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Oppenheimer TKO'd by Stunning Stockbroker Offset in FINRA EFL Arbitration

January 9, 2019

In yesterday's blog, we considered the preemptive gambit of a stockbroker who went on the opening offensive of suing his former brokerage employer in an effort to prevent being forced to repay allegedly outstanding balances due on promissory notes (also frequently referred to as "Employee Forgivable Loans" or "EFLs"). In today's consideration of another EFL dispute, we have the more typical opening combination of a brokerage firm suing its former employee in an effort to recover unpaid EFL balances. In response to the former employer's FINRA arbitration, the former employee fights back with his own counterclaim. There's an expression that when everyone wins, no one loses. Sometimes expressions spring from wisdom. Sometimes, not so much. In the world of litigation, even when everyone wins, one victor may limp off but the other victor is a bloody corpse. 

Case In Point

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2018, FINRA member firm Oppenheimer & Co., Inc. asserted that Respondent Roche had failed to pay the outstanding balance of a Promissory Note executed in April 2015 and which had become due upon his voluntary resignation.In the Matter of the FINRA Arbitration Between Oppenheimer & Co., Inc., Claimant, vs. Francis Xavier Roche, Respondent (FINRA Arbitration 17-034048, January 7, 2019). 
http://www.finra.org/sites/default/files/aao_documents/17-03404.pdf

Respondent Roche generally denied Claimant Oppenheimer's allegations, and file a Counterclaim asserting that he was constructively terminated and owed compensation for unpaid bonus and salary, and unused vacation days.

At the close of the hearing:
  • Claimant requested $155,129.73 in damages, which includes $3,825.00 in FINRA costs; and
  • Respondent requested $196,849.00 in addition to penalties in the amount of $29,166.66, plus California Labor Code penalties, and FINRA arbitration fees for this employment matter. 

Award

The FINRA Arbitration Panel rendered the following:

1. a. Respondent is liable for and shall pay to Claimant the sum of $112,933.00 in compensatory damages.

b. Respondent is liable for and shall pay to Claimant 9% interest through November 14, 2018 in the amount of $21,286.00, plus interest from November 15, 2018 until January 4, 2019 in the amount of $1,392.50 ($27.85 per diem). 

c. Claimant is liable for and shall pay to Respondent the sum of $262,500.00 in compensatory damages. 

d. Respondent's liability is offset by Claimant's liability. As such, Claimant is liable for and shall pay to Respondent $262,500.00 minus $135,611.50, for a net amount due to Respondent of $126,888.50. 

2. a. Respondent is liable for and shall pay to Claimant the sum of $4,065.95 in attorneys' fees pursuant to the Note and CA Civil Code, Sec. 1717.

b. Claimant is liable for and shall pay to Respondent the sum of $35,772.44 in attorneys' fees and costs pursuant to the Note and CA Civil Code, Sec. 1717. 

c. Respondent's liability is offset by Claimant's liability for attorneys' fees and costs. As such, Claimant is liable for and shall pay to Respondent $35,772.44 minus $4,065.95, for a net amount due to Respondent of $31,706.49. 

3. Respondent is the prevailing party in this matter. Claimant is liable for and shall pay to Respondent interest at the rate of 10% per annum on $158,594.99 from the date of service of this Award until payment of the Award is made in full. 

Bill Singer's Comment

Just yesterday in "The Pre-Emptive EFL Gambit Starts Anew On 2019 FINRA Arbitration Chessboard" (BrokeAndBroker.com Blog) http://www.brokeandbroker.com/4378/finra-morgan-stanley-efl/, we considered the Preemptive EFL Gambit, in which a former employee (playing as White) had a balance due on his loans and aggressively went on the attack -- thus, forcing his former employer (playing as Black) to initially defend its exposed position before launchinbg a counter-attack. In today's article, we have the more typical scenario in which the former brokerage firm, playing as White, makes the opening moves in an attempt to win repayment of outstanding balances on its EFL. 

As is too often the case, we are left in a somewhat voyeuristic state of wanting to know more about the underlying dispute and issue but the FINRA Arbitration Panel went about its task in a very workmanlike manner resulting in providing us with merely the allegations and the award. Oppenheimer say that Roche voluntarily quit; he says that he was forced out. Which version carried the day and why -- I dunno and the arbitrators ain't tellin' us nuthin'. You sort of sense -- should I daresay "infer" -- that the arbitrators likely found that Oppenheimer had played fast and loose with the labor laws but that's mere speculation. On the other hand, if we're left to such guesswork, then how else are we to explain why the Panel awarded $262,500.00 compensatory damages and $35,772.44 in attorneys' fees to Roche?  After offsetting Roche's award by his payments to Oppenheimer on the Note, he nets out $158,594,99 plus interest.

Oppenheimer started the arbitration by suing Roche for unpaid balances on a Note; and Roche returned the favor. When the bell rang for the end of the final round, Oppenheimer got paid its Note balance but was counted out after getting walloped with a hefty bill for, well, whatever. Oppenheimer is left unconscious in the canvass -- a fairly bloody mess after being knocked out via a net, offset amount of $158,594.99 plus interest.

Online FINRA BrokerCheck records as of January 9, 2019, disclose that Roche was first registered in 1983, and was registered with Oppenheimer from April 2015 to October 2016.


One of my all-time favorite AWC fact patterns!!! Any other bidders?
In the Matter of Jaime E. Carvallo, Respondent (FINRA AWC)

Oppenheimer TKO'd by Stunning Stockbroker Offset in FINRA EFL Arbitration (BrokeAndBroker.com Blog)





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