Piper Jaffray, Morgan Stanley, and an Employee Can't Seem to Settle Down

April 21, 2011

David Lehrer alleged that on or about June 16, 2006, he voluntarily terminated his employment with Piper Jaffray & Company.  In accordance with the terms of a Piper Jaffray "Team Agreement," Lehrer submitted with his resignation letter two checks as payment for a balance owed to Piper Jaffray.  Thereafter, Lehrer joined Morgan Stanley.

Okay, seems simple enough. Employee leaves employer. Employee repays outstanding debt.  Employee joins new employer.

All's well that ends well.

Well, not quite.

Piper Jaffray sued Morgan Stanley concerning disputed aspects of Lehrer's departure.

It's Settled - or not?

In November 2007, Piper Jaffray and Morgan Stanley entered into a Settlement Agreement involving Lehrer's resignation and employment (which included an undisclosed payment by Morgan Stanley to Piper Jaffray); and, among the terms, Piper Jaffray agreed not to seek any further claim or payment. 

Oh well, better late than never - and, once again, all's well that ends well.

No?  Now what?

You Snooze, You Lose

In late December 2007, about a month after execution of the Settlement Agreement, Piper Jaffray cashed the second check that Lehrer had tendered in June 2006 under the Team Agreement.  Why did the firm sit with that check for nearly a year and a half? Ahh, now you have the stuff of lawsuits. 

According to the terms of the November 2007 Settlement Agreement, Lehrer argued that Piper Jaffray was not entitled to the payment contemplated by that second check and that the firm's cashing of the check was a breach of the agreement. The way Lehrer read the Settlement Agreement, Piper Jaffray had waived its right to any further claims or payments - and by not cashing the second check before signing the agreement,the firm was no longer entitled to that outstanding payment.  As you likely have imagined, Piper Jaffray didn't exactly interpret the terms of the agreement in the same way.

FINRA Arbitration

In April 2010, Lehrer filed a FINRA arbitration Statement of Claim alleging that the Piper Jaffray had breached the Settlement Agreement and should not have cashed the second check that he had submitted with his letter of resignation to the firm on June 16, 2006. In the Matter of the Arbitration Between David Lehrer, Claimant, vs. Piper Jaffray & Company, Respondent (FINRA Arbitration 10-01943, April 14, 2011). 

Respondent Piper Jaffray generally denied the allegations and asserted various affirmative defenses. Pointedly, Respondent alleged that the Settlement Agreement included a release and discharge by Lehrer of Piper Jaffray from the very claims alleged in his Statement of Claim.  In response to Piper Jaffray's Counterclaim, Lehrer asserted that the uncashed check represented an obligation that was extinguished under the terms of the settlement.  

SIDE BAR: This is sort of cute.

Lehrer alleges that Piper Jaffray can't collect because under the Settlement Agreement the former employer gave up its rights to assert any further claims, including the disputed one for the second check.  On the other hand, Piper Jaffray argues that under the terms of that same Settlement Agreement, Lehrer gave up his rights to assert any futher claims, including the one upon which the FINRA arbitration was based. 

LEHRER: No you can't - but I can! 
PIPER JAFFRAY: Uh, uh, no you can't, but I can!!  

Claimant Lehrer sought $27,800 in compensatory damages plus $600 in costs.  Although we may logically infer from the FINRA Decision that this sum represented the second check, oddly, that fact is not spelled out.

And The Winner Is . . .

The FINRA Arbitration Panel denied and dismissed both Claimant's and Respondent's claims with prejudice.  However, the Panel found Respondent Piper Jaffray liable for and ordered it to pay to Claimant Lehrer $154.63 in costs and $150 as reimbursement for his FINRA filing fees.  

SIDE BAR: Wow, talk about a weird case. 

Lehrer attaches two checks to his resignation letter.  Piper cashes one but waits to cash the other until after the Settlement Agreement is in place. And in that settlement, Piper extracted a certain amount of money from Morgan Stanley as consideration. Did that payment include the funds represented by Lehrer's as yet uncashed second check? Lehrer argued that it did. In simplistic terms, Lehrer says: "Too late.  You snoozed, you lost."

Frankly, Lehrer presented an interesting theory, and this decision easily could have gone either way. As it stands, since the Panel chose to dismiss the claim, it appears that Piper gets to keep the funds from the second check and Morgan Stanley's settlement payment.  So, that's pretty much a victory for the firm.

The frustrating aspect of this FINRA arbitration is that we have no idea as to why the Panel ruled as it did. 

Did the Settlement Agreement have a merger clause that extinguished all pre-existing debts? If "yes," then why didn't the FINRA Panel deem the second check as constituting a payment that had not been completed as of the date of the settlement and, as such, extinguished?  If there wasn't any merger of the debt into the settlement, then why didn't the Panel note that factor in the Decision and provide its rationale for why Piper Jaffray's belated cashing of the check after the execution of the Settlement Agreement was appropriate?  Alas, this is typical of the manner in which FINRA Arbitration Decisions are rendered. 

Frankly, the takeaway in Lehrer v. Piper Jaffray is that settlement agreements should precisely set forth whether any specific payments that are still executory in nature (checks, promissory notes, IOUs, etc.) are "included" or "exempted" from the terms of the agreement.