to be held harmless, the Nebraska Supreme Court ruled.
Kevin Ord bought $160,000 in notes from DFS Credit on the advice of financial adviser Kent Carter. Dan Leibig also bought $62,000 in DFS before rolling in his retirement funds, for a total investment of $250,000.
The investors did not know that Carter had inflated their economic profiles to make them eligible for the unregistered DFS securities. When DFS was unable to pay the interest on the notes, Carter advised the investors that their best chance to recover their money would be to sign “assignment and hold harmless” documents.
The investors sued Carter’s company, Aragon Financial Services, for securities fraud. The company argued that the hold harmless agreements protected them from the lawsuit. The trial court disagreed.
Judge Miller-Lerman agreed with the trial court’s order to nullify the assignment and hold-harmless agreements because Aragon stopped defending itself in the litigation in 2003.
“Instead of pursing its right to be held harmless,” the judge ruled, “Aragon abandoned the issue by failing to participate in the litigation.”