New York Securities Lawyer Blog
In November, the Financial Industry Regulatory Authority (“FINRA”) ordered Stephen Todd Walker (“Walker”), a former Morgan Stanley (“MSSB”) Advisor, to pay approximately $2 million to cover remaining promissory note balances and arbitration costs (the “Award”). Promissory note cases can be difficult to win, as the contractual language stipulating terms of repayment is typically very explicit as to the obligations of the promissory note holder.
MSSB terminated Walker in 2010, and he left for Oppenheimer with a large book of business and a small team of Financial Advisors and Assistants. MSSB promptly sued Walker for breach of his promissory note agreements, with MSSB seeking repayment of the $1.67 million balance. Walker filed counterclaims against MSSB for “tortious interference” with his client relationships, unfair competition, improper conversion of property, and defamation, that sought damages of $52 million. The suit culminated in 160 pre-hearing and hearing sessions between 2011 and September 2017.
After a protracted 7-year arbitration battle, a three-person FINRA Arbitration Panel (the “panel”) ruled that Walker must pay $1.67 million in promissory note balances back to the firm, and pay $301,000 in attorneys’ fees (prevailing party attorneys’ fees can be contractually stipulated in promissory note agreements). The Panel did however grant Walker $525,000 in compensatory damages from MSSB, making his total outstanding liability from the Award $1,446,000.
Walker is now seeking to vacate the award, citing spoliation of evidence. Walker claims that in 2011, his former MSSB manager shredded more than 250 boxes of evidence that could have been used in his defense and to support counter-claims against MSSB. One of the key documents allegedly destroyed was a proprietary client list that Walker brought with him to MSSB when he first transitioned from Deutsche Bank Alex. Brown & Sons to MSSB. Walker alleges that his Employment Agreement contained an addendum that carved out this client list as his property, exempting him from restricted covenants such as non-competes. Walker alleges that by destroying this client list, MSSB directly damaged his business by making it difficult to contact clients.
Walker alleges that his former MSSB branch manager violated a litigation hold instituted in 2011 by shredding these records. The key supporting fact to this claim is an alleged email from the MSSB manager to another MSSB employee, discussing a volume of document shredding that would require a “shred truck,” despite the litigation hold already in effect. Vacatur of an arbitration award is rarely granted, as there is a presumption that arbitration awards will be confirmed by courts. Under the Federal Arbitration Act, there are four statutory grounds for vacatur: the award was procured by corruption, fraud or undue means; there was evident partiality or corruption in the arbitrators; the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy, or of any other misbehavior that prejudiced the aggrieved party; and where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final and definite award upon the subject matter submitted was not made. Several jurisdictions have added non-statutory grounds for vacatur as well, but the majority of courts will vacate arbitration awards in only these narrow circumstances.
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of individuals who have suffered losses as a result of investment and securities fraud, and for claims of compensation. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.