Securities Lawyers Blog
Recently, a Financial Industry Regulatory Authority (FINRA) arbitration panel rendered a decision concerning Wells Fargo Advisors, LLC’s (Wells Fargo) claims against its former broker Steven Grundstedt (Grundstedt) for breach of three promissory notes. FINRA Arbitration Case No. 11-02245. The FINRA arbitration panel held that Grundstedt was entitled to an offset against the outstanding balance of the first promissory note dated July 30, 2008 because Wells Fargo, then Wachovia at the time, breached an implied contract and/or the covenant of good faith and fair dealing in the contracts Grundstedt signed, causing him substantial economic damage.
Wells Fargo claimed that Grundstedt failed to repay three separate forgivable promissory notes. Note 1 was in the principal amount of $320,000 and constituted a “transitional bonus” Grundstedt was rewarded with for moving his book of business from his former employer, Citigroup. Like the other notes in the litigation, the principal portion of Note 1 could be received in a lump sum or could be taken in monthly installments. In either case, the monthly re-payment of principal and interest was to be offset by the forgiveness of an equivalent amount conditioned upon Grundstedt’s continued employment with Wachovia’s.
According to the order, at the time Grundstedt accepted employment with Wachovia, he signed multiple agreements. One of these agreements promised Grundstedt that he would receive “support” from Wachovia including “re-assignment of accounts, walk-ins, prospective customer leads…” among other forms of company support. The panel found that Wachovia initially lived up to its promises but that the situation changed after Wachovia was acquired by Wells Fargo. In the fall of 2009, Wells Fargo consolidated operations, closed branches, and changed payouts and various other things designed with the intent to make the overall business more efficient and profitable.
The panel found that some of these decisions violated Grundstedt’s reasonable expectations under the agreements he signed with Wachovia that Wells Fargo was subject to follow after the merger. However, the panel found that even after Wells Fargo implemented the changes Grundstedt continued to accept bonuses in the form of forgivable loans. Thereafter, Grundstedt resigned from Wells Fargo on or about October 15, 2010.
While the panel found that Wells Fargo breached its covenant of good faith and fair dealing, the loans Grundstedt took pursuant to Note 2 and Note 3 taken after Wells Fargo began implementing many of the changes Grundstedt complained about would not be forgiven.
The attorneys at Gana Weinstein LLP are experienced in representing brokers in disputes with their firms concerning employment disputes, unpaid bonuses, promissory notes, wrongful termination, and breach of contracts. Our consultations are free of charge and we welcome all inquires.