March 12, 2012
In a Financial Industry Regulatory Authority ("FINRA") ArbitrationStatement of Claim filed in August 2010, Claimant Springer a former employee of Respondent Wachovia Securities (now known as Wells Fargo Advisors) asserted causes of action for misrepresentations and omissions; and for fraudulent inducement. Initially, Claimant requested damages, costs, attorneys' fees, and a declaration from the FINRA Arbitration Panel that certain Employee Forgivable Notes ("EFLs") were invalid, illegal and unenforceable. At the close of the hearing. Claimant Springer requested damages in the amount of $1,256,535.00. In the Matter of the FINRA Arbitration Between Denise D. Springer, Claimant, vs. Wells Fargo Advisors, LLC f/k/a Wachovia Securities, LLC, Respondent (FINRA Arbitration 10-03530, March 9, 2012).
Respondent Wells Fargo generally denied the allegations, asserted various affirmative defenses, and counterclaimed based upon breach of contract, citing Claimant's failure to repay a promissory note dated January 22, 2008 upon her termination from employment. Respondent sought $244,797.32, representing the unpaid principal balance on the note; interest, and costs.
The FINRA Arbitration Panel found
- Respondent Wells Fargo liable and ordered it to pay to Claimant Springer $166,000.00; and
- Claimant Springer liable and ordered her to pay to Respondent Wells Fargo $272,726.00 ($244,797.32 plus $27,928.68 interest).
The Panel netted the awards and ordered that Claimant Springer to pay the net award of $106,726 to Respondent Wells Fargo. Said net award was ordered paid:
- in one lump sum; or, alternatively,
- in sixty (60) monthly payments of $1,965.52, which includes additional interest at the rate of 4% per annum.
The Panel gave Claimant the option to pay all or part of the award in advance of monthly installment due dates with no prepayment penalty.
Bill Singer's Comment
About as picture perfect a FINRA ArbitrationDecision as I could want - imagine that, not a single complaint about the clarity of the fact pattern or the presentation of the Panel's rationale. Hat's off to these arbitrators.
I published this case because it sort of falls in the man bites dog nature of stories. This is one of those infrequent arbitrations where the former employee preemptively takes matters into her own hands and sues the former employer, notwithstanding that the respondent is holding about a quarter of a million bucks of potential claims in the form of an executed EFL.
I have a saying: No man should be in a rush to his own hanging; and in this case, such advice might have applied in this case. After all, why start up litigation when you're on the hook for six figures in repayable notes?
Ahh. . . but life is filled with exceptions and there's a reason that we have to watch the end of the horserace to declare a winner. Sometimes the best defense is a strong offense.
Although I have no first-hand knowledge of Claimant's strategy, it appears that her lawyer, Arthur C. Koski, Esq., Boca Raton, FL, may have counseled that her case warranted a more in-your-face approach. Simply taking the facts as they are, Claimant would normally have been expected to repay the nearly $250,000 plus in principal, interest, and costs. Based upon the Decision,Claimant walked out of the ring owing Respondent less than half of that amount - and even given the luxury of spreading out her repayment over 5 years at a slightly higher total cost of about $118,000.
Among the most frequent calls that come to me as a lawyer are those from industry employees facing repayment of EFLs. Invariably, I give them bad news: You're gonna have to dig deep and repay the debt. On the other hand, sometimes lawyers can work miracles. We can negotiate settlements for less than the amount due under the terms of the loan - and, sure, you have to factor in the high price of legal fees to figure out if such time spent settling is a net benefit. Moreover, as demonstrated in this arbitration, a lawyer can throw the equivalent of a concussion grenade into an otherwise run-of-the-mill EFL case. I love that the Claimant demanded nearly $1.3 million in damages. I love that this industry client and her lawyer went on the offensive and banged it out until the last round.
Was all the time, energy and effort worth it? From a monetary point of view the equation is simply that Claimant Springer owed something like $250,000 to Respondent Wells Fargo as of her termination. She managed to avoid any repayment obligation until the Panel's March 2012 Decision and that ruling cut her debt in half and gave her the option of stretching out repayment over five years.
Granted, if we were to talk to Claimant Springer, she might be angry. She may feel that she should have won over a million dollars. She may feel that the EFLs should have been declared null and void. The folks at Wells Fargo may also feel let down by the Decision.
Then again, when all the parties in litigation walk away unhappy, that's usually a pretty decent sign that the right verdict was reached. So, let your imagination run wild. I'm sure that there will be many employees and former employees of Merrill Lynch, Wells Fargo, JP Morgan, Morgan Stanley Smith Barney, and UBS saving copies of this article.