Federal Courts Affirm Forgiveness of Barclays Promissory Notes Repayment

September 23, 2019

Our publisher, Bill Singer, Esq. thinks that a FINRA Arbitration Panel and two federal courts got it right when they ruled in favor of two former Barclays employees, who were relieved of repayment of just shy of $4 million in promissory notes' balances. Unfortunately, Bill detests the lack of content and context in the FINRA Arbitration Decision, and the federal courts didn't seem all that enamored with what was before them for review. Sometimes its about the trip. Sometimes its about the destination. Today's blog highlights a case in which the passengers all got to where they were going, and likely had a great time after they arrived -- on the other hand, on the way, the car ran out of gas, punctured two tires, overheated, lost its air conditioning, and wound up on a four-year detour. 

2014 FINRA Arbitration Complaint

In a FINRA Arbitration Statement of Claim filed in March 2014, associated person Claimants Platt and Urquidi asserted breach of contract; negligent misrepresentation; and unjust enrichment. Claimants sought at least $9 million in compensatory damages, punitive damages, interest, costs, and fees. At the final hearing, Claimants withdrew their negligent misrepresentation claim. Ileana Delahoz Platt and Rafael Enrique Urquidi, Claimants, v. Barclays Capital Inc. and Barclays Bank, PLC, Respondents (FINRA Arbitration Decision 14-00821 / February 18, 2015)
https://www.finra.org/sites/default/files/aao_documents/14-00821-Award-FINRA-20150218.pdf

Respondent Barclays Capital Inc. ("BCI") generally denied the allegations, asserted various affirmative responses, and filed a Counterclaim asserting breach of Promissory Notes executed on November 26, 2012. In addition to interest, costs, and fees, Respondent BCI sought from Claimant Platt $2,565,140.00 in compensatory damages on her Note; and from Claimant Urquidi, $1,251,767.00 on his Note. 

2015 FINRA Arbitration Decision

Respondent Barclays Bank PLC is not a FINRA member firm or associated person, and did not voluntarily submit to FINRA's jurisdiction; and, accordingly, the FINRA Arbitration Panel made no determination as to Claimants' claims against the bank. 

The FINRA Arbitration Panel granted Claimants' requests for a finding that:
  1. nothing is owed to Respondent BCI pursuant to the executed Notes; and 
  2. all debt owed on said Notes is forgiven.  
Additionally, the Panel denied the Counterclaim with prejudice. 

2015 SDFL Motion to Vacate

On May 15, 2015, BCI moved in the United States District Court for the Southern District of Florida ("SDFL") to vacate the FINRA Arbitration Award.  Barclays Capital Inc., Movant, v. Ileana D. Platt and Rafael Uquidi, Respondents (Motion to Vacate Arbitration Award In Part and Brief in Support, United States District Court for the Southern District of Florida ("SDFL"), 15-CV-21850 / May 15, 2015) 
In part, BCI alleged in its Motion to Vacate that:

After three days of hearings, the arbitration panel properly denied all of Platt and Urquidi's employment-related claims with prejudice, but the panel exceeded its powers by ruling that "all debt owed by Claimants [Platt and Urquidi] on the Notes executed on November 26, 2012, is forgiven" and thus denying Barclays' counterclaim on the Notes. . . 

at Page 2 of the Motion to Vacate 

In furtherance of its allegations, BCI argued, in part, that:

[F]irst, the Chairperson of the arbitration panel failed to disclose to Barclays that his nine-member CPA firm had been retained and compensated approximately $60,000 to give expert testimony for two other former employees against Barclays in a virtually identical FINRA case, which was tried March 2-5, 2015 - less than two weeks after the Award was served. The Chairperson knew or should have known of this conflict of interest prior to the arbitration hearing involving Platt and Urquidi and, pursuant to FINRA arbitrator-disclosure rules discussed below, should have revealed it; instead, he stated at the outset of the hearing that he did not have any further disclosures. This is exactly the type of substantial, hidden relationship that creates a potential for bias and a reasonable impression of partiality, which the United States Supreme Court and the Eleventh Circuit have held require vacatur of the Award. The Chairperson's concealment of this obvious conflict of interest undermined the integrity of a dispute resolution process that must be transparent and neutral. 

