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.

Societe Generale Trader Arrested for Misappropriating Trade Secrets

Yesterday, April 19, 2010, a former Societe Generale Group quantitative analyst was arrested in New York for allegedly misappropriating the company's proprietary computer code related to its high frequency trading system. The arrest provides several valuable lessons for employees. First and foremost, the misuse and/or misappropriation of a company's proprietary information is against company policy and may lead to civil litigation, BUT IT IS ALSO criminal and may lead to prison time. Second, proprietary trading systems are incredibly valuable to financial services companies and will be guarded and aggresively protected. While the FBI was involved in this matter, the escalation was probably based on the fact it involved the company's very profitable trading system. The FBI may not have been summoned and involved had the misappropriation involved an individual employee's client list. The long and short of this situation is that whether or not there are restrictive covenants, company policies, or written agreements, it is simply unlawful and criminal to take a former employer's property. It cannot and should never be done and the consequences of such action are much graver than being a civil defendant in an employment dispute.

New Jersey Supreme Court Protects Employee's Privileged E-Mail Communications on Company Computer

The New Jersey Supreme Court recently handed down a significant decision addressing whether a company e-Mail policy can trump the attorney-client privilege between an employee and her personal attorney hired to sue the company for employment discrimination. See Stengart v. Loving Care Agency Inc., A-16-09. The court ruled the company could not and ruled the employee was entitled to invoke the privilege with respect to e-Mails she authored and received from a company computer via a personal password protected e-Mail account. The Court provided:

"even a more clearly written company manual -- that is, a policy that banned all personal computer use and provided unambiguous notice that an employer could retrieve and read an employee's attorney-client communications, if accessed on a personal, password-protected e-mail account using the company's computer system -- would not be enforceable."

The Court went further. The Court ruled that the company's attorneys violated ethics rules by not returning the e-Mails without reviewing them. New Jersey's high court has remanded the case to the trial court to determine whether disqualification of the company's law firm is required given its review of the privileged e-mails.

Bank of America/Merrill Lynch Sued For Gender Discrimination

Investment News is reporting that Bank of America Merrill Lynch is on the receiving end of a gender discrimination class action. Three female financial advisors are alleging that the finanical institution discriminated against female registered employees with respect to account distributions, pay, and sales support. The plaintiffs are alleging that female registered employees were treated like "second class citizens". This is the latest class action lawsuit to be filed against a financial services business. And, comes on the heels of a number of multi-million dollar settlements of similar class action claims. Bank of America, through a spokesperson, denies it has done anything improper.

Summary Judgment in Age Case Reversed Because of Refusal to Allow Deposition of Chairman of the Board

In Marisco v. Sears Holding Corp, 2010 Fed App. 0191N (6th Cir. March 25, 2010), the Sixth Circuit Court of Appeals reversed a grant of summary judgment to Sears Corporation. The reversal was premised on the fact that the District Court refused to allow the deposition of Sears' Chairman Eddie Lampert. The Court concluded that Mr. Lampert's testimony could have borne out whether he had animus towards older employees. The Court remanded the case to the district court to continue proceedings and to allow the deposition of Mr. Lampert. The case is significant because corporate defendants tend to reflexively insulate senior management from depositions and discovery. In Marisco, the Court of Appeals ruled that when a senior executive has information that may lead to admissible evidence, that executive must be made available for deposition.

Broker Dealer GunnAllen Not Doing Business By FINRA Directive

Broker-dealer GunnAllen has been informed by FINRA that it cannot transact business for its clients. As a consequence, hundreds of its registered employees will likely be looking for new employment and a new broker-dealer to house their client accounts. FINRA has indicated GunnAllen cannot transact business because of a net capital violation. This event marks yet another employer having business and/or financial difficulties leading to unemployed registered financial advisors. Reductions in force, mass layoffs, and business liquidations have led to a historic unemployment rate, a significant portion of which has hit the financial services industry. It is hopeful that many of these registered representatives will be able to quickly find work so as not to create financial harship for them or uncertainty for their clients.

Middle District of Florida Rejects Constructive Discharge Claim

Often times employees resign their position because they believe that the workplace is intolerable. The employe then attempts to assert discrimination and/or retaliation claims identifying the "forced resignation" (or constructive discharge) as the actionable adverse employment action. These claims are incredibly difficult to establish and a recent decision bears this point out.

In Bozarth v. Sunshine Chevrolet-Oldsmobile of Tarpon Springs, Inc., 2010 U.S. Dist. LEXIS 25881 (M.D. Fla. March 19, 2010), the plaintiff, Jessica Bozarth, attempted to assert pregnancy discrimination and FMLA retaliation claims. The plaintiff's claims were premised, in large part, on an alleged constructive discharge. The plaintiff claimed that she could not tolerate the discrimination and retaliation in the workplace and that her resignation gave rise to claims under Title VII and the FMLA. In rejecting this claim, as a matter of law, the Court noted that to sustain a constructive discharge claim, the claim "must be so intolerable that a reasonable person would be forced to quit." The Court noted that while the plaintiff identified a numer of discrete events and testified she felt humiliated, she had failed to satisfy the significant threshold for a constructive discharge claim. Indeed, the Court ruled that an unwanted transfer, an unwanted change in pay, an offensive remark, and a change in job duties failed as a matter of law to establish a constructive discharge.

In sum, constructive discharge claims are difficult to plead and prove. An employee must establish frequent and significant discriminatory conduct for the Court to seriously entertain such a claim.