Respondents Brennan and Springman generally denied the allegations and asserted affirmative defenses.

In the Matter of the FINRA Arbitration Between UBS Financial Services, Inc., Claimant, vs. William Hunter Brennan and Shane Gavin Springman, Respondents (FINRA Arbitration 10-01371, August 1, 2011)

The Kalamazoo Beach Head

In 2007, Claimant UBS invited Respondents Brennan and Springman (then employed by Smith Barney in its Kalamazoo, Michigan office) to join the firm as part of an effort to open a Kalamazoo office and establish a beach head in that city. At that time, Respondents were well-established financial advisors whose cachet would likely facilitate Claimant's ability to attract brokers, staff, and clients.  As part of the package of enticements offered to Respondents by Claimant were six-year employee forgivable loans ("EFL") in the form of the two PNs at issue.

From Bad to Worse

As the sole FINRA Arbitrator advises us in the Decision:

[T]his was a business relationship that had difficulty almost from its beginning. Causes of the deterioration in the relationship are varied and contested. Notwithstanding, it appears a good deal of the issues were caused by the inability of UBS to carry out its plans for a fully functional, profitable Kalamazoo office. That inability led to eventual failure of that office. The final blow to the relationship was imposed upon Respondents by a dramatic unilateral change in the city where Respondents were to work. Respondents had built their business relationships and their personal lives based upon their Kalamazoo presence.

UBS contends that the office was not profitable and made a decision to close the Kalamazoo office and move Respondents to the Grand Rapids office. There was no prior consultation with the Respondents, as the testimony revealed, and without regard to the effect it would have on both personal and client issues Respondents would be forced to face.

Two Concerns

The sole FINRA Arbitrator wrestled with two competing issues:

  1. the contractual obligation upon the Respondents to repay the balances owed on their respective PNs; and,
  2. the liability, if any, imposed upon Claimant for creating some of the circumstances that resulted in the failure of the branch office.

The Arbitrator concedes that Respondents received substantial EFLs from Claimant UBS, and that each Respondent was an "experienced and sophisticated" professional aware of the terms of the PNs and the obligation for repayment over the six-year term. 

However, the Arbitrator began a balancing act by noting that Claimant UBS:

[A]lmost from the beginning, made it exceedingly difficult for Respondents to maintain, much less grow, the business they had before the switch to UBS. It appears that UBS' commitment to these Respondents was ineffectual and lacking. Although, it was clear it was not intentional, Respondents were subjected to an environment and business climate of no cause of their own that impeded their business. The unilateral decision by UBS and its insistence that these Respondents move their business location from Kalamazoo to Grand Rapids was the straw that broke the camel's back.

UBS changed a significant understanding, admittedly unwritten, of perhaps the most important condition of the initial employment, i.e., the location - the city - where Respondents were assigned to work. Each Respondent testified their willingness to join UBS was dependent upon them being employed in Kalamazoo. Each of them made it clear that they would have not gone with UBS had they been required to move their business location to Grand Rapids. Each Respondent testified, which was uncontested, that there were both personal and medical issues existing at the time of their hire that would have made working in Grand Rapids untenable. Working in Kalamazoo was material to their original agreement to leave their former employer and join UBS. UBS was aware of this. UBS' unilateral change of one of the material inducements of employment provides a sufficient basis to support an equitable setoff.

Arbitrator's Focus

It is clear from the two quotes above that the FINRA Arbitrator had considerable sympathy for Respondents' case - not sympathy of a biased nature but one that naturally arose from the hearing on the merits.  While reading through the Decision, you feel the Arbitrator wrestling with an equitable resolution to this matter based upon his repeated references to:

  • Claimant UBS' "unilateral" actions, 
  • the firm's "ineffectual" approach to developing the Kalamazoo office, and
  • the materiality to Respondents' of remaining in Kalamazoo, and
  • the 120-mile round-trip commute to Grand Rapids constituted a "severe hardship" on the Respondents, both in terms of the business/financial well being and for their personal lives.

In the final analysis, the Arbitrator was clearly troubled by what he likely determined was Claimant UBS' somewhat cavalier response to the situation. Notwithstanding, the Arbitrator refused to engage in legal fiction and magically transform the EFL into something else - he viewed the PNs as loans subject to a six-year term of forgiveness that began in 2007, resulting in a repayable balance when the Respondents ended their employment with Claimant.


In reaching what he felt was a fair and equitable resolution, the sole FINRA Arbitrator awarded to Claimant UBS 60% of its claims (both on the PNs and Attorneys' Fees).

As to the balances and interest owed on the PNs:

Respondent Brennan: $125,554
Respondent Springman: $155,289

Interest at 5.25% per annum was ordered until payment in full. The liabilities of each Respondent was several and not joint with the other.

As to Attorneys' Fees:

Each Respondent was ordered to pay $13,382  on a several but not joint basis.

The Arbitrator ordred that the Awards were payable in 24 equal monthly installments beginning August 1, 2011, with the righty of prepayment without penalty.

FINRA fees and forum costs:

shared 1/2 by Claimant and to each Respondent.

Bill Singer's Comment:

After some 30-years on Wall Street of which a quarter of a century has been spent as a lawyer, I've read a whole hell of a lot of arbitrations - in fact, I've argued my fair share of cases, served on quite a number of arbitration panels, and Chaired more arbitrations than I'd like to recall.  As such, it's an astounding compliment from me when I say that this Decision may well be the single finest one that I have read in my career.  All the bases are touched: The facts are cogently presented, there is a manifest effort by the Arbitrator to explain his rationale, and the writing of the Decision was undertaken in a compelling manner.  Not only did this FINRA Arbitrator take his job seriously but he also executed the task with incredibly skill and style.  An outstanding performance on all levels!

Special PN / EFL Report

Don't miss Bill Singer's comprehensive update and analysis of recent Promissory Note (PN) and Employee Forgivable Loan (EFL) arbitrations at:

Wall Street Promissory Notes (PN) and Employee Forgivable Loans (EFL) Round-up (Street Sweeper, August 3, 2011)