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by Bill Singer

Merrill Lynch Whupped In Promissory Note Arbitration

January 23, 2014

Merrill Lynch sued a former registered person for over $500,000 in damages, interest, costs, and fees attendant to the firm's effort to recover a disputed balance due on a promissory note. Typically, these cases end like a hit-and-run accident with the former employee left bloody and battered on the roadside of Wall Street, Except, you know, things don't always go according to plan. 

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in October 2010, Claimant Merrill Lynch ultimately sought to recover $266,538.09 plus $43,943.73 in interest, and $211,134.90 in attorneys' fees and costs based upon alleged breach of promissory note and unjust enrichment by its former employee Respondent Cooper.  In the Matter of the FINRA Arbitration Between Merrill Lynch, Pierce, Fenner & Smith Incorporated, Claimant/Counter-Respondent, vs. James Eric Cooper, Respondent/Counter-Claimant (FINRA Arbitration 10-04787, January 10, 2014).

Respondent Cooper generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting fraudulent inducement and tortious interference with business relations. Cooper sought at least $1.5 million in compensatory damages, $15 million in punitive damages; $156,861.25 in attorneys fees and costs, and the expungement of language concerning his dismissal by Merrill Lynch as reflected on his Uniform Notice of Securities Industry Registration Termination ("Form U5"). 

The FINRA Arbitration Panel dismissed Claimant Merrill Lynch's claim.  

Separately, the Panel found Merrill Lynch liable to and ordered it to pay to Respondent Cooper $156,861.25 in attorneys' fees and costs. Additionally, the Panel recommended the expungement of the "Termination Explanation" on Cooper's Form U5 and proposed that it be replaced with "Mr Cooper was terminated June 19, 2009 other than for cause." 

Bill Singer's Comment

This one starts off simple enough: Merrill Lynch sues to get its money back on a promissory note extended to an employer -- likely in the form of an employee forgivable loan ("EFL"). The apparent outstanding debt was about $267,000. Then Merrill starts to tack on stuff. Ya got yer nearly $44,000 in claimed interest. Ya got yer $211,000 in fees for the legal eagle. Ain't it grand?  Not only do you sue to get back each dollar of loan principal but, hey, you sue to get back another dollar in interest and costs. By the down you've served the papers and appeared at the hearing, the tab is nearly double the disputed principal owed. 

Somewhat lost in the shuffle of these disputes between formerly enamored employer and employee is the fact that with an outstanding tab on this EFL of over $250,000 (and the initial loan was likely far higher), Respondent Cooper was apparently a very productive registered person and someone valued by Merrill Lynch.  At some point and for some reason, the happy relationship between Merrill and Cooper crashed and burned.  As far as Cooper was concerned, his former employer wasn't owed a damn cent and, in fact, he wanted at least $1.5 million in damages plus another $15 million in punies. 

Ya gotta wonder just what the hell Merrill Lynch was thinking when it opted to file this one and failed to settle the dispute. Sadly, the FINRA Arbitration Decision doesn't tell us diddly squat about the facts or the substance of the dispute beyond the cursory explanation that I have noted above. That's unfortunate because this arbitration looks like it was one hell of a battle royale, and I would have enjoyed learning about the respective parties' positions leading into the hearing. Nonetheless, just going with what we know and some reasonable inferences, it sure looks like Respondent Cooper gave his former employer an old-fashioned ass kickin'. 

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