Lehman Brothers In Bizarre FINRA Promissory Note Cases

April 30, 2013

This BrokeAndBroker Blog offers an interesting comparison of two similar Financial Industry Regulatory Authority ("FINRA") intra-industry arbitrations involving the same Claimant/Employer Lehman Brothers seeking collection of promissory notes against former employees.  Clearly, FINRA arbitration panels rule in diverse ways and each case often stands on its unique set of facts. Another interesting aspect of these decisions is that Lehman Brothers continues to find it difficult to obtain an Award for the full amounts that it seeks against former employee respondents -- the litigation results have proven to be anything but slam-dunks for this industry claimant.

SIDE BARHaving amply reported about the ongoing Lehman promissory note collection cases, I will simply refer BrokeAndBroker readers to my prior commentaries (see below), which clearly disclose my antipathy to Claimant's position. I readily acknowledge the rights of Lehman's creditors to look to recovered promissory note balances and interest as assets to be applied towards paying down their debt.  This is a thorny problem with equities on many sides. Ultimately, my sympathies are largely with many of the former employees because they likely would have come to work but for the fact that the doors were shut and the lights turned off.

Lehman Brothers Holdings, Inc. v. Kenworthy

In a FINRA Arbitration Statement of Claim filed in September 2010, Claimant Lehman Brothers asserted unjust enrichment and breach of contract for failure to pay monies owed on two promissory notes. Claimant sought $1,279,372.60 (the first note) and $366,718.15 (the second note) in principal; interest at the rate of $106.85 and $30.63 per day, respectively; and collection costs, expenses, disbursements, forum fees, attorneys' fees. Prior to the hearings, Claimant withdrew its claim for unjust enrichment and proceeded solely on its claim for breach of contract. In the Matter of the FINRA Arbitration Between Lehman Brothers Holdings Inc., as assignee of Lehman Brothers, Inc., Claimant, vs Mary Mattson Kenworthy, Respondent (FINRA Arbitration 10-04088, April 26, 2013 )

Respondent Kenworthy generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting unpaid compensation, misrepresentations, and omissions. Kenworthy sought $2,350,000.00 in compensatory damages, attorneys' fees, and costs.


The FINRA Arbitration Panel denied an award of compensatory damages on the second note but found Respondent Kenworthy liable on the first note and ordered her to pay to Claimant Lehman Brothers:

  • $1,200,000.00 for the principal due on the first note plus 5% per annum interest from September 19, 2008 until payment of the award; and
  • $80,000 in attorneys' fees.

Additionally, the Panel found Claimant Lehman Brothers liable and ordered it to pay to Respondent Kenworthy $41,000.00  in compensatory damages.

Bill Singer's Comment

Seriously?  You mean that the Panel essentially ripped up the second note -- some $367,000 plus attendant interest -- and we don't get so much as a few words of explanation as to why?  On top of that, Respondent Kenworthy was awarded $41,000 but we don't have any understanding as to what supported that decision. If you factor in the apparent forgiveness of that $367,000 and tack on the $41,000 award, Respondent achieved about a $400,000 cumulative benefit by litigating this matter; on the other hand, she still walks away with a bill for nearly $1.3 million, so it's not all that much of a victory for her.  Ultimately, the only way to handicap this one is if we knew where the final offers of settlement stood (assuming such existed) before the commencement of the hearings.

Lehman Brothers Holdings, Inc. v. Quinn

In a FINRA Arbitration Statement of Claim filed in September 2011, Claimant Lehman Brothers asserted unjust enrichment and breach of promissory note in connection with its effort to obtain $536,067.12 in compensatory damages, interest at the rate of $70.28 per day, collection costs, expenses, disbursements, forum fees, attorneys' fees. In the Matter of the FINRA Arbitration Between Lehman Brothers Holdings Inc., as assignee of Lehman Brothers, Inc., Claimant, vs. Robert M. Quinn, Respondent (FINRA Arbitration 11-03406, April 26, 2013 )

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

Motion Granted

At the conclusion of Claimant's case, Respondent made a Motion for Summary Judgment, which the sole FINRA Arbitrator granted; accordingly, Claimant Lehman Brothers' claims were dismissed.

Bill Singer's Comment

Zippo. Nada. Zilch. How did Lehman Brothers wind up getting shut out by Quinn?  Unlike Kenworthy, this arbitration decision actually offers us some helpful context and rationale in the form of an "Arbitrator's Report" appended at the end of the decision. 


The Claimant failed to offer sufficient evidence that item #87 in the addendum of Claimant's Exhibit #24 or the initials R.Q. in the addendum of Claimant's Exhibit #25 was the promissory note of Robert Quinn (hereinafter Quinn Note). The Quinn Note being item #87 or R.Q. was never mentioned in any form at all until Claimant's argument following the Respondent's Motion for Summary Judgment. The Respondent's Motion followed the resting of Claimant's case and an inquiry into whether he had other witness or evidence to present. At that time. Respondent moved for Summary Judgment. The Motion was then thoroughly argued by both parties after which a break was called to reflect on the evidence and exhibits (i.e. the amount of the loan, balance due, and date of the loan) that this was the Quinn Note. I concluded that I could not so infer. In so concluding, I took note that the date of loan was not his start at LBHI or the date he had signed the loan documents, the other amounts were or seemed to be correct. However, I could not conclude upon the evidence presented by Claimant that he had proven this essential element of the claim.

Upon return to the record, I granted the Motion of Respondent. Claimant then sought to reopen his case indicating that during the break he discovered he had further documents and the testimony of Suzette Scarborough of LBHI to prove that item #87 and R.Q. was the Quinn Note. I denied the Motion as this was not newly discovered evidence but merely evidence he had overlooked in his case-in-chief. I then allowed Claimant to make an offer of proof for any further appeal of this matter. I also noted for the record that Ms. Scarborough had been present during the entire hearing from beginning to end.

Reduced to basics, Claimant Lehman apparently came to the hearing but somehow -- according to the Arbitrator's Report -- "never mentioned in any form at all until Claimant's argument . . ." the very promissory note in dispute! The Arbitrator clearly states that that as to the Note at issue, he could not infer that it was Respondent Quinn's. Moreover, when Respondent requested that the case be re-opened to permit a witness to testify as to the proof that the Note was, in fact, Respondent Quinn's, the Arbitrator essentially chalked it up to "too little, too late" and denied the request (which I personally believe was the correct ruling given the facts). 

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