Few requests have caused more damage and resulted in more lawsuits than the one that starts off with the seemingly innocuous "Would you do me a favor?" Yeah, I know, you've been there, done that. Me too. In a recent FINRA regulatory settlement, the "favor" involved a Wells Fargo manager, his wife, his subordinate, and his wife's signature on some mortgage forms. As you might imagine, this all turned into quite the mess.
The Wife's Signature
In today's featured federal litigation, we come across Kurt Loreck, who, according to online FINRA BrokerCheck records as of November 5, 2020, was registered with FINRA member firm Wells Fargo Clearing Services, LLC from July 2005 to December 2019. Further, BrokerCheck records disclose that Loreck was discharged on November 20, 2019, by Wells Fargo Clearing Services, LLC based upon allegations that:
Wells Fargo Clearing Services, LLC ("WFCS") discharged Mr. Loreck after he
acknowledged asking another WFCS team member to sign his wife's name on two
forms related to a personal home mortgage for Mr. Loreck and his wife. Mr.
Loreck's wife was later asked to re-execute the forms, which she did. The
mortgage was not related to securities business or WFCS. No customer financial
Ummm . . . okay, Loreck asked another Wells Fargo employee to sign his wife's name on a mortgage form? And then, after all of that, Loreck's wife subsequently signs her name on the forms?
That comes off as one hell of a brain fart in terms of "what were you thinking at the time?" And then there's that follow-up query of "What the hell was going on here?"
All of which seems like a no-harm-no-foul bit of silliness but for the fact that I wouldn't be telling you this tale if there was a no-harm-no-foul aspect to this mess.
The Federal Case
In Timothy Gay, Plaintiff, v. Kurt L. Loreck, Defendant (Memorandum and Order, United States District Court for the Eastern District of Missouri, 20-CV-1343 / November 2, 2020) http://brokeandbroker.com/PDF/GayEDMOMemOrd201102.pdf, Plaintiff Gay appears to be the "team member" who was asked by Loreck to sign his wife's name. As Gay alleges, Loreck was his former manager. Now that's a tad different than just characterizing Loreck as a mere member of the team. In fact, we have a relationship here of a superior (Loreck) and a subordinate (Gay). Taking things a step further, Gay alleged that manager Loreck:
pressured Plaintiff in June 2019
to sign Defendant's wife's name on a document related to Defendant's purchase of a home in
Colorado. (ECF No. 4 at 1-2.) Plaintiff did not want to do this and was concerned it could result
in the termination of his employment, but Defendant insisted and promised nothing negative would
happen to Plaintiff's employment. (Id. at 2.) Wells Fargo investigated the matter and during
the investigation Defendant admitted to several people that all culpability was his and again
assured Plaintiff no negative repercussions would come to him from it. (Id.) Defendant also
assured Plaintiff that "if anything was not OK, Defendant would compensate Plaintiff for the
damages he sustained." (Id. at 3.) Plaintiff alleges he was terminated from Wells Fargo in
November 2019 as a result of Defendant's unlawful actions. (Id.) The Petition asserts state law
claims against Defendant for tortious interference with contract, fraudulent misrepresentation, and
at Page 1 of the EDMO Memo/Order
Given that Gay is the Plaintiff in a federal lawsuit against Loreck, we can likely infer that something negative did indeed happen to Gay. So much for Loreck's alleged assurances to the contrary. Although it appears that Loreck had presented himself as a stand-up guy who would take care of any damages, apparently that didn't exactly pan out from Gay's perspective. If it had, I'm guessing that there wouldn't have been a Complaint filed in federal court, right?
In response to Gay's Complaint, Loreck asserted 17 affirmative defenses, among which was an assertion that Gay's claims are subject to mandatory FINRA arbitration per the Federal Arbitration Act ("FAA") and FINRA's Code of Arbitration Procedures Governing Industry Disputes. Pointedly, Loreck states that Gay was an "Associated Person" of Wells Fargo and subject to mandatory industry arbitration. Moreover, in furtherance of said position as to mandatory arbitration:
Defendant asserts in the Motion that it is necessary to pursue expedited discovery on the
issue of the arbitrability of this dispute, and asks the Court to preclude all other discovery at this
time so the issue of arbitration can be decided prior to litigation related to the merits of the dispute.
Defendant asserts on information and belief that Plaintiff through his employment with Wells
Fargo agreed to be bound by FINRA, which includes mandatory arbitration of disputes arising out
of the business activities of a member or associated person with FINRA. Defendant seeks
expedited discovery to prove the existence of such an agreement to support an anticipated motion
to compel arbitration.
at Page 2 of the EDMO Memo/Order
For his part, Gay does not object to expedited discovery relating to the arbitrability of the dispute and, accordingly, he authorized the release by Wells Fargo of employment records that may be dispositive on the issue. Notwithstanding Gay's largesse:
[H]e opposes the stay of all other
discovery, stating that he lost his livelihood in November 2019 and this lawsuit aims to make him
whole and should not be unnecessarily delayed. Plaintiff submits a Declaration signed pursuant
to 28 U.S.C. § 1746 averring that while he worked for Wells Fargo he was not registered with
FINRA and that he has never entered into an agreement to arbitrate disputes with Defendant.
(ECF No. 16-1.)
at Page 2 of the EDMO Memo/Order
In ruling on the pending Motion, EDMO offers, in part, this explanation and rationale:
[A]s Defendant states, the parties are in the
process of obtaining records from Wells Fargo that he expects may be dispositive of whether
FINRA arbitration rules apply to Plaintiff's claims and these records are expected shortly. If
Plaintiff's claims are subject to FINRA arbitration rules, Defendant should not have to engage in
significant discovery before he can obtain the records he needs to file a motion to compel
arbitration. In the meantime, Defendant's assertions concerning the potential application of
FINRA arbitration rules to Plaintiff's claims are not so compelling that the Court is persuaded
Plaintiff should be deprived of the opportunity to engage in discovery, or that the parties should
not provide Rule 26 initial disclosures.
at Page 3 of the EDMO Memo/Order
Accordingly, EDMO grants expedited discovery on the issue of arbitrability and on the stay of all other discover.