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Former Employee Settles Promissory Note Case with Morgan Keegan
Written: March 31, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2009, Claimant Morgan Keegan sought to enforce the terms of three promissory notes and related agreements that Respondent Cain had executed during his employment.  The cause of action arose following Respondent Cain's resignation and his alleged failure to repay the outstanding debt. Claimant sought $815,187.05 in compensatory damages plus interest at the rate of 10% from the inception of the loans until payment, attorney's fees, costs, and other relief. 

Respondent Cain generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting fraudulent inducement and various breaches by Claimant. In addition to the cancellation of any debt, Respoindent sought at least $100,000 in damages, fees, costs, and expenses. Claimant denied Respondent's allegations.

In the Matter of the Arbitration Between Morgan Keegan & Co., Inc., Claimant, vs. Michael Sean Cain, Respondent (FINRA Arbitration 09-06845, March 23, 2011).


In January 2011, the parties settled this matter and in March 2011 they submitted a proposed Stipulated Award that the FINRA Arbitration Panel entered with the following stipulations:

Respondent shall pay Claimant $814,187.05 (the "Principal Amount"), with interest on the outstanding principal amount accruing at 5% per annum from February 15, 2011.  The payments will be made pursuant to the following schedule ("Payment Schedule"), which reflects said Principal Amount and interest:

  • $250,000.00 due no later than February 15, 2011;
  • five payments each of $111,000.00, due no later than
    • February 15, 2012;
    • February 15, 2013
    • February 15, 2014
    • February 15, 2015
    • February 15, 2016; and,
  • $112,052.28 due no later than February 15, 2017.

Villa Pachanga

In the event Respondent Cain sells, mortgages or otherwise liquidates his interest in the Playa Matapalo, Costa Rica property known as Villa Pachanga, the Payment Schedule shall be accelerated and any outstanding Principal Amount, including interest then due, shall become immediately due and payable.

SIDE BAR: What is the takeaway from this case?  Everything is negotiable.

Few promissory note settlements are worked out for more than a one-year term -- and rarely beyond three years.  However, such an observation is merely the result of my three-decades on Wall Street as a lawyer, and as any veteran attorney knows, there are statistics and then there are the exceptions.  Frankly, when it comes to the repayment of money -- particularly the big bucks here -- everyone is motivated to compromise. Like I said, rule number one: everything is negotiable.

In this dispute we see that the Respondent managed to get a work-out of his obligation over a six-year period.  That's a very long time for repayment and I'm sure that the lawyers on both sides of this dispute sweated the details.

I also note that the stipulated schedule of payments is set forth on a net basis:

Adding up the

  • $250,000;
  • $555,000 (the five payments of $111,000). and
  • $112,052.28,

the total obligation is $917,052.28.

Consequently, the Respondent not only obtained the value of extending repayment over six years but also avoided repayment at the 10% interest rate initially sought by Claimant and wound up with a lower 5% rate. 

A minor and oddball issue is that the amount settled for -- $814,187.05 -- resulted in a $1,000 reduction from the amount initially sought, $815,187.05. Why?  I have no idea. Either one of the numbers is a typo or the parties just agreed to the lower number.

Finally, my take on the arrangement involving the Costa Rican property is that is was viewed by Claimant as a form of collateral for the Respondent's obligations under the repayment agreement.  In the event of a default, I would assume that Claimant would look to seize that property in order to secure the remaining debt.  However, should Respondent desire or need to sell that property, such conduct would trigger the repayment acceleration provision of the settlement. 

While a clever and sensible tactic, the enforcement of such a term can get tricky, particularly when dealing with offshore property in a foreign jurisdiciton.  While the ability to cloud the title to real estate in the U.S. under these circumstances may not be too daunting, the vagaries of foreign laws and jurisdictions have a way of raising challenges.  A prudent way to enhance the creditor's rights in such circumstances would be to execute an agreement between the parties that contains provisions to ensure that there is no sale or title transfer without timely prior notice to Claimant. Another sensible protection would be to go to the foreign jurisdiction and attempt to register the creditor's rights in the form of a lien or title restriction.  Finally, a creditor could simply demand that the title be assigned to it during the pendency of the repayment term -- but that could pose significant problems, particularly if there are any outstanding loans or mortgages on the property.


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