UBS Wins Promissory Note Case

February 14, 2013


In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2011, Claimant UBS asserted breach of contract and unjust enrichment in connection with Claimant Potenza's alleged failure to pay the balances on promissory notes dated May 7, 2004 and July 10, 2006 upon his termination of employment. UBS sought at least $129,542.40 in compensatory damages plus interest, costs, and expenses. In the Matter of the FINRA Arbitration Between UBS Financial Services, Inc., Claimant, vs. Alexander Potenza, Respondent (FINRA Arbitration 11-02124, February 12, 2013).

Respondent Potenza generally denied the allegations and asserted various affirmative defenses.

The sole FINRA Arbitrator hearing this dispute rendered a very thoughtful rationale in place of the usual terse ruling on these promissory note cases. In part, the Arbitrator explains that:

[R]espondent received "forgivable" loans" from Claimant and signed agreements as to the terms of the repayment of the loans if his employment were terminated before the terms for the "forgiveness" had run.

Respondent expended funds upon employment, but these funds were not directed by Claimant, and should not be deducted from the amounts owed.

Respondent resigned his position before the forgiveness periods had run. Stresses claimed by Respondent did not rise to a level that would require a reasonable person to resign. The resignation was voluntary.

In accordance with his finding of liability, the Arbitrator ordered Respondent Potenza to pay to Claimant UBS $129,542.40 in principal; $53,109.50 in interest, and $24, 142.15 in fees and costs (including attorneys' fees), for a total award of $206,794.05.

In yet another glimpse behind the often pulled-shut curtains of FINRA arbitrations, the Arbitrator advises that in November 2012 he had directed the parties to work out a payment schedule but that they had failed to reach an agreement.  As such, the Arbitrator issued the following order:

Respondent will pay to Claimant by check or electronic transfer $1,000.00 each month for 10 (ten) years and a balloon payment of $86,794.05 on the 11th anniversary of the date of the first payment.

The first payment will be made on March 1, 2013, and shall continue in equal monthly payments for 10 (ten) years.

Respondent Potenza is advised that, should he default in these payments, the balance of the $206,794.05, as of the date of default, shall be subject to interest at the same rate applied to the original $129,542.40 principal originally owed. . .

Bill Singer's Comment

A superb job by this FINRA Arbitrator! For starters, finally, someone characterizes these "promissory notes' in the more common industry jargon of "forgivable loans."

Athough there are often compelling instances where what the employer deemed a "voluntary resignation" was, in reality, more akin to a "constructive termination," this Arbitrator would have none of that - pointedly explaining to us that he considered the arguments by Respondent Potenza that stresses forced him to quit but concluded that there was no proof of any pressure that would have required a "reasonable person to resign."

Finally, I like the fact that the Arbitrator understood that sometimes its best to let the players play the game - I've seen too many sporting events where the referees interrupt the game's flow with too many ticky tacky calls. At times, sure, ya gotta blow the whistle; other times, hey, I didn't pay to watch the zebra wave his hands and point. In this case the Arbitrator gave the parties a shot at working out a payment schedule but when that proved too elusive, he stepped in and did the work himself.

See these "Street Sweeper" columns about EFLs and promissory note cases:

Watch on Reuters Insider the pilot episodes of "SIDE BAR WITH BILL SINGER." Veteran Wall Street regulatory lawyer Bill Singer hosts three episodes of this new program.


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