Court Dismisses Brokers' Complaint Alleging That Citigroup Promissory Notes Are Unconscionable

In a stern opinion, District Judge Lewis Kaplan rejected all of the arguments asserted by six former Citi brokers and dismissed their complaint seeking to unwind their promissory note obligations to Citi. See Banus v. Citigroup Global Markets, Inc., 2010 U.S. Dist. LEXIS 40072 (S.D.N.Y. Apr. 23, 2010). The decision is significant in that it challenged Citi's promissory note/up front compensation program on a global basis as unconscionable and against public policy. The Court rejected those contentions. Moreover, the Court ruled that whether or not the underlying arbitrations should be stayed in favor of a putative class action litigation, based on FINRA Rule 13204, rested in the capacious discretion of the arbitration panel. The Court ruled it was not error by one arbitration panel to deny a stay in favor of the putative class action challenging the enforceability of the Citi up front compensation program. The long and short of this decision may well be that challenging the legitimacy of an up front compensation program -- on a global basis -- may not succeed given that the brokers have the opportunity to review the documents, consult with a lawyer, consider alternative options, and take and spend the money. However, and most significantly, individual challenges to up front compensation claims still remain viable. Individual claims, such as (i) whether a broker was fraudulently induced to join a firm, (ii) whether a broker was provided with that which she was promised, (iii) whether a broker was treated and compensated in the manner contemplated, and (iv) whether the broker was subject to a material alteration of employment still remain legitimate ways to challenge up front compensation claims asserted by financial institutions.