In today's BrokeAndBroker.com Blog we consider the FINRA arbitration between a former employee, who feels that he was fraudulently induced to accept a job offer, and, the former employer, who wants repayment of the balance of a promissory note. Not particularly unusual facts for an employment dispute. The interesting nuance in this case is that the former employer runs afoul of the arbitrators with perhaps a tad too much gamesmanship when it comes to producing information and documents during Discovery. Although we will likely never know the extent to which the arbitrators may have been angered by the Discovery foot-dragging, the logical inference is that it didn't help the employer. All of which reminds our publisher Bill Singer, Esq. of a number of old Monty Python skits about races. Why does this case remind Bill of Monty Python race skits? Who the hell knows. You ever really understand what goes on in Bill's mind?
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in February 2016, Claimant Aiello alleged that Respondent Citizens Securities had used fraudulent and misleading recruitment practices to solicit his employment. Claimant asserted violation of implied covenant of good faith and fair dealing and breach of contract; negligent/intentional misrepresentation and non-disclosure; and fraudulent inducement and fraud. Ultimately, Claimant Aiello sought between $1 million and $5 million in compensatory damages plus punitive damages, rescission, costs, and interest. In the Matter of the FINRA Arbitration Between Francis Joseph Aiello, Claimant, vs. Citizens Securities, Inc., Respondent (FINRA Arbitration 16-00597, July 13, 2017).
Respondent Citizens Securities generally denied the allegations, asserted affirmative defenses, and filed a Counterclaim asserting breach of a promissory note that purportedly became due upon the termination of Claimant's employment. Counter-Claimant Citizens Securities sought $220,000 in compensatory damages plus interest, costs, and attorneys' fees.
In response to Claimant's October 2016 Discover-related Motion to Compel and Demand for Sanctions, on December 21, 2016, the FINRA Arbitration Panel granted Claimant Aiello $5,000 in sanctions with 6% interest from and including January 21, 2017, until paid in full.
SIDE BAR: The Panel's December 2016 $5,000 Discovery-related sanction was ordered prior to the beginning of plenary hearings in June 2017. At the plenary hearing, Claimant argued that Respondent had failed to comply with its Discovery obligations and renewed his demand for sanctions.
The FINRA Arbitration Panel found:
Bill Singer's Comment
We may reasonably infer from the presented facts that Claimant Aiello had one set of expectations about his job at Respondent Citizens Securities but that those expectations were dashed as his term of employment progressed. Claimant was apparently so unhappy with how his job unfolded that he believed Respondent has lied to him during the recruiting process.
On the other side of the ledger, Respondent Citizens Securities apparently gave Claimant Aiello a six-figure Employee Forgivable Loan ("EFL") as a recruitment incentive. That strongly suggests that Respondent was impressed by Claimant and was willing to go the extra mile to get him to join the firm. From Citizens Securities likely perspective, things didn't work out, Aiello was impossible to please, and, hey, good riddance but you owe us the $220,000 balance on your EFL and we want to be repaid.
Sometimes, a former employee will pre-emptively file a lawsuit of the nature advanced by Aiello in order to steal a march on a former employer's anticipated lawsuit to recover a balance due on an EFL. The theory is that the best defense is a good offense. By firing the first shot, you get to frame the underlying events in your words. As to what legal tactics and strategy either side deployed in Aiello v. Citizens Securities is mere speculation.
It's a rare enough event to find a FINRA Arbitration Panel imposing one award for non-compliant Discovery practices. In Aiello v. Citizens Securities, the arbitrators imposed two. Could be that given aspects of the former employer's case, the delays engendered by incurring a total of $8,000 in total Discovery sanctions were considered a smart trade-off. For all we know, the non-compliance may have prompted an award of several million dollars less in compensatory damages than if the production of information and documents had gone smoother and quicker.
Whatever the explanation or the motivation for non-compliant Discovery conduct, there is a difference between being combative with your adversary and being combative with the folks who are going to decide your case. Not sure that you want to be defending against allegations of fraudulent inducement by engaging in abusive Discovery practices. That sort of conduct inevitably raises questions in an arbitrator's mind about if you're doing this in response to my orders and in contravention of the rules, I can only imagine what you may have told this former employee in order to get him onboard and maybe you didn't have any compunction about arbitrarily changing his duties or worse. Whatever the plan or circumstances, both runners should be toeing the same starting line before the race begins. In Aiello v. Citizens Securities, I infer from the Decision that the former employer was penalized by placing itself several yards behind its opponent before the command "On your marks!"
And now for something completely different