Split FINRA Arbitration Panel Wrestles with Citigroup Arbitration Over Promissory Note

May 13, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2009, Claimant Citigroup Global Markets, Inc. asserted causes of action including breach of contract and a demand for restitution arising from a Promissory Note ("Note") and Special Compensation Agreement executed by Respondent LaTour in August 2004. In addition to various costs and fees, Claimant Citigroup sought $322,861 plus interest at the rate of prime plus 6% per annum from May 15, 2009. In the Matter of the Arbitration Between Citigroup Global Markets, Inc.,  Claimant/Counter-Respondent  vs. Suzanne LaTour, Respondent/Counter-Claimant  (FINRA Arbitration 09-07032, May 5, 2011). 

Respondent LaTour generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim. Respondent LaTour asked that the Note be deemed rescinded or that the acceleration clause contained therein be deemed void and unenforceable. In addition to costs and fees, Respondent sought at least $350,000 in damages, penalties of at least $48,190.00.

Playing Games?

Among the various motions presented to the FINRA Arbitration Panel, on October 28, 2010, Respondent moved for sanctions against Claimant Citigroup for its failure to provide discovery on her request. On December 16, 2010, the Panel issued an Order awarding sanctions to Respondent in the amount of $1,000.00.

An Issue of Note

At the conclusion of Claimant's case. Respondent moved to dismiss on the basis that Claimant sought to enforce a Note against Respondent that Claimant did not own.  A majority of the Panel denied the motion based upon a determination that Claimant was:

an indirect parent company of CGMI Holdings. A majority of the Panel denied Respondent's motion following its determination that CGMI had possession of the Note and that it and CGMI Holdings were jointly creating the documents and the manner of payment by Respondent.

Bill Singer's CommentIt is difficult for me to unequivocally argue that the majority of the FINRA Arbitration Panel got this threshold issue of "standing to sue" correct given the lack of relevant detail and the need to undertake extensive inferences from the Decision. 

As best I can infer, Respondent appears to have argued that her Note was created and issued to her by Citigroup Global Markets Inc. Holdings and not by Claimant Citigroup Global Markets Inc.  If that's the case, then I'm not so sure that Claimant had the right to force Respondent to defend this arbitration on the basis of a FINRA intra-industry.  According to FINRA's current roster of member firms,  Citigroup Global Markets Inc. Holdings is not listed. 

For a variation on this theme, read: High Noon for 113 Former Lehman Employees ("Street Sweeper" February 15, 2011).

Majority Rules

The FINRA Arbitration Decision was supported by a two-to-one majority:

  • Respondent LaTour was found liable for and ordered to pay to Claimant Citigroup $321,933.11 in compensatory damages for the balance due on the Promissory Note but the interest at 9 1/4% for the relevant days was reduced to $47,501.00.

SIDE BAR: Let's do the math.

Step One: The FINRA Arbitration Panel determined that as of May 15, 2009, the balance due on the Note was $322,861.11. 

Step Two: Respondent claimed an off-set for the period of August 13, 2008 - May 15, 2009, as against any obligation to repay the balance of the Note in nine annual installments.  The FINRA Panel granted this pro rata reduction wage claim in the amount of $48,429.

Step Three: The FINRA Panel the $48,429.00 award to Respondent as an off-set against the balance due on the Note of $322,861.11, thus ordering a net payment by Respondent of $274,432.11.

Step Four: The FINRA Arbitration Panel awarded interest of 9 1/4% from May 15, 2009,  which amounted to $47,501.00. Adding that interest to the Note's net principal due of $274, 432.11, resulted in an ordered gross payment by Respondent of $321,933.11.

  • A majority of the Panel deneid Respondent LaTour's claims for commissions. lost income, unjust enrichment, and "waiting time" penalties under Califomia Labor Code Section 203.

Attorneys' Fees

The Panel granted Respondent's claim for $19,846.27  as authorized to a prevailing party under California Labor Code Section 218.5 for winning her claim for pro rata credit on the annual payment. 

Section 218.5:  In any action brought for the nonpayment of wages, fringe benefits, or health and welfare or pension fund contributions, the court shall award reasonable attorney's fees and costs to the prevailing party if any party to the action requests attorney's fees and costs upon the initiation of the action . . .

Claimant's claim for $157,616.53 attorneys' fees and costs for prevailing on the enforcement of its promissory note was determined to be excessive and wittiout sufficient supporting evidence. Accordingly, the Panel reduced the award to $80,000.

All proceeding costs were ordered to be paid by Claimant, who was also required to pay to Respondent $100.00 as reimbursement for the nonrefundable FINRA Counterclaim filing fee.


 The dissenting Panelist dissented as to the Panel's decision regarding the award of damages, costs, and attorneys' fees to Claimant and is of the minority opinion that Claimant is not a "holder" of the Promissory Note under New York law and, as a result, cannot enforce it against Respondent. Otherwise, the dissenting Panelist concurs in all other portions of the award not inconsistent with his partial dissent.