November 21, 2016
We travel back to the days in which the Great Recession awakened and all hell broke loose. At the onset, a female Wells Fargo Advisors registered representative was given two promissory notes; unfortunately, when the end of her employment came, it didn't end well, and Wells Fargo went after its former employee for over $200,000 in promissory note balances. Alas, 2016 hasn't been the best of years for a beleaguered Wells Fargo; and judging by this FINRA Arbitration, the beleaguering isn't done.
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in April 2014, Claimant Wells Fargo Advisors asserted that former employee
Respondent Powers had failed to pay money owed on both a July 6, 2007,
Promissory Note and an October 21, 2008, Promissory Note, both of which became due
and payable upon Respondent's termination. Claimant Wells Fargo sought $200,468.02
principal owing on the two Notes plus interest; $3,825 in filing fees and
member surcharge; collection fees; and attorneys' fees. In the
Matter of the FINRA Arbitration Between Wells Fargo Advisors, LLC, Claimant/Counter-Respondent,
vs. Shannon M.
Powers, Respondent / Counterclaimant (FINRA Arbitration 14-01285, November 11,
SIDE BAR: An inexcusable omission in the FINRA Arbitration Decision is its failure to present the date on which Respondent Powers was discharged or quit; moreover, there is no assertion as to the nature of her termination (voluntary or discharged).
Online FINRA BrokerCheck records as of November 21, 2016, assert that "Shannon M. Powers" was first registered in 1993 and was last registered with Wells Fargo Advisors, LLC in March 2011. That same BrokerCheck record discloses that Powers was last "employed" by Wells Fargo in August 2012. Note that there is a distinction between registration and employment.
The Decision does disclose that Claimant Wells Fargo sought interest on the promissory notes "from August 9, 2012" but that is the only reference, oblique as it is, to the possible date of the unstated discharge or resignation. The "Case Summary" does reference the "termination of Respondent's employment with Claimant," but in industry parlance, "termination" generally means the termination of registration, which occurs during both discharges and resignations.
Upping the Ante
Respondent Powers generally denied the allegations
and asserted various affirmative defenses.
October 1, 2014, arbitration pre-hearing conference, Respondent Powers advised that she had filed a Complaint in Superior Court against
Claimant Wells Fargo and had moved to compel arbitration of her claims.
Following the Court's order compelling the requested arbitration, Respondent filed
her claims via her FINRA Arbitration Counterclaim dated
October 7, 2014.
SIDE BAR: The Decision only references the filing of a complaint "in Superior Court," and does not indicate in which state (I presume California) and does not provide a reference to any caption or docket number
Respondent's Counterclaim, she asserted breach of contract and wrongful
termination as a matter of public policy. Additionally, Respondent Powers asserted the following
alleged violation of California Government Code §
12940 et. seq. (Fair Employment and Housing Act ("FEHA"):
- failure to engage in the
- failure to
- failure to prevent discrimination and
- retaliation; and
Respondent Powers sought
- Actual, consequential and
incidental financial losses, including loss of earnings and employee benefits;
- General, special, punitive, and exemplary
The FINRA Arbitration Panel
found Respondent Powers liable to and ordered her to pay to Claimant Wells Fargo
$66,049.12 and $134,418.81 in compensatory damages on the two Notes.
Also, the Panel found Claimant
Wells Fargo liable to and ordered it to pay to Respondent/Counterclaimant
Powers $256,000 in compensatory damages for "mitigated lost wages;"
$100,000 in attorneys' fees as provided under the FEHA: $25,000 for
The net award after offset is
that Claimant Wells Fargo is ordered to pay to Respondent Powers $180,532.07.
Let's start with the obvious:
Wells Fargo badly miscalculated here. It's not everyday that a major
FINRA member firm sues to recoup the balances of two --count 'em: two
--promissory notes and winds up getting pounded in the ensuing decision. There
are those who will argue, and with merit, that Wells Fargo didn't lose its
case; and, in fact, won just about every penny that it sued for on the two
notes. What the firm lost, some will argue, was a separate and distinct disability claim filed against it by its former employee. Okay, let Wells Fargo enjoy that Pyrrhic victory.
Revisiting the litigation
landscape facing Wells Fargo, we note a few landmarks:
- In 2007 and 2008, Wells Fargo extended a total of six figures in forgivable loans to Powers that were
secured by two promissory notes. Those circumstances suggests that she was a
valued employee and worth the bucks to retain her services.
- By the time Wells Fargo filed its claims in 2014, the two underlying notes had aged 7 and 6 years respectively, which implies that Powers had spent quite a bit of time in service during the onslaught of the Great Recession.
- Powers is a
woman and there just weren't all that many female registered representatives
being offered six figures in loans in 2007 and 2008; and when deciding to sue one of its
productive female registered reps, Wells Fargo should have paused and considered the
optics. Note that I said "pause" and didn't say
"wave the white flag and simply give up." Is that sexist? Maybe? Is that pragmatic? Absolutely!
- Having factored in all the considerations as to whether it was sensible to sue Powers, Wells Fargo should then have asked itself about its former
employee's "disability" claims. Somewhere, somehow, someone at Wells Fargo didn't quite think the pros
and cons of this lawsuit through and arrive at a sensible solution.
Of course, this all brings us to
the threshold of a problem that I have with this FINRA Arbitration
- What was the nature of Powers' alleged
disability and what, if any, steps did Wells Fargo take to accommodate her?
- What did the arbitrators mean by "mitigated lost wages?"
- What was the nature of Powers' "emotional distress?"
Don't bother reading the
Decision, it fails to answer all of the above questions. The Panel's silence may well be
appropriate given the nature of Powers' undisclosed disability, which may have prompted the arbitrators to keep the underlying issue confidential. On the other
hand, either note that concession to Power's privacy in the Decision
or, in the alternative, disclose the nature of the underlying disability
claim. Either posture is fine but you need to let us know that you've considered the circumstances and opted to disclose or conceal.
In the end, we are left
to ponder a stunning award by a FINRA Panel of Arbitrators in which a former
Wells Fargo employee nets about $180,000 in damages but we don't really
understand what tipped the scales in her favor or why the arbitrators ruled as