Another day and another former registered representative is caught in a lawsuit with a former FINRA member firm over her alleged failure to repay a Promissory Note (also known as an Employee Forgivable Loan or EFL). In today's BrokeAndBroker.com Blog, we consider a demand by Ameriprise Financial Services for repayment of an EFL balance due of over $400,000. In response to that demand, we have a plucky registered rep who represented herself and fought back with a host of pre-hearing motions and doesn't seem to have yielded much during the evidentiary hearing. One way or the other, she was going to get her day in court . . . in arbitration, to be more precise.
In the end, Ameriprise pretty much has its way and rings up the old cash register. Would the Respondent have done better with a lawyer? Could the Respondent have even afforded a lawyer? Did the Respondent obtain the best possible outcome by going pro se? Who knows but you are free to ponder and resolve as you will.
Case In Point
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in September 2016, Claimant Ameriprise Financial Services, Inc. asserted breach of promissory note, unjust enrichment, and conversion in connection with Respondent Hudgin's alleged failure to repay the balance of a Promissory Note that purportedly became due upon the termination of her employment. Ultimately, Claimant Ameriprise sought $406,331.81 in compensatory damages, $9,508.55 in interest , $54,917.20 in attorneys' fees' and $13,133.87 in costs. In the Matter of the FINRA Arbitration Between Ameriprise Financial Services, Inc., Claimant / Counter-Respondent, vs. Sandra J. Hudgins, Respondent / Counter-Claimant (FINRA Arbitration 16-02667, October 13, 2017).
Respondent Hudgins represented herself pro se, generally denied the allegations, and asserted various affirmative defenses. Hudgins Counterclaimed for $3.9 million in compensatory damages plus interest, fees, and costs. As set forth in the FINRA Arbitration Decision, Hudgin's asserted causes of action for:
lost wages, both current and future, HIPAA violations and refusal to allow continued treatment for covered dependents through Ameriprise group insurance, for conflicts of interest and misrepresentations by recommending the use of Ameriprise counsel as representation in another case, for misrepresenting the offer of employment, for forcing advisors to use proprietary products and risky alternative investments, for violations of statutes of state and federal codes, including age discrimination, for multiple acts of defamation, both directly to Hudgins and to others, and for pain and suffering due to all of the above. The causes of action related to Hudgins' allegations regarding her employment with Ameriprise.
The FINRA Arbitration Decision asserts that in April 2017, Hudgins petitioned for a Subpoena, which the FINRA Arbitration Panel denied "due to Hudgins' failure to provide a draft subpoena." Additionally, the Panel ordered the parties to cooperate in discovery in accordance with FINRA Rules 13505 through 13509 and complete discovery or file motions to compel as soon as practicable so as not to delay the hearing."
SIDE BAR: FINRA Code of Arbitration Procedure for Industry Disputes Rule 13509: Motions to Compel Discovery
(a) A party may make a motion asking the panel to order another party to produce documents or information if the other party has:
- Failed to comply with Rules 13506 or 13507; or
- Objected to the production of documents or information under Rule 13508.
(b) Motions to compel discovery must be made, and will be decided, in accordance with Rule 13503. Such motions must include the disputed document request, a copy of any objection thereto, and a description of the efforts of the moving party to resolve the issue before making the motion.
In its Order, the Panel stated that Hudgin's request for a Subpoena was an:
improper avenue to object to Ameriprise's response to discovery requests or to compel responses to discovery requests. Motions to compel discovery must be made under FINRA Rule 13509 and must provide the specific discovery requests at issue.
In May 2017, Ameriprise moved to compel Hudgin's production of documents and information, and also sought sanctions for her failure to comply with the Panel's Order, to which she did not respond. In June 2017, the Panel opted to hold Ameriprise's motion in abeyance. Similarly, the Panel ordered Hudgins to file a Motion to Compel Discovery, which she did. The Panel granted in part and denied in part aspects of Hudgin's Motion to Compel.
In August 2017, Ameriprise filed an Emergency Motion to Strike Respondent's Witness List, to which. Hudgins did not respond and which the Panel denied but ordered Hudgins to provide provide supplemental documentation pertaining to her witness list. The day before Hudgins was to provide the ordered supplemental documentation, she filed an Emergency Motion to Continue, to which Ameriprise objected and the Panel denied.
Around August 18, 2017, Ameriprise filed a Motion in Limine, which was thereafter argued at the evidentiary hearing and granted by the Panel pursuant to FINRA Code of Arbitration Rule 13514(c).
SIDE BAR: FINRA Code of Arbitration Procedure for Industry Disputes Rule 13514: Prehearing Exchange of Documents and Witness Lists, and Explained Decision Requests
. . .
(c) Exclusion of Documents or Witnesses
Parties may not present any documents or other materials not produced and or any witnesses not identified in accordance with this rule at the hearing, unless the panel determines that good cause exists for the failure to produce the document or identify the witness. Good cause includes the need to use documents or call witnesses for rebuttal or impeachment purposes based on developments during the hearing. Documents and lists of witnesses in defense of a claim are not considered rebuttal or impeachment information and, therefore, must be exchanged by the parties. . . .
Evidentiary Hearing Pyrotechnics
As set forth in the FINRA Arbitration Decision, during the evidentiary hearing:
Hudgins argued several times that the Panel's previous rulings on her discovery requests for a large number of non-specific emails from Claimant were detrimental to her ability to prove her case. Hudgins' sole witness (other than herself) testified that producing emails was not difficult for a party, but no further evidence was provided on that issue.
In post-hearing deliberations, the Panel carefully considered Hudgins' objections to the Panel's previous rulings on her discovery requests, each of which was fully argued by both parties at a lengthy pre-hearing conference, and were decided in accordance with FINRA's discovery rules.
The FINRA Arbiration Panel found Sandra J. Hudgins liable and ordered her to pay to Ameriprise Financial Services:
The FINRA Arbitration Decision does not present any explanation as to what constituted the underlying events pertaining to the above allegations. Further, the Panel failed to provide any rationale for its dismissal of Hudgins' claims.refusal to allow continued treatment for covered dependents through Ameriprise group insurance, for conflicts of interest and misrepresentations by recommending the use of Ameriprise counsel as representation in another case, for misrepresenting the offer of employment, for forcing advisors to use proprietary products and risky alternative investments . . .
Merrill Lynch's Sandra Hudgins left the firm to join Ameriprise's employee channel in Dallas. Hudgins managed $100 million in client assets while at Merrill, according to an Ameriprise statement. Hudgins started her advisory career with Southwest Securities in 1995, FINRA records show. She moved to Morgan Stanley in 2004 and then joined Merrill in 2008.