A Battle Royal for Terminated Merrill Lynch Employees (and one wife)

April 21, 2011

You got your simple Financial Industry Regulatory Authority ("FINRA") arbitration captions. You got your complicated ones.

The simple ones are usually something like In the Matter of Jane Doe vs. Fly By Night Brokerage.

The complicated ones look something like this recent gem:

In the Matter of the Arbitration Between

Claimant / Counter-Respondent

Merrill Lynch, Pierce, Fenner & Smith Incorporated,

vs.

Respondent / Counter-Claimants

Carl E. Choy

Lynne R. Kinney

Ronald C. Wo

Third-Party Claimant

Erin Rae Choy

Third-Party Respondent

Merrill Lynch, Pierce, Fenner & Smith Incorporated

(FINRA Arbitraion 09-06111; April 15, 2011).

The Thundering Herd's Thunder

In the above FINRA Arbitration Statement of Claim, which was filed in October 2009, Claimant Merrill Lynch, Pierce, Fenner & Smith Incorporated asserted claims against its former employees that arose in connection with the termination of their employment with the firm. Claimant Merrill Lynch alleged the breach of the terms of a promissory note, and unjust enrichment. In addition to 3.9% interest, attorneys' fees, and costs, Claimant Merrill sought from Respondent:

Carl Choy: $3,037,836.36
Lynne Kinney: $1,608,505.78
Ronald Wo: $811,663.52

Not So Fast

Respondents Choy, Kinney, and Wo counter-claimed against Claimant Merrill Lynch and alleged various breaches and defamation, among other causes of action. In addition to damages, the Respondents each sought the expungement of this matter from their Forms U5 (the Uniform Termination Notice for Securities Industry Registration) concerning their termination from employment. Merrill Lynch generally denied the allegations and asserted various affirmative defenses.

A Spouse Chimes In

Erin Choy (Respondent Carl Choy's wife) filed a Third-Party Statement of Claim against Merrill Lynch that alleged, among other causes of action, breach of account agreement; unfair and deceptive trade practices; and intentional infliction of emotional distress. Merrill Lynch generally denied the allegations and asserted various affimnative defenses.

Get Yer Scorecards!

Following a 17-days of hearing that focused on whether there was a wrongful termination of employment of each Respondent, the FINRA Arbitration Panel found Respondents Choy and Kinney liable and ordered them to pay to Claimant Merrill as follows:

Carl Choy:

$3,037,836.00 without pre-award interest on his promissory note; however, 7% per annum interest on said balance was ordered starting 2 weeks after the date of the Award's service until payment in full.
The "pend" shall be removed from Respondent Choy's account within two weeks of the date of service of the award.
Choy's motion for expungement is denied.

Lynne Kinney:

$1,608,506.00 without pre-award interest on his promissory note; however, 7% per annum interest on said balance was ordered starting 2 weeks after the date of the Award's service until payment in full.
The "pend" shall be removed from Respondent Kinney's account within two weeks of the date of service of the award.
Kinney's motion for expungement is denied

Separately, the Panel found Respondent Ronald Wo not liable and declared his $811,633.00 promissory note extinguished. The Panel ruled that:

Ronald Wo

will retain the $811,633.00 for his damage award caused by the wrongful temnination of his employment without cause.
The "pend" shall be removed from his account within two weeks of the date of service of the award.

Further, the FINRA Arbitration Panel recommended the expungement of Respondent Wo's Form U5, as filed by Claimant Merrill on October 8, 2009 and as maintained by the Central Registration Depository ("CRD"). The FINRA arbitrators based that recommendation on the defamatory nature of the information, and their determination that Wo did not violate the industry protocol for financial advisors. Pointedly, the Panel found that Wo did not violate Claimant's policies, practices, directions, and procedures in connection with his transition to Claimant from a competitor firm. Accordingly, the Panel recommended the expungement of the answer to Question #3 under "Termination Explanation," which currently reads:

MR. WO'S EMPLOYMENT WAS TERMINATED AFTER THE FIRM DETERMINED THAT HE VIOLATED MERRILL LYNCH'S POLICIES, PRACTICES, DIRECTIONS, AND PROCEDURES IN CONNECTION WITH HIS TRANSITION TO MERRILL LYNCH FROM A COMPETITOR FIRM

shall be changed to read:

MR. WO'S EMPLOYMENT WAS TERMINATED WITHOUT CAUSE BY MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED.

With respect to Erin Choy, the Panel denied her claim but ordered that the "pend" shall be removed from Carl Choy and Erin Choy's joint account within two weeks of the date of service of the award.

Respondents' Victories

In addition to the complex caption for this case, we also have a complex decision. It didn't all work out in Claimant Merrill's favor. To the contrary, the FINRA Arbitration Panel found Claimant Merrill liable and ordered the firm to pay

Respondent Carl Choy:

$520,000.00 for unjust enrichment.
$193,311.00 on his indemnity claim.
interest on the amount of $713,311.00 at the rate of 7% per annum from two weeks after the date of service of the award until paid in full.

Respondent Lynne Kinney:

$570,000.00 on her unjust enrichment claim.
$107,395.00 on her indemnity claim.
interest on the amount of $677,395.00 at the rate of 7% per annum from two weeks after the date of service of the award until paid in full.

Respondent Ronald Wo:

$139,000.00 on his unjust enrichment claim.
$57,277.00 on his indemnity claim.
$308,612.04 in attorneys' fees and costs pursuant to
interest on the amount of $504,889.04 at the annual rate of 7% from two weeks after the date of service of the award until paid in full.

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