This is a bit of “man bites dog” news. The overwhelming majority of promissory note arbitration cases filed by brokerage firms result in awards to the firms. This does not account for settlements, which may or may not be for the full amount of the note. But a broker needs to understand that a promissory note case generally feels like the burden of proof has shifted, forcing the broker to prove why the money is not owed. And panels are skeptical.
I have won a very small number of these cases, less than five I think. And I have handled a bunch. I have settled a bunch, the terms of which are confidential, for a favorable outcome for my client. And I have tried a few that could have settled favorably, but my client turned down the resolution. Anyone who tells a broker that these cases are easy and simple to win is simply not telling the truth. They are hard and the odds are against you.
That is why these two Wells Fargo Advisors cases are so interesting. The awards were issued one day apart. In the first case, an arbitration panel in California denied Wells Fargo’s claim for $78,000 and awarded the broker $800,000 where the broker claimed damages for “wrongful termination in violation of public policy (retaliation): defamation; violation of California Labor Code Section 1050 – Blacklisting; intentional infliction of emotional distress; breach of written contract; and promissory estoppel.” The broker claimed that he was defamed on his U-5. This appeared to be related to an internal investigation into the change of some administrative information on a form. The arbitrators clearly decided that Wells Fargo acted incorrectly and used the award to change what had happened. The arbitrators also ordered expungement of the termination reason on the broker’s form U-5. As it is often said, bad facts make bad law.
The second case was a different result, but an interesting finding. It appears that the Texas-based broker felt that he was ambushed when he was let go by the firm and that he was defamed. The arbitrators upheld the promissory note claim but awarded $30,000 on a counterclaim. It is some of the language in the award that is most interesting. “The Panel believes, nonetheless, that some of the methods that Wells Fargo used to effectuate the termination to its best advantage were both opportunistic and inelegant. The Panel also believes that some of Wells Fargo’s conduct following the termination was intended to impede clients’ access to Mr. Ratcliff in his new position;” Very interesting. Given the size of the award on the counterclaim, the broker was probably slowed down in transition, but not harmed to much financially. Either way, it’s not often that a brokerage firm’s conduct is described in this manner. This is not good language for Wells Fargo going forward.
In a case that I handled last year against Wells Fargo, the panel ordered my client to pay the note, but cleaned up his U-5. This is the panel’s way of saying “you owe the money, but your career doesn’t appear to have been harmed any by the U-5.”
Frankly, to a number of brokers, the U-5 is more important than the promissory note. The U-5 is what stays with the broker for the balance of their career. Expungement or modification of a defamatory U-5 usually can fix that problem. So can broker-dealers doing the right thing when completing the form.
That’s the view of one lawyer from sunny, beautiful, nearly 80 degree, Jupiter, Palm Beach County, Florida. I’m Marc Dobin.