Former Citigroup brokers, who wanted courts to dismiss debts the firm said they owed on loans awarded when they were hired, were turned down by a district court judge Friday. But they are planning to appeal that decision.
U.S. District Court Southern District of New York judge, Lewis A. Kaplan, ruled in favor of Citigroup, dismissing the complaint from Thomas Banus and other former brokers of the firm. “These plaintiffs all received substantial interest-free advances when they joined Smith Barney,” the judge wrote in his decision. “They all promised to repay Smith Barney over terms of years out of their compensation and to repay any unpaid balance if they left the firm ‘for any reason or no reason.’ Having left the firm without repaying everything they owed, they brought this baseless lawsuit in what quite plainly was a studied effort to prevent collection of the debts they owed through the arbitration process.”
Mark Thierman, the labor lawyer representing the brokers, says he plans to appeal the decisions in the Second Circuit Court of Appeals. Judge Kaplan did not address the class action status of the case thoroughly, he says. “It may not be the most interesting thing to the brokerage industry, but status of the class action is concerning,” Thierman says.
Thierman, who won millions for brokers in back overtime pay class-action lawsuits, filed his case against Citi originally in August 2009. He argued then that advisors shouldn’t have to pay back the balance of upfront loans all at once when they left a firm—or even at all—because clauses in their employment contracts were unfair and un-enforceable under contract and New York labor law.
In January, Citi filed a motion to dismiss the complaint on grounds that, among other things, the brokers had already argued the case in FINRA arbitration and therefore have waived any right to have the court decide the issue. The plaintiffs responded saying class action claims, like theirs, are not subject to FINRA arbitration. Further, that they were forced into that FINRA arbitration even though at the time they had been seeking class action status—which, according to Thierman, would preempt arbitration and allow the case to be heard in court. But Judge Kaplan on Friday sided with Citi saying there is no basis for overturning the arbitration award rendered against Banus, and that arbitrators would not have been kept from proceeding due to the plaintiffs’ class action status.
Though the battle between brokers and their firms over repayment of upfront bonuses is not new, securities lawyers say Thierman used a creative approach to the Banus case by arguing that the employment contracts in themselves were “illusory,” or unenforceable under contract law. Thierman also filed a case with the National Labor Relations Board (NLRB), an independent federal agency that hears complaints about unfair labor practices. The main charge against Citi in the NLRB case was that the firm knew the plaintiffs had filed a class action case over the signing bonus yet still proceeded with FINRA arbitration and insisted the brokers arbitrate individually. The NLRB case is still pending, according to Thierman.
Bill Singer, a securities attorney and Registered Rep. columnist says, “When a federal judge refers to a lawsuit as ‘baseless,’ that's as damning a commentary as the usually reserved judiciary makes. Clearly, Thierman's novel theories fell on deaf ears.”
But Thierman is hoping the court of appeals will hear his story differently.