2Cir Affirms FINRA Arbitrators Award to Jefferies of $1 Million Liquidated Damages For Aborted Employment

June 7, 2021

You're unhappy at your present employer. You negotiate a deal with another employer. Apparently you're really wonderful at what you do because you're offered a nice compensation package. Further, you did such a fabulous job selling yourself that your likely-new-employer requests a million bucks in liquidated damages in the event you don't start working for them by a mutually agreed-to date. So . . . like what could go wrong with all of that? Apparently, a lot because we got a 17-page FINRA Arbitration Award and two federal courts! 

Case in Point

In a FINRA Arbitration Statement of Claim filed in August 2016,  In the Matter of the Arbitration Between Jefferies, LLC, Claimant/Counter-Respondent, v. Jon Alan Gegenheimer, Respondent/Counter-Claimant (FINRA Arbitration Decision 16-02461 / April 5, 2019)
FINRA member firm Jefferies asserted the following: 

Jefferies asserted a claim to recover $1,000,000.00 in liquidated damages that it alleged Gegenheimer owed as a result of breaching the parties' agreement that Gegenheimer executed on May 18, 2016 (the "Agreement"). Jefferies alleged that Gegenheimer was to commence employment at the firm on or before August 17, 2016, and, if he failed to do so, he would be liable to Jefferies for liquidated damages in the amount of $1,000,000.00 pursuant to the Agreement. 

Unless specifically admitted in the Statement of Answer and Counterclaims, Gegenheimer denied the allegations made in the Statement of Claim and asserted various affirmative defenses. In his Counterclaims, Gegenheimer asserted the following causes of action: violation of FINRA Rule 2010; unfair competition; tortious interference with contract and economic relations; and abuse of process. 

In the Amended Statement of Answer and Counterclaims, Gegenheimer added equitable estoppel as a defense. 

Unless specifically admitted in the Statements of Answer to the Counterclaims and the Amended Statement of Answer and Counterclaims, Jefferies denied the allegations made in the Counterclaims and the Amended Statement of Answer and Counterclaims and asserted various affirmative defenses.  

at Pages 1 - 2 of the Arbitration Award

Liquidated Damages

Movin' along to 2017, the parties agreed to bifurcated proceedings, and, initially, the FINRA Arbitration Panel adjudicated only whether the liquidated damages provision of the Agreement is enforceable or unenforceable. In part, this is how the Panel framed the Part One Hearing's underlying issues:

Claimant Jefferies LLC ("Jefferies") is a financial services firm with its headquarters and principal place of business in New York, New York. Respondent Jon A. Gegenheimer ("Gegenheimer") is an investment banker employed by Credit Suisse since 2003 in San Francisco, California. On May 18, 2016, Jefferies and Gegenheimer entered into a written agreement ("the Agreement") under the terms of which Gegenheimer agreed to join Jefferies as a managing director specializing in mergers and acquisitions in Jefferies' technology group in San Francisco. The Agreement provided that Gegenheimer would receive an annual salary of $350,000, a fiscal year 2016 retention bonus of $720,834, and up to $300,000 to replace deferred compensation from Credit Suisse that Gegenheimer would forfeit by leaving Credit Suisse and joining Jefferies. 

The Agreement further provided that Gegenheimer's employment with Jefferies would not commence until August 17, 2016, because Gegenheimer was required to provide Credit Suisse with ninety (90) days prior written notice of his intention to resign. The Agreement obligated Gegenheimer to pay Jefferies liquidated damages if he failed to commence employment with Jefferies. The liquidated damages clause, Section V.B. of the Agreement, provides as follows: 

If during the period beginning from the date you execute this Agreement until your Start Date ("the Interim Period"), you fail to commence employment by August 17, 2016, you agree to pay Jefferies $1,000,000 as liquidated damages ("Liquidated Damages"), which represent only an approximation of a portion of the anticipated loss created by such a violation. For the avoidance of doubt, this Liquidated Damages provision is applicable only if you voluntarily fail to commence employment with Jefferies (except as a result of Jefferies' written withdrawal of this offer): (a) because you return as an employee of Credit Suisse or (b) to engage in Competitive Activity (as defined in the Jefferies Employee Handbook). You agree the Liquidated Damages are reasonable and do not operate as a penalty but reflect Jefferies' reasonable approximation of a portion of its anticipated loss as a result of Jefferies' reliance on your commitment to render services pursuant to this Agreement by your Start Date, Jefferies' forbearance in holding the position of Managing Director in its Investment Banking Division open for you and not hiring another individual for this position during the Interim Period, and all costs incurred by Jefferies to fill the Investment Banking Division Managing Director Position. Nothing in this section shall prevent Jefferies from recovering its actual damages exceeding the Liquidated Damages, and Jefferies shall have the right to avail itself of all other available remedies.  