Second, the Court should vacate the portion of the Award that is adverse to Barclays because the FINRA arbitrators exceeded their powers by imposing a loan "forgiveness" (a) that was not requested in Platt and Urquidi's arbitration claim, (b) that is contrary to the express, unambiguous, and undisputed repayment terms of the Notes, and (c) that lacks any contractual or other basis in applicable rule or law. . .

Page 2 - 3 of the Motion to Vacate

2018 SDFL Order Denying Motion and Confirming Award

In framing the appeal before it, SDFL provided the following Barclays Capital Inc., Movant, v. Ileana D. Platt and Rafael Uquidi, Respondents (Order Denying Motion to Vacate Arbitration in Part and Confirming Arbitration Award, United States District Court for the Southern District of Florida ("SDFL"), 15-CV-21850 / December 26, 2018) http://brokeandbroker.com/PDF/BarclaysUrquidiSDFLOrdDeny181226.pdf [Ed: footnote omitted]:

Movant now moves to vacate the arbitration award in part on two grounds: (1) "[t]he portion of the Award adverse to Barclays Capital should be vacated under § 10(a)(2) because there was evident partiality on the part of the Chairperson of the arbitration panel as he failed to disclose to Movant that his CPA firm " had been retained and compensated approximately $60,000 to give expert testimony for two other employees'' against Movant "in a virtually identical FINRA case" and (2) the arbitration award "should be vacated under § 10(a)(4) because the arbitrators 'exceeded their powers' by entering an Award that is contrary to the express, unambiguous, and undisputed terms of the Notes''  . . .

Page 4 of the SDFL Order

FINRA Chair and the CPA Firm

The SDFL Order offers, in part, this background concerning Barclay's challenge pertaining to FINRA Chair Jerrold Levine's impartiality:

[P]rior to the arbitration hearing, which took place from February 2, 2015 through February 4, 2015, David G. Russel, counsel for Movant, stated that in January 2015, he spoke with Jacob Buchdahl, counsel for Respondents, who told him that Respondents "were considering engaging a Miami-based CPA, Harvey Muskat, as their damages expert, and that Mr. Muskat was affiliated with the same CPA firm as Jerrold Levine, the Chairperson of the Platt arbitration panel'' [ECF No. 5-1 ¶ 6]. Mr. Russel then advised Mr. Buchdahl "in substance that this would be an unacceptable conflict of interest that Barclays would not consent to.'' Id  Mr. Russel further stated that Mr. Muskat was not listed as a witness in the Platt proceedings. Id ¶ 7. There is nothing in the record that suggests Movant raised any objection at this time, or during the arbitration proceedings, to Chairperson Levine based on his purported affiliation with Mr. Muskat and his firm.

Page 2 of the SDFL Order

In finding that there was no evident partiality on FINRA Arbitration Chair Levine's part, SDFL explained, in part, that:

[D]uring his testimony, Mr. Muskat testified under oath that the Chairperson Levine was "retired'" from Mr. Muskat's firm (ECF No. 5-18, at 105:23-241). When questioned as to why he still appears on the firm's website as a member, Mr. Muskat answered, "b]ut, he's really not. He's been - he's been hanging around for years. But, now he doesn't even come to the office any more.'' Id at 105:2-4. Moreover, Mr. Muskat added that he "notified the attorney that - a person who we were - was - was 'a member of our firm' for many years, was on the panel.'' Id. at 105:7-1 1 . This sworn testimony, which is uncontroverted, establishes that Chairperson Levine was not a member of Mr. Muskat's firm. Nevertheless, notwithstanding the foregoing, Mr. Muskat's retention as a witness in the Platt proceedings would have certainly created a conflict, as aptly noted by Chairperson Levine. Id. at 105: 13-14. However, Mr. Muskat was never retained as a witness in this matter. After his conversation with Chairperson Levine, Mr. Muskat stated he "was unable to serve as an expert'' in the case. Id. 105: 16-1 7. Furthermore, this Court finds that Movant has failed to show that Chairperson Levine knew, and failed to disclose, that Mr. Muskat  was "retained and compensated $60,000 to assist and testify on behalf of two claimants adverse to Barclays in a 'mirror image' FINRA arbitration'' (ECF No. 1 ¶ 34]. The only record evidence before this Court on that issue is Mr. Muskat's sworn testimony, where he stated that he did not know or remember whether he discussed with Chairperson Levine that he would be taking an assignment (or be retained) for the Gallo proceedings (ECF No. 5-1 8, at 106:1-8]. The Court finds that this alleged partiality is "remote, uncertain and speculative.'' . . .

