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FINRA Panel Sides With Zions Direct In Employee Bidding Policy Wrongful Termination Case
December 22, 2016
In today's BrokeAndBroker.com Blog, we
present an angry former employee seeking millions of dollars in damages and an
expungement of his industry record. This cage match involves an employment
contract dating back to 1996, so, we got a two-decade employment relationship
that has unraveled. Starting with the
July 2015 filing of the arbitration, it takes some 17 months for a resolution.
Someone's gonna be happy. Someone's
not.
Case In
Point
In a Financial Industry
Regulatory Authority ("FINRA") Arbitration Statement of Claim filed
in July 2015, former Zion's Direct, Inc. employee Claimant Howard asserted
breaches of contract and the implied covenant of good faith and fair dealing;
wrongful termination; and the filing of a false Uniform
Termination Notice for Securities Industry Registration
("Form U5"). The allegations pertained to Claimant Howard's
employment contract dated April 22, 1996, and attendant to his employment and
termination. In connection with the alleged breaches, Claimant sought per each
charge at least $2.13 million in damages. In connection with the alleged
wrongful termination and false Form U5 filings, Claimant sought per charge at
least $8.52 million in compensatory and punitive damages. Also, Claimant sought
an injunction requiring Respondents to amend his Form U5 and Central
Registration Depository records ("CRD") by removing "reference to his alleged failure
to follow their policy." Finally, Claimant sought attorneys' fees, costs, and
other fees. In the Matter of the FINRA Arbitration Between Douglas
Legate Howard, Claimant/ Counter-Respondent, vs. Zions
Direct, Inc. Respondent/Counter-Claimant and Zions Wealth
Advisors, Inc., Respondent (FINRA Arbitration
15-01951, December 12, 2016).
Non-Member
Firm
Respondent Zions
Wealth Advisors, Inc. is not a member or associated person of FINRA, did not
voluntarily submit to arbitration, and did not enter an
appearance. Accordingly, the FINRA Arbitration Panel made no
determination with respect to Claimant's claims against Zions Wealth
Advisors.
Counter-Claim
Respondent Zions Direct, Inc.
generally denied the allegations, asserted various affirmative defenses, and
filed a Counterclaim asserting breach of contract. On its breach counterclaim,
Zions sought, in pertinent part:
[A] judicial determination that Claimant breached the Employment Contract by violating Respondent's Employee Bidding Policy ("EBP"), bid talking policy, email encryption policy, and policy regarding exercising discretion; conducting other business, including personal trading and conducting outside business during work hours, using Respondent's property; and keeping poor records . . .
At the outset of the evidentiary
hearing, Respondent requested to withdraw its Counterclaim, which the FINRA
Arbitration Panel granted.
Evidentiary Maneuvering
Also at the outset of the
evidentiary hearing:
[R]espondent sought sanctions for Claimant having and using illegally obtained documents or privileged documents. Claimant denied having wrongfully obtained or used any documents. The Panel ordered Claimant to return or destroy all copies of an Internal Audit Report prepared by Zions Bancorporation based on privilege and deferred ruling on the other documents until they were offered into evidence.During the recorded in-person evidentiary hearing, after the conclusion of Claimant's case-in-chief, the Panel heard oral arguments on Respondent's Motion to Dismiss. Claimant opposed the motion. The Panel granted Respondent's Motion to Dismiss finding that Claimant's evidence, which included testimony from several present and former employees of Respondent, established that Claimant did in fact violate Respondent's EBP on numerous occasions, including several after he was reprimanded by the Chief Compliance Officer for having done so. Since Claimant was an at-will employee, Respondent was entitled to terminate him for the reason stated. Further, Claimant's contention that he was never trained about the EBP and that the specific provision he violated was never adequately defined for him was belied by the fact that the provision was defined in a document that Claimant certified, every time he placed a bid, he had read. However, Claimant testified that he never did actually read that document until after he was removed from the trading desk for continuing to violate the EBP.
Award
The FINRA Arbitration Panel
granted Respondent's Motion to Dismiss and denied Claimant's
request for an expungement.
Bill Singer's Comment
It is unfair to engage in
second-guessing a litigant from the vantage point of knowing how the lawsuit
turned out. Ask most seasoned litigators and we will tell you about the
can't-lose cases that we lost; the can't win
cases that we won; and all of those in-betweeners
that were largely filed in an effort to force a settlement and succeeded or
didn't.
Strictly judging from the
perspective that Howard started the FINRA arbitration by filing claims for
millions of dollars against Zions Direct, you would pretty much have to award
this bout to Zions Direct. Not only did Howard get zilch in terms of any
financial award but he was also denied an expungement. To make matters worse,
the Panel dismissed Howard's case on the basis of this damning
rationale:
[C]laimant did in fact violate Respondent's EBP on numerous occasions, including several after he was reprimanded by the Chief Compliance Officer for having done so. Since Claimant was an at-will employee, Respondent was entitled to terminate him for the reason stated. Further, Claimant's contention that he was never trained about the EBP and that the specific provision he violated was never adequately defined for him was belied by the fact that the provision was defined in a document that Claimant certified, every time he placed a bid, he had read. However, Claimant testified that he never did actually read that document until after he was removed from the trading desk for continuing to violate the EBP.
To put salt into Howard's wound and then twist a knife in there for good measure, the FINRA arbitrators found that Howard did, in fact, violate Zions Direct's bidding policy.
Exactly what that policy was and
how it came into play in this case is, regrettably, not discussed in the FINRA
Arbitration Decision. Notwithstanding the overall excellence
of this particular Decision, truly don't understand why the
arbitrators failed to offer a tad more content and context as to this seminal
issue. Similarly, I still don't -- and apparently never will -- understand why
someone at FINRA doesn't impose a bit more quality control over these published
decisions to ensure that readers aren't left with too many unanswered
substantive questions.
Notably, the
arbitrators found that Howard had been reprimanded by his firm's CCO after
several EBP violations. A reasonable inference of that finding is that the
employer had several opportunities to discharge its employee but showed some
forbearance.
Finally, the arbitrators
seemed ticked off by Howard's assertion that his employer had failed to train
him concerning the EBP. Not only did the arbitrators take umbrage at the fact that
every time Howard placed a bid, he had "certified" his understanding
of the provision at issue but, worse, he subsequently attempted to
excuse his misconduct by claiming that he had never read the document in which
the policy was stated.
For industry personnel
contemplating going to expungement war, take note of this case. Up until the
time that the FINRA Arbitration Decision was published,
Howard retained some ability to "spin" the facts, to argue his
version of events to any potential employer, and to maintain some
"contain" over the underlying dispute. Now, faced with a published
written decision by three independent arbitrators who heard both sides of this
dispute, Howard has lost much of his prior wriggle room and has to contend with
the existence of a public FINRA Arbitration Decision that
says his former employer was well within its rights to have fired him and that
he was, at best, cavalier in approaching his compliance with the firm's EBP
policies and procedures.