Jefferies determined the liquidated damages amount by taking Gegenheimer's agreed first year compensation at Jefferies and rounding down to $1,000,000. 

On May 24, 2016, Gegenheimer informed Jefferies that he would not join Jefferies as agreed, but instead would remain with Credit Suisse. On or about August 10, 2016, Credit Suisse offered Gegenheimer a retention award of $1,150,000 in guaranteed total compensation for 2016; Gegenheimer accepted the offer and signed a Retention Agreement.  

at Pages 3 - 4 of the Arbitration Award

The Cone (of Silence)

After accepting the employment offer and after signing the retention agreement, one would think that Gegenheimer was on his way out the Credit Suisse door and into the welcoming arms of Jefferies. Then again, we are discussing a lawsuit against Gegenheimer by Jefferies, so, you know, things apparently didn't work out according to expectations. As noted in the FINRA Arbitration Decision:

In January 2016, Gegenheimer was dissatisfied with his compensation, job title, and scope of his responsibilities at Credit Suisse, where he was employed. On May 18, after weeks of confidential discussions with a recruiter and a former Credit Suisse employee who was at Jefferies ("Mr. G"), another employee of Jefferies ("Mr. K") called Gegenheimer and told him that Jefferies was prepared to pay Gegenheimer $1,070,834.00 in first year salary and bonus and make him a Managing Director. The offer was an improvement on Mr. G's discussion days earlier, of between $700,000.00 and $750,000.00 in compensation and without the title of Managing Director, which was rejected by Gegenheimer. The May 18 offer represented a significant increase in compensation, enhanced title and improved prospects for Gegenheimer, who responded, "that sounds fine." Soon thereafter on the same day, Gegenheimer entered The Cone. 

On May 18, 2016, Gegenheimer arrived at Jefferies' San Francisco office at about 3:00 p.m., met with a Jefferies administrative assistant, and was shown into a conference room where he was given the Jefferies offer letter for the first time ("Offer Letter"). Except for the Jefferies administrative assistant, Gegenheimer was alone in the conference room. Gegenheimer spoke by telephone with Mr. K who agreed to a hand-written change in the Offer Letter to correct a miscalculation regarding reimbursement of the amount of "leave behinds." Gegenheimer asked Mr. K to send a copy of the Offer Letter to Gegenheimer's attorney, Mr. T, who had extensively negotiated and advised other Credit Suisse investment bankers regarding their contracts with Jefferies days earlier. Other than the compensation, title and term, the Offer Letter was identical to the final agreement Mr. T negotiated for the other Credit Suisse investment bankers. After Mr. T received the Offer Letter, Gegenheimer conferred by telephone for 20 to 30 minutes with Mr. T. Gegenheimer also conferred by telephone for 20 to 30 minutes with his girlfriend, an attorney at Skadden, Arps, Slate, Meagher & Flom LLP ("Skadden"), who expressed objection to some provisions of the Offer Letter, including the liquidated damages provision. Gegenheimer spent more than an hour in the conference room before signing the Offer Letter. Gegenheimer was aware of the liquidated damages provision in the Offer Letter when he signed it on May 18, 2016. Hereinafter, the signed Offer Letter is referred to as the Agreement. 

After signing the Agreement, Gegenheimer sent his resignation to Credit Suisse, thereby starting his 90-day garden leave. On the evening of May 18, 2016, Gegenheimer contacted an employee at Credit Suisse ("Mr. W") to advise him of his decision to leave Credit Suisse. Mr. W told Gegenheimer he would like Gegenheimer to stay at Credit Suisse. On May 19, Mr. W conveyed a proposal under which Credit Suisse would pay Gegenheimer $1,150,000.00 and promote him to Managing Director in the next review cycle. Mr. W also explained that Credit Suisse would indemnify Gegenheimer, pursuant to the Credit Suisse indemnification policy, if the liquidated damages provision in the Agreement was enforceable. After further discussions, Gegenheimer reached a satisfactory agreement with Credit Suisse for him to stay at Credit Suisse. On May 24, Gegenheimer advised Jefferies by email that he was "rescinding" his acceptance of the Offer Letter and would not be joining Jefferies. At that time, Gegenheimer was confident that he was covered by Credit Suisse's indemnification policy. 