Pages 6 - 7 of the SDFL Order

Within The Arbitrators' Powers

SDFL took an expansive, perhaps even generous, view of the nature of an arbitrator's powers: 

[I]n fact, the arbitrator's written decision does not contain any information beyond denying the parties' other requests, finding that each party is responsible for their own attorneys' fees, and forgiving the debt owed by Respondents on the notes (ECF No. 5- 5, at 4). This Court finds that the arbitrators did not exceed their powers under 9 U.S.C. § 10(a)(4) and follows the Eleventh Circuit's mandate in Shaw, which dictates that "[i]f arbitration is to be a meaningful alternative to litigation, the parties must be able to trust that the arbitrator's decision will be honored sooner instead of later.'' . . .

Page 13 of the SDFL Order

2018 SDFL Judgment

Note that SDFL barely disguised its displeasure with the arbitrators' lack of disclosure/rationale, as indicated by "written decision does not contain any information beyond denying the parties' other requests, finding that each party is responsible for their own attorneys' fees, and forgiving the debt owed by Respondents on the notes." Notwithstanding that cited paucity of content and context, SDFL confirmed the FINRA Arbitration Award, in part, in Barclays Capital Inc., Movant, v. Ileana D. Platt and Rafael Uquidi, Respondents (Final Judgment Confirming Arbitration Award, United States District Court for the Southern District of Florida ("SDFL"), 15-CV-21850 / December 26, 2018) http://brokeandbroker.com/PDF/BarclaysUrquidiSDFLJudg181226.pdf as follows:

Respondents Platt and Urquidi's requests that they owe nothing to Barclays Capital, Inc. ("Barclays Capital'') pursuant to the signed Notes executed on November 26, 2012, are granted and all debt owed by Respondents on the Notes executed on November 26, 2012, is forgiven. Respondents are not liable and Barclays Capital's Counterclaim is denied in its entirety, with prejudice. The parties are responsible for their respective attorneys' fees. Respondents remaining requests for relief are denied, with prejudice. Any and all relief not specifically addressed herein, including Respondents' request for punitive damages, is denied.

2019 11Cir Appeal
On appeal to the United States Court of Appeals for the Eleventh Circuit, Barclays fared no better. 
Barclays Capital Inc., Plaintiff/Appellant, v. Rafael Uquidi and Ileana D. Platt, Defendants/Appellees (Opinion, United States Court of Appeals for the Eleventh Circuit ("11Cir"), 19-10189 / September 19, 2019) 
http://brokeandbroker.com/PDF/BarclaysUrquidi11Cir190919.pdf
As set forth in the 11Cir Opinion's Syllabus:

Barclays Capital Inc. ("Barclays") appeals the district court's confirmation of an arbitration award in favor of Ileana Platt and Rafael Urquidi ("Claimants") and the denial of Barclays's motion to vacate this award. No reversible error has been shown; we affirm.

Latin American Business Terminated

The 11Cir Opinion reveals some details about the FINRA arbitration that were (inexplicably and inexcusable to this author's mind) not presented in the FINRA Arbitration Decision:

During the 3-day arbitration hearing, Claimants argued (relying in part on two recent FINRA decisions) that Barclays's decision to terminate business in Latin America constituted such a dramatic, unilateral change in the terms of Claimants' employment contracts that Barclays should be precluded from enforcing the Notes. Claimants also sought compensatory damages totaling $4.5 million for lost clients and commissions. In response, Barclays contended that the plain language of the Offer Letters and the Notes mandated -- without exception -- repayment of the outstanding loan amounts.

Pages 4 - 5 of the 11Cir Opinion 

Arguably Interpreted the Underlying Contracts

In affirming SDFL, 11Cir did not fully mask its concerns about the content of the FINRA Arbitration Panel's Decision; however, reluctantly or not, with reservations or not, the federal appellate court agreed with the lower court and noted, in part, that:

The arbitration panel here did what the parties requested: the panel made a determination about Claimants' obligation to repay the outstanding loan amounts under the Notes and about Claimants' entitlement to additional damages. In doing so, the panel considered expressly the parties' pleadings, testimony, and evidence. Resolution of the parties' claims necessitated consideration not only of the plain language of the Offer Letters and Notes, but also about the enforceability of that contract language in the light of Barclays's alleged breach of its duties. The record included evidence and argument both about the pertinent contract language and about the parties' intentions in entering into the employment relationship. We are thus persuaded that the arbitration panel at least arguably interpreted and applied the underlying contracts in making its award determination. 

