In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2011, Claimant Stroker alleged that Respondent Morgan Stanley Smith Barney had unilaterally altered his compensation - resulting in what he perceived as akin to a Hobson's Choice: delay his retirement or relinquish a material portion of his earned compensation. In the face of the perceived arbitrary demand, Claimant opted to resign from the firm on May 9, 2011, and filed claims asserting breach of contract and failure to pay compensation. Stroker sought $300,000 in compensatory damages plus interest, fees, and costs. In the Matter of the FINRA Arbitration Between Steven W. Stroker, Claimant / Counter-Respondent, vs. Morgan Stanley Smith Barney, LLC, Respondent / Counter-Claimant (FINRA Arbitration 11-03896, January 2, 2013).
SIDE BAR: According to online FINRA records as of January 9, 2013, Claimant Stroker first entered the securities industry in 1983 and prior to filing his arbitration claim was registered with E.F. Hutton & Co., Lehman Brothers Inc., Citigroup Global Markets Inc., and Morgan Stanley Smith Barney.
Respondent Morgan Stanley Smith Barney generally denied the allegations, asserted affirmative defenses, and filed a counterclaim asserting breach of contract, conversion, and unjust enrichment. Respondent argued that pursuant to the terms of its Branch Manager Compensation Program, in the first quarter of 2011, Claimant was paid an advance and that his resignation constituted a breach of that program and triggered a repayment obligation of a $27,446.24 balance. In its counterclaim, the firm also sought interest and costs.
The FINRA Arbitration Panel found Respondent Morgan Stanley Smith Barney liable and ordered it to pay to Claimant Stroker $167,134.00 in compensatory damages.
Separately, the Panel found Stroker liable and ordered him to pay to Respondent Morgan Stanley Smith Barney $27,446.24 in compensatory damages plus 5% per annum interest from May 23, 2011 through December 12, 2012.
This Decision sort of took all the fun out of the matter by not providing us with a tad more in the way of meaningful facts and rationale. For starters, what constituted Claimant Stroker's calculation of his $300,000 claim for compensatory damages and why did the Panel only award a smidgen over half? Further, what exactly was the "earned compensation" that Claimant was asked to give back and why had Morgan Stanley Smith Barney insisted upon such a clawback?
It's always frustrating to me when I come across such an arbitration decision because industry participants would truly benefit from a more substantive presentation of the dispute and the basis upon which the arbitrators resolved it. Moreover, when a panel rules in favor of both the claimant and the respondent, I'm always intrigued as to how everyone can be right yet be wrong - I understand how and why such cases present themselves but believe there is an obligation upon FINRA arbitrators to explain the unusual outcome.
Based solely upon what I infer from the Decision,this arbitration seems to have largely been a victory for Claimant Stroker, if for no other reason that he netted about $140,000 in damages. As to whether Stroker considers the resolution of his dispute a victory remains to be seen.
In filing his claims, Stroker raises a complaint that is becoming more common these days: an employing brokerage firm is no longer "negotiating" the terms of employment-related contracts or "renegotiating" existing agreements; but, to the contrary, is engaged in delivering ultimatumsintended to force concessions from vulnerable employees. In my law practice, such is becoming a more frequent query from potential clients and I know that in conversations with other industry lawyers, the issue is being raised with increasing frequency.
"Take it or leave it" is antithetical to the core concept that a contract is derived from bargaining between parties. Of course on Wall Street there is this frequently argued point that there are no "contracts" between the employer/employee or the principal/independent contractor - the legalese and mumbo-jumbo is that there are mere "understandings" and "agreements." Next time a brokerage firm puts a paper in front of you to sign, see if they call it a contract.
As any first-year law student should know, courts generally refuse to enforce so-called "contracts of adhesion" where one party has effectively compromised the ability of the other party to negotiate in good faith. Putting a gun to the other party's head is not considered negotiation but ultimatum. Of course, in a commercial context, contracts are rarely negotiated between parties with equal bargaining power but, at some point, you cross the line between limited choices and none whatsoever. Similarly, it's one thing to insist upon certain terms as conditions precedent to employment; but it's quite another thing to make similar demands upon an employee after he or she has left a prior employer, joined your firm, and developed a book of business. It's not as if we're all playing a friendly game of golf and you can simply offer a Mulligan.
And now for a bit of trivia for my "Street Sweeper" readers:
Thomas Hobson (1544 to 1631) was an English mail carrier who rented his horses from his stable. Upon realizing that his fastest steeds were in demand, resulting in the uneven use of his fleet that overworked his best mounts, Hobson devised a rotation to preserve the lifespan of his stock. Consequently, a customer had the option of renting whichever horse was in the nearest stall - and Hobson regularly rotated his mounts to ensure that each horse was moved, next in line, into the renting stall. Purportedly, Hobson's policy was "this one or none," which gave renters the choice of riding the horse in the first stall or effectively taking a hike. The term "Hobson's Choice," has come to represent the appearance of a choice under circumstances where it is essentially a take-it-or-leave-it proposition.
My wife tells me the story of a time when she and her colleagues were in a local diner ordering dinner. One of her colleagues ordered a dinner that include "choice of soup." When he asked what the soups were, the waiter said "Chicken Noodle." Apparently inferring from the term choice on the menu that there were other soups to pick from, my wife's colleague asked "What's the choice?" In the wry, somewhat joking style of delivery that has become the hallmark of crusty waiters, the answer was "Have it or not."
Have it or not, Morgan Stanley Smith Barney apparently told Branch Manager Stroker. Not seems to have been his choice. Frankly, I like the fact that Stroker took this dispute to the mat.