After receiving Gegenheimer's May 24, 2016 email, Jefferies asked him to fly to New York City to meet with three of Jefferies' senior executives, including Messrs. F and H. Gegenheimer traveled to New York City for meetings on June 8, 2016. In the meeting with Mr. H, Gegenheimer was told, in essence, if he did not come to Jefferies, "We're not going to f*** you up" and "once this is over, we're all going to go our separate ways. We're all going to move on. Everyone's going to be fine." In the meeting with Mr. F, Gegenheimer was advised to "take a long walk on the beach and make the decision that you think is right for yourself and your family." In the meetings, there was no explicit reference to the liquidated damages provision of the Agreement signed by Gegenheimer on May 18, 2016. 

Gegenheimer remained at Credit Suisse. On or about August 10, 2016, he signed a retainer agreement with Credit Suisse. Gegenheimer did not commence employment at Jefferies on August 17, 2016, as he had agreed to in the Agreement he signed on May 18, 2016.

at Pages 8 - 9 of the Arbitration Award

For my younger readers who don't quite get the reference to "The Cone," above, there is this additional explanation:

Jefferies' process for obtaining an investment banker's signature on its offer letter is called "The Cone", a reference to the "cone of silence" in the television series Get Smart. The Cone is a meeting on the day Jefferies sets with the candidate to present the offer letter and get it signed. When the candidate is in The Cone, the candidate has the choice of either signing the offer letter or not; the candidate may consult with advisors and significant others but may not "shop" the offer to others or leave the building with the unsigned offer letter.

at Page 8 of the Arbitration Award

A Pre- or a Post-Employment Agreement?

The FINRA Arbitration Panel found that the liquidated damages clause was enforceable by Jefferies against Gegenheimer. In reaching its findings, the Panel acknowledged, in part, that:

[G]egenheimer also contends that the liquidated damages clause is not enforceable as to him, a resident and employee in the State of California, because the clause violates the strong fundamental public policy of the State of California codified in California Business & Professions Code Section 16600 ("Section 16600"), which provides that "[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void." 

Section 16600 has been applied in many cases to nullify post-employment non-competition agreements and restrictive covenants that would keep California residents from engaging in lawful employment. However, Section V.B. of the Agreement is not a post-employment restrictive covenant. Section 16600 does not apply to an agreement to begin working by a particular date as provided in the Agreement. The Agreement did not require Gegenheimer to cease working for Credit Suisse or refrain from working for any other competitor before joining Jefferies. The liquidated damages clause in the Agreement did not restrain Gegenheimer from engaging in his profession in violation of Section 16600. 

at Page 5 of the Arbitration Award

An interesting bit of analysis by the FINRA arbitrators, who did not see Section 16600 applying to an agreement "to begin working," in contradistinction to a more traditional "employment" agreement.  The arbitrators placed great emphasis on the lack of "non-competition" prohibitions that could have constrained Gegenheimer from working at Credit Suisse or elsewhere. Not sure that I buy the rationale but I will concede that the arbitrators made an effort and have presented some compelling considerations. 

Motion to Vacate by Gegenheimer

Gegehneimer did not accept the FINRA Arbitration Panel's findings and filed a Motion to Vacate the liquidated damages order: 
By letter dated February 8, 2018, Gegenheimer advised that he filed a motion in United States District Court for the Northern District of California ("District Court") seeking an order vacating the Panel's Liquidated Damages Order, and requested that the Panel suspend any further proceedings in this matter pending the District Court's decision regarding the enforceability of the liquidated damages provision. By letter dated February 12, Jefferies filed an opposition to Gegenheimer's request to stay the matter. By letter dated February 15, Gegenheimer filed an opposition to Jefferies letter and renewed his request to stay all further proceedings in the matter. By Order dated February 20, 2018, the Panel held that:  

  • The Liquidated Damages Order concluded the first portion of the bifurcated proceeding pursuant to the parties' stipulation;
  • The arbitration must continue to resolve the remaining issues;
  • The Panel's Liquidated Damages Order was not intended to be a Final Award or Interim Final Award subject to confirmation or vacatur by court; 
  • Jefferies' request to schedule additional hearing dates is granted; and 
  • Gegenheimer's request to stay the proceedings is denied.  