We reject Barclays's contention that the arbitration panel ignored the plain language of -- and modified impermissibly -- the underlying employment agreements by "forgiving" Claimants' debt under the Notes. This case is not one of mere contract interpretation: the plain meaning of the language in the Offer Letters and Notes is not in dispute. Instead, the central issue before the arbitration panel was whether Barclays's decision to terminate its Latin American business constituted such a "dramatic unilateral change" to the material conditions of Claimants' employment that it rendered the Notes unenforceable. 

The arbitration award recited Claimants' request for "a declaratory judgment that any amount due under their 'loan' agreements would be subject to an equitable set-off and that they would owe nothing under the Notes." In announcing the award, the panel said that "Claimants' requests that they owe nothing to Respondent pursuant to Claimants' signed Notes executed on November 26, 2012, are granted and all debt owed by Claimants on the Notes executed on November 26, 2012, is forgiven." The panel thus acknowledged the Notes but concluded that Claimants, given the circumstances, were not liable to pay any debt evidenced by the Notes. Although the panel provided no written reasons for its award, we can infer reasonably that the panel agreed with Claimants' position that Barclays's conduct rendered the Notes unenforceable. The enforceability of the Notes was a matter that was properly before the arbitration panel. See Wiand v. Schneiderman, 778 F.3d 917, 925 (11th Cir. 2015) ("Disputes regarding whether a contract was performed in accordance with its terms, like disputes about the validity of the contract as a whole, go to the arbitrator."). Whether the resulting decision was legally or factually erroneous is beyond the scope of our limited review. 

Considering the arbitration award and the record as a whole, we cannot say that it is "apparent" that the panel acted in excess of its power. Barclays has thus failed to satisfy its heavy burden of showing that a vacatur is warranted under section 10(a)(4). 

Pages 8 - 10 of the 11Cir Opinion

Bill Singer's Comment

Note the 11Cir's observation that "although the panel provided no written reasons for its award, we can infer reasonably that the panel agreed with Claimants' position that Barclays's conduct rendered the Notes unenforceable." No written reasons for its award. That's outrageous considering the issues involved in this dispute. Moreover, FINRA owes the courts charged with considering motions to confirm or deny something more via the regulator's arbitration decisions than a record that merely allows a court to "infer reasonably" the rationale of an arbitration panel. The panel's rationale should be spelled out. We should not be presenting the courts with a fill-in-the-blanks puzzle.

As regular readers of the BrokeAndBroker.com Blog know, I have long been an outspoken critic of FINRA's mandatory intra-industry arbitration protocol. As I often note with my similar objections concerning FINRA's mandatory public customer arbitration, far too many published FINRA Arbitration Decision lack sufficient content and context so as to render them intelligible and comprehensible. Thankfully, many courts have taken FINRA to task for perceived lapses in the regulator's quality controls when it comes to policing who sits on its panels and ensuring that published Decisions present sufficient rationale.

Two federal courts ultimately sustained the FINRA Arbitration Decision in Platt and Urquidi, however, I would urge you to independently review that decision and ask yourself if it sufficiently presented the underlying facts in dispute. READ: Ileana Delahoz Platt and Rafael Enrique Urquidi, Claimants, v. Barclays Capital Inc. and Barclays Bank, PLC, Respondents (FINRA Arbitration Decision 14-00821 / February 18, 2015). Knowing what you now know about the case from both the SDFL and 11Cir opinions, do you think that the FINRA arbitrators penned a document that presents sufficient content and context? And before you're too quick to answer, looking only at the FINRA Arbitration Decision, just answer one simple questions: Why did Platt and Urquidi argue that they should be relieved of any obligation to repay their Notes?

In the end, I suspect that Platt and Urquidi were justly found not liable for repayment of their notes, which were predicated upon apparent promises to support their Latin American business. In the end, all's well that ends well but sometime you get the sense that the integrity of FINRA's arbitration process depends far too much upon a fine point of legality rather than the broad stroke of fairness.