Lawsuit Pits Wrongful Termination Against Hyped Trailing Revenues

July 26, 2016

In today's Blog, we consider dueling claims in a wrongful termination arbitration. The former employees are demanding about $100,000 for being untimely kicked to the curb. The former employer argues that it was defrauded by over-blown representations of trailing commissions. It's a white-knuckler that goes down to the wire.

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in January 2015, Claimants asserted breach of employment contract, wrongful termination, intentional interference with a contract inducing breach, fraud, constructive trust, and unjust enrichment.  At the close of the arbitration hearing, Claimants sought $95,806.82 in compensatory damages and $10,000 in travel expenses. In the Matter of the FINRA Arbitration Between David Lance Alvarez; George Bienvenido Medina; Pablo Judas Quesnel, Claimants/Counter-Respondents, vs. WallachBeth Capital LLC, Respondent/Counter-Claimant  (FINRA Arbitration 15-00190, July 8, 2016).


Respondent WallachBeth generally denied the allegations and asserted various affirmative defenses. Additionally, Respondent filed a counterclaim asserting breaches of contract and of the duty of good faith and fair dealing; fraud, fraud in the inducement, and violation of FINRA Rule 2010. Counter-Claimant sought  $278,297.00 in compensatory damages plus attorneys' fees, costs, and fees.

Once More Into The Breach

At the close of Claimant's case-in-chief, Respondent made a Motion to Dismiss, which the FINRA Arbitration Panel granted as to all claims except the breach of contract.


The FINRA Arbitration Panel denied the claims of Claimant Alvarez.

The FINRA Arbitration Panel found Respondent WallachBeth liable to and ordered it to pay to:
  • Claimant Medina: $32,955.00 in compensatory damages; and
  • Claimant Quesnel: $28,750.00 in compensatory damages.
The FINRA Arbitration Panel found Alvarez liable to and ordered him to pay to Counter-Claimant WallachBeth $54,072.00 in compensatory damages for fraud in the inducement.


After ruling on Respondent's Motion to Dismiss, Claimants' only remaining claim was for breach of contract. The parties executed employment contracts providing that Claimants, as a team, would receive $240,000.00 for the first six months as a draw and, during this time, Respondent could terminate Claimants only for a regulatory violation.

After this six month period, Claimants would become "at will" employees. Claimants
commenced work for Respondent on April 23, 2014 and were terminated on August 27, 2014, prior to the expiration of six months.

The Panel finds that since the contracts, as drafted, did not include a general "for cause" termination provision during the first six months, Respondent breached the contracts of Claimants Quesnel and Medina by reducing their pay and terminating them prior to the expiration of the six month period.

The Panel finds that Claimant Alvarez committed fraud in the inducement by materially misrepresenting the past revenues of the Claimants, plus those of Kraig Tuber.

Bill Singer's Comment

In the Alvarez arbitration, three former employee Claimants sued for about $100,000. Two of the Claimants were awarded about $62,000; but one of the Claimants got hit with about a $54,000 award via Counter-Claim. Given the various rulings and awards rendered by this Panel, the arbitrators appear to have carefully considered a number of factual and legal issues, and attempted to render awards that appropriately reflected the competing concerns. 
As regular readers of the Blog know, when it comes to FINRA Arbitration Decisions, I'm a hard man to please in terms of the the sufficiency of what I have called "content and context."  Today, I offer a loud, round of applause to the arbitrators. Great job!

What I particularly love about today's Decision is that the arbitrators provided us with their rationale via the Explanation of Decision.  The Panel deemed that Claimant Alvarez had defrauded Respondent WallachBeth by materially overstating trailing revenues. Chalk that one up to the former employer.  On the former employees's side of the ledger, the Panel read the operative employment contracts and noted that after six months the employees were subject to termination for "For Cause" conditions but prior to that, termination was apparently limited to a "regulatory violation." In the absence of proof of any regulatory violation, the arbitrators found that the pay cuts and terminations were in violation of the contracts. That was smart drafting by the employees (or their lawyer) and maybe something that the former firm will no longer incorporate into its contracts -- lesson learned?

Some valuable takeaways from this case are that employers should be sure to request and review supports and documentation for any representation as to trailing revenues. I would suggest that such documentation be attached to the contract and incorporated by reference and that the agreement clearly confirms that the hiring decision was materially predicated on the accuracy of the attachments.  

Employees should be careful to avoid the trap of migrating their books of business to a new firm and after that new employer gets its hands on your biz, that firm surprisingly insists upon a number of previously undisclosed conditions.  Trust me, it's not unheard of for a new employer to pull the Old Switcheroo when it comes to assigned accounts, office location, support, etc. An important consideration might be to insist that any business you bring with you is deemed yours and not subject to any non-compete or non-solicit provisions. Also, as demonstrated in this case, imposing stricter employment terms for a start-up phase (in Alvarez it was during the first six months), could give new employees more flexibility to seek other employment if it turns out that the honeymoon quickly sours.