A Closed Branch Shuts Door On UBS's Claim for EFL / Promissory Note Repayment

November 23, 2010

In a FINRA Arbitration Statement of Claim filed in December 2009, UBS sought the return of that part of an employee forgivable loan dated August 3, 2006 ("EFL") that was outstanding on June 19, 2009, the date when its former employee James F. Dowley left UBS. The EFL was given to Dowley as part of his inducement to join UBS Financial Services Inc. ("UBS") upon the merger of UBS with Piper Jaffray & Co. (Dowley's prior employer). UBS asserted the causes of action of breach of contract,  and unjust enrichment, and sought $169,669.64 in compensatory damages, plus interest, and costs and fees.  In the Matter of the Arbitration Between UBS Financial Services Inc., Claimant, vs. James F. Dowley, Respondent (FINRA Arbitration Claimant Case Number: 10-00080 UBS Financial Services Inc. Respondent Hearing Site: Denver, Colorado , November 15, 2010)

There's No "There" There

Respondent Dowley generally denied the allegations and asserted various affirmative defenses. Pointedly, Respondent asserted that no part of the EFL should be refundable because under the EFL's terms, repayment was forgiven if

the office in which the Employee is working [was] permanently closed by [UBS], and the next closest [UBS] office is more than 25 miles from the office closed, and the Employee chooses not to relocate to such next closest or to any other [UBS] office.

Respondent claims that he was working in the Aspen office since 2004, and shortly after the UBS/Piper merger, UBS closed the Aspen office, effective April 2007.


Claimant stipulated at the hearing that it would be bound by a confidentiality agreement concerning the terms and conditions of Respondent's current employment, and would not disseminate the information outside the evidentiary hearing.

Equivocal Evidence

The FINRA Arbitration Panel described as pivotal to a determination of this matter, the issue of whether the Aspen office was "permanently closed" in April 2007. In exploring that critical status, the Panel found the "evidence is equivocal. "

On the one hand, the Panel found evidence that the Aspen office remained open. Among the factors suggesting that status were:

  • Respondent's CRD lists a UBS office in Aspen;
  • UBS conducted compliance reviews of the Aspen location; 
  • Claimant's witnesses, including the branch manager, did not consider the office "closed;" and
  • Respondent continued to use Aspen as his primary work place until mid-2009.

On the other hand, the Panel gave significant weight to the fact that Respondent's sales activities in Aspen were significantly curtailed in April 2007 when his branch manager and complex manager unequivocally advised him that the Aspen office was closed immediately and that he could no longer solicit new business from the Aspen facility or identify UBS as having an Aspen office. The Panel characterized this event as an undeniable and material change in the way Repondent could conduct business for UBS. Moreover, the Panel noted that following the UBS/Piper merger, and up until April 2007, Respondent was still permitted to use the UBS Aspen office in the same manner in which he used the Piper's Aspen office, including, as one witness testified, allowing Respondent to identify the Aspen location on his UBS business cards. Those circumstances were pointedly changed after April 2008.

Panel's Decision

The FINRA Arbitration Panel concluded that the Aspen office closed in April 2007, thus triggering the exception to Respondent's obligation to repay the balance due on the EFL when he resigned from UBS in June 2009. As such the Panel denied Claimant UBS's claim.

Bill Singer's Comment: So, there it is -- an answer to that ever-popular question posed to me by my registered representative clients: What if the firm closed my office? Do I still have to repay the EFL?  This FINRA Panel deserves a round of applause for taking the time to set forth the critical facts -- both pro and con -- and to then issue an decision that succinctly explains how it was arrived at. 

Of note in this case is that the Panel attempted to ascertain the "reality" of the branch's status. Although it appears that some activity occurred at the Aspen branch and that the lights were on, the more critical consideration was that Dowley's branch manager told him that the "office was closed immediately and he could no longer solicit new business from the Aspen facility or identify UBS as having an Aspen office." Frankly, to accept UBS' take would be to exalt form over substance.