Former Broker Avoids Full Repayment of $142,000 Bonus

Among the consequences of the Great Recession is the ongoing realignment of Wall Street -- which involves brokerage firms closing, industry mergers and acquisitions, and the attendant dislocation.  Registered representatives who went to sleep working for one firm, awake and find that they are working for another (or the doors to the old shop are locked and the firm out of business). As such, the Financial Industry Regulatory Authority's (FINRA's) arbitration forum is seeing a marked increase in employee-employer disputes, particularly cases involving allegations by employers that former employees have violated non-solicit/compete clauses, are not entitled to severance packages, and must repay so-called Employee Forgiveable Loans ("EFLs") and bonuses.  In response, the departed employees argue that such obligations and debts were rendered null and void by the material change in circumstances (not of their doing).

In a Statement of Claim filed in a FINRA intra-industry arbitration proceeding on or about November 10, 2008, In the Matter of the Arbitration Between Citigroup Global Markets, Inc. (successor to Legg Mason Wood Walker) and Lloyd Laughlin et. al (FINRA 08-04169, February 8, 2009),  Claimant Citigroup asserted breach of employment contract arising from Respondent Laughlin's termination on February 8, 2008, and his alleged failure to repay five Financial Advisor Bonus Repayment Agreements ("Agreements") entered into between Claimant and Respondent.  Claimant alleged that under the Agreements all unpaid balances became immediately due and owing to it upon Respondent's termination (for any reason whatsoever), and that under the Agreements, the entire amount of the unpaid balance was immediately due. 

Respondent Laughlin, denied the allegations made in the Statement of Claim and asserted affirmative defenses, including that Claimant failed to state a claim upon which relief can be granted.  Laughlin further argued that Claimant's claims are barred, in whole or in part, by the defenses of:

• accord and satisfaction;
• unclean hands;
• estoppel;
• defense of laches; and
• waiver.

Counterclaim/Third-Party Claim

In a Counterclaim and Third-Party Claim,  Laughlin asserted the causes of action of breach of contract; negligence; tortious interference; and conspiracy. These Counter/Third-Party claims were related to Respondent's allegation that Claimant Citigroup breached the terms of his agreement with Claimant's predecessor firm, Legg Mason Wood Walker, Inc., by making material alterations to the agreement in order to reduce his compensation. Respondent asserted that Third-Party-Respondents altered the manner in which management fees Respondent earned from his clients were accounted for, which lowered Respondent's production and therefore caused Respondent to suffer losses.

PRACTICE POINTER by Bill Singer: Among the more common grievances that I hear in my law practice is the complaint by registered persons that they were prevented by their employer from reaching production quotas or from realizing an anticipated level of production when the firm arbitrarily modified the pay-out grid or other conditions of employment.  Typically, the gripe is that a certain level of production (when the employment agreement was signed) generated X% but after the merger/acquisition that same production level yielded a reduced percentage. Further, employees cite to other negative, material changes in the terms and conditions of their employment, such as hostile workplaces, unfair policies and procedures -- none of which were in existence when they signed the employment agreement at issue and most of which were presented to them by the successor firm as non-negotiable manner. 

Respondent Citigroup and Third-Party Respondents denied Respondent Laughlin's allegations and asserted affirmative defenses including

• failure to state a claim upon which relief can be granted;
• the Statute of Frauds and the Parol Evidence Rule (barring claims);
• the at-will employee status of Laughlin that permitted his employment, compensation, and benefits to be terminated at any time with or without notice or cause;
• no breach of any obligation to Respondent allegedly imposed by operation of law or contract; and
• the doctrines of consent, estoppel, judicial estoppel, res judicata, ratification, laches, unclean hands, and waiver.

PRACTICE POINTER by Bill Singer: A powerful defense raised by employers against complaints by employees about unfair employment conditions (or recent changes to employment terms) is the terminable-at-will doctrine. Reduced to its basics, in states where the doctrine exists, employees without employment contracts are often deemed to work at the will of the employer and just as the employee can walk out the door whenever he or she decides is best, the employer is granted the right to hold open that same door and show it to you (provided that such termination does not run afoul of certain constitutional rights or other laws).  The employer argues that you were never promised any lifetime pay-out levels, job titles, office locations, etc. All bets off. Nice knowin' ya. But you still have to repay the EFL.

Damages Sought

Claimant Citigroup requested an award in the amount of $142,444,40 in Actual/Compensatory Damages, Interest Unspecified, Attorneys' Fees Unspecified, Other Costs Unspecified Other Monetary Relief Unspecified.

Respondent Laughlin requested that the claims asserted against him be denied in their entirety.

In his Counterclaim, Laughlin requested $70,000.00 in Actual/Compensatory Damages;  Exemplary/Punitive Damages Unspecified, Other Monetary Relief Unspecified. In the Third-Party Claim, Lloyd Laughlin, requested an award in the amount of: Actual/Compensatory Damages (Ross) $70,000.00; Actual/Compensatory Damages (Miller) $70,000.00; Exemplary/Punitive Damages Unspecified, Other Monetary Relief Unspecified.

Claimant Citigroup and Third-Party Respondents requested that the claims asserted against them be dismissed in their entirety. Third-Party Respondents, Kenneth M. Ross and Timothy P. Miller, did not file with the FINRA Dispute Resolution a properly executed Unifom Submission Agreement but are required to submit to arbitration pursuant to the Code and, having answered the claim, appeared, and testified at the hearing, are bound by the determination of the Panel on all issues submitted.

On or about January 29, 2010, all parties filed a Petition for Attorneys' Fees. 

Decision

1. The FINRA Arbitration Panel found that Respondent Laughlin is liable for and shall pay to Claimant Citigroup the sum of

• $7,500.00 in compensatory damages;
• $1.212.20 in interest calculated at the rate of 9.25% per annum from and including February 8, 2008 through and including December 7, 2009; and 
• $9,460.31 in attorneys' fees pursuant to the terms of the Note.

2. The Counterclaim and Third-Party Claim of Lloyd Laughlin is denied and dismissed with prejudice.

3. The parties shall each bear their own costs and expenses incurred in this matter.

4. The Panel assessed $5,872.50 of the hearing session fees to Claimant Citigroup and $13,702.50 of the hearing session fees to Respondent Laughlin.

PRACTICE POINTER by Bill Singer: Is Citigroup a loser?  If you go by the fact that they brought this arbitration against Laughlin and demanded about $142,000 in damages and came away with under $20,000 in damages and fees, then it's not a stunning victory. Moreover, don't forget to deduct nearly $14,000 in hearing session fees from that award -- which nets Citigroup about $5,000 or so after some two years of litigation.  I'd call that Bupkus. (No, that's not a former Chicago Bear linebacker).

Is Laughlin a winner? Hard to say.  He was apparently on the hook for the $142,000 and wound up paying about $18,000 plus another $6,000 in hearing session fees.  For many brokers today, getting hit with about $24,000 in damages/costs isn't much of a victory.  Plus, don't forget that Laughlin sought $70,000 in damages that were denied. Of course, he likely had a considerable legal bill of his own to pay.  His total out of pocket could easily be $50,000 or more.