A court case over the repayment of upfront loans to brokers is turning into a legal battle over forced FINRA arbitration.
Labor lawyer Mark Thierman filed an “unfair labor” charge against Citigroup Thursday, February 25. The charge was filed with the National Labor Relations Board (NLRB), an independent federal agency which hears complaints about unfair labor practices—typically between unions and employers. Thierman alleges Citigroup is interfering with brokers’ rights to bring a class action lawsuit by forcing them into FINRA arbitration.
The charge is related to a case Thierman filed in August 2009 against Citi, which aimed to have the firm forgive upfront loans made to former brokers when they were hired, including lead plaintiff Thomas Banus. Citi typically demands immediate repayment when such brokers leave the firm. Thierman argues in that ongoing case that upfront loan payback arrangements written into most wirehouse advisor employment contracts violate contract law. “Thierman is doing what the best lawyers should do: He is being creative and going to the mat for his clients—essentially pulling out all the stops,” says Bill Singer, a securities attorney and Registered Rep. columnist.
In January, Citigroup responded to the class action asking the U.S. District Court in the Southern District of New York judge to dismiss the complaint saying the plaintiffs already litigated this issue before with FINRA and lost. And since the original claims were already decided before a FINRA arbitration panel, Citi says Banus and other brokers in the class action have waived any right to have a court decide the issue.
Enter the unfair labor practices charge. The main argument Thierman is making is that even though Citigroup knew the plaintiffs had filed a class action lawsuit over the signing bonuses, they filed a case with the FINRA arbitration the firm insisted that the brokers go through arbitration on an individual basis. The filing with the NLRB zeros in on just that. The charge against Citi says the firm “sought to enforce an arbitration provision prohibiting class actions by requiring submissions of individual disputes only, in effect creating a class action waiver.”
Singer explains that the NLRB filing builds on his original case against Citi. “While Thierman’s complaints are fully in keeping with the legal theory of his case, they are also reiterating many of his previous arguments, albeit now before the NLRB,” Singer says. Citigroup would not comment on the case.
A labor lawyer by trade, and a Star Wars enthusiast, Thierman first started working Wall Street cases around 2005 when he filed suits against all major wirehouses for failing to pay brokers overtime wages. All of the wirehouse firms settled those charges for tens of millions of dollars each—Citigroup Smith Barney settled for $98 million. Now Thierman is onto a new kind of labor charge against the big brokerages. And while bonus repayment and FINRA arbitration grievances are not novel in the industry, one criticism of the FINRA arbitration proceedings by the court could be all it takes to hugely affect arbitration proceedings.
As Singer puts it, “This is a case that’s been argued many times by securities lawyers. But even if one hundred people hit a wall and one just person gets through, it could turn the industry on its head.”