An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
Burning Wedbush In CMO Employment Dispute
October 3, 2013
A former employee sues his former employer. It sets up as a million-dollar-plus claim. The former employer ain't having none of it. The firm wants to be indemnified for losses it incurred in lawsuits with the employee's former customers. It starts nasty. It gets nasty. It ends with one of the parties on the hook for big bucks.
In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in May 2005 and as amended thereafter in October 2012, Claimant Farah asserted fraud by misrepresentation and omission; negligent misrepresentation; and interference with business and contractual relationships; and failure to indemnify. Claimant asserted that Respondent Wedbush Securities had made misrepresentations and omitted material facts in connection with the Collateralized Mortgage Obligations ("CMO") investments that Claimant had recommended to his clients, causing Farah to lose clients and annual income. Claimant sought at least $1,500,000 in losses, punitive damages, fees, costs, and interest. In the Matter of the FINRA Arbitration Between Michael Paul Farah, Claimant/Counter-Respondent, vs. Wedbush Securities, Respondent/Counter-Claimant (FINRA Arbitration 12-02469, September 25, 2013).
Respondent Wedbush generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting causes of action including indemnification, interference with contractual relations and prospective economic advantage, misrepresentation, and breach of fiduciary duty in connection with losses the firm suffered following multiple arbitrations arising out of the CMOs recommended by Farah. In its Counterclaim, Respondent Wedbush sought indemnification for its losses and liabilities sustained in the CMO disputes, punitive damages, fees, and costs.
SIDE BAR: On July 2, 2012, the parties advised FINRA Dispute Resolution that they stipulated to transfer the above-captioned matter to FINRA Dispute Resolution from the New York Stock Exchange, Inc.
The FINRA Arbitration Panel found Respondent Wedbush liable and ordered it to pay to Claimant Farah:
- $1,334,387.00 for loss of income;
- $1,439,555.50 in punitive damages pursuant to California Civil Code Section 3294;
- $258,877.71 as reimbursement for the attorneys' fees Farah paid out of pocket in connection with the prior New York Stock Exchange, Inc. case and the related Wedbush arbitration proceedings pursuant to California Labor Code Section 2802;
- $1,213,128.08 in additional attorneys' fees pursuant to California Labor Code Section 2802(c), California Civil Code Section 1717 and the case law of Coutee v. Barrington Capital Group, LP., 336 F.3d 1128 {9th Cir. 2003);
- $18,500.00 in expert witness fees for one of Farah's expert witnesses;
- $21,074.25 for Farah's court reporter fees; and
- $600.00 as reimbursement for the nonrefundable portion of Farah's initial claim filing fee.
An impressive victory for Claimant Farah, but, be aware, however, that some of the monetary awards in this arbitration may be unique to matters covered under California law. Note these two state provisions:
WATCH THESE VIDEOS HOSTED BY BILL SINGER, ESQ.:CALIFORNIA CIVIL. CODE § 3294(a)In an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.(b)An employer shall not be liable for damages pursuant to subdivision (a), based upon acts of an employee of the employer, unless the employer had advance knowledge of the unfitness of the employee and employed him or her with a conscious disregard of the rights or safety of others or authorized or ratified the wrongful conduct for which the damages are awarded or was personally guilty of oppression, fraud, or malice. With respect to a corporate employer, the advance knowledge and conscious disregard, authorization, ratification or act of oppression, fraud, or malice must be on the part of an officer, director, or managing agent of the corporation.(c)As used in this section, the following definitions shall apply:(1)"Malice" means conduct which is intended by the defendant to cause injury to the plaintiff or despicable conduct which is carried on by the defendant with a willful and conscious disregard of the rights or safety of others.(2)"Oppression" means despicable conduct that subjects a person to cruel and unjust hardship in conscious disregard of that person's rights.(3)"Fraud" means an intentional misrepresentation, deceit, or concealment of a material fact known to the defendant with the intention on the part of the defendant of thereby depriving a person of property or legal rights or otherwise causing injury.(d)Damages may be recovered pursuant to this section in an action pursuant to Chapter 4 (commencing with Section 377.10) of Title 3 of Part 2 of the Code of Civil Procedure based upon a death which resulted from a homicide for which the defendant has been convicted of a felony, whether or not the decedent died instantly or survived the fatal injury for some period of time. The procedures for joinder and consolidation contained in Section 377.62 of the Code of Civil Procedure shall apply to prevent multiple recoveries of punitive or exemplary damages based upon the same wrongful act.(e)The amendments to this section made by Chapter 1498 of the Statutes of 1987 apply to all actions in which the initial trial has not commenced prior to January 1, 1988.CALIFORNIA LABOR CODE § 2802(a)An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.(b)All awards made by a court or by the Division of Labor Standards Enforcement for reimbursement of necessary expenditures under this section shall carry interest at the same rate as judgments in civil actions. Interest shall accrue from the date on which the employee incurred the necessary expenditure or loss.(c)For purposes of this section, the term "necessary expenditures or losses" shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.