at Page 6 of the Arbitration Award

Moving Along

Faced with the conclusion of the Part One Hearing and in anticipation of the Part Two Hearing, Gegenheimer engaged in a flurry of motion practice, among which: 

On December 12, 2018, Gegenheimer filed a Motion to Reconsider the Panel's January 29, 2018 Liquidated Damages Order and Motion for Clarification of the Panel's May 21, 2018 Scheduling Order ("Motions to Reconsider and for Clarification"), including a copy of the District Court's March 29, 2018 Order Granting Motion to Dismiss Petition to Vacate Arbitration Award ("District Court Order").1 On December 24, Jefferies filed an opposition to Gegenheimer's Motions to Reconsider and for Clarification. On December 31, Gegenheimer filed a reply in support of his Motions to Reconsider and for Clarification. By Order dated January 9, 2019, the Panel denied Gegenheimer's Motions to Reconsider and for Clarification, and advised that the Panel has inherent authority to reconsider and modify interim orders in this arbitration, including the Liquidated Damages Order, at any time before entering the final award. 
Footnote 1: The District Court Order stated that, "[a]lthough the decision of the panel regarding the liquidated damages provision is very likely wrong (perhaps to the point that the panel should be understood to have manifestly disregarded the law), the panel's decision is not yet subject to review by a federal district court. In the Ninth Circuit an arbitrator's ruling following the first phase of a bifurcated proceeding is not "final and reviewable." Millmen Local 550 v. Wells Exterior Trim, 828 F.2d 1373, 1375 (9th Cir. 1987)." 

at Page 7 of the Arbitration Award

FINRA Arbitration Panel Award

Ultimately, the FINRA Arbitration Panel found Respondent Gegenheimer liable to and ordered him to pay to Claimant Jefferies $1 million in liquidated damages and $483,245.36 in costs and fees. 


On April 9, 2019, Jefferies filed a Motion to Confirm the FINRA Arbitration Award in the United States District Court for the Southern District of New York ("SDNY"). Jefferies LLC, Petitioner, v. Jon A. Gegenheimer, Respondent (Memorandum and Order, SDNY, 19-CV-3147 / June 17, 2020). As noted in part in the SDNY 

Gegenheimer argues that the Panel manifestly disregarded the law in four aspects. Even a cursory review of Gegenheimer's arguments reveals that he is by and large parroting the arguments that he raised in the arbitration. We conclude that none of the cited aspects of the Panel's conclusion warrants vacatur of the Award . . .

at Page 12 of the SDNY Memorandum and Order

Accordingly, SDNY granted Petitioner Jefferies Motion to Confirm the FINRA Arbitration Award, and denied Respondent Gegenheimer's Motion to Vacate.


Gegenheimer appealed SDNY's Order to the United States Court of Appeals for the Second Circuit ("2Cir"), again citing manifest disregard. Jefferies LLC, Petitioner/Appellee, v. Jon A. Gegenheimer, Defendant/Appellant (Summary Order, 2Cir, 20-2273 / June 3, 2021)

Manifest Disregard

In rejecting Gegenheimer's appeal, 2Cir noted Jefferies had raised several arguments against his contention that the "exclusive remedy rule" voided the cited liquidated damages provision -- and the arbitrators could have relied upon the firm's arguments. Further, the Panel's "failure to explain its decision does not evince manifest disregard of the law." at Page 3 of the 2Cir Order. 

Restraint on Competition

As to Gegenheimer's contention that "the conditions clause in the liquidated damages provision is an unenforceable restraint on competition and employment," at Page 3 of the 2Cir Order, 2Cir found in part that:

[G]egenheimer did not present the panel with any cases involving pre-employment non-compete agreements. Thus, it cannot be said that the panel was aware of law that was "clearly applicable to th[is] case." Wallace, 378 F.3d at 189; see also Duferco, 333 F.3d at 390 ("In determining an arbitrator's awareness of the law, we impute only knowledge of governing law identified by the parties to the arbitration."). Moreover, even applying the standard used for pre-employment non-compete agreements, the panel could have concluded that the 90-day non-compete clause at issue here was reasonable in time and place, necessary to protect Jefferies' interests, and not harmful to the public or unreasonably burdensome to Gegenheimer because the clause merely required that Gegenheimer fulfill his contractual obligation of beginning his employment with Jefferies by the agreed-upon start date.

at Pages 3 - 4 of the 2Cir Order

Accordingly, 2Cir affirmed SDNY.

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