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FINRA Panel Finds That Former Wells Fargo Broker Is Entitled To Partial Forgiveness On Promissory Note

On April 25, 2014, a FINRA arbitration panel rendered a decision in a case in which Wells Fargo Advisors, LLC (“Wells Fargo”), formerly known as Wachovia Securities, LLC, (“Wachovia”) brought a claim against Steven Grundstedt (“Grundstedt”), one of its former brokers, for breach of three promissory notes dated July 30, 2008, October 23, 2009 and May 28, 2010. (See FINRA Arbitration Case No. 11-02245). The FINRA arbitration panel found that Mr. Grundstedt was entitled to an offset against the outstanding balance of the first promissory note dated July 30, 2008 since Wachovia breached an implied contract and/or the covenant of good faith and fair dealing in the contracts Grundstedt signed, causing him substantial economic damage.

According to the Award, when Grundstedt accepted employment with Wachovia, he signed various agreements. In one of the agreements, Wachovia promised Grundstedt that he would receive various forms of support from Wachovia, including, but not limited to “re-assignment of accounts, walk-ins, and prospective customer leads.” These promises were consistent with the oral promises made by Wachovia’s hiring manager to Grundstedt, both before and after he joined Wachovia. In the fall of 2009, after the merger between Wachovia and Wells Fargo was completed, Wells Fargo attempted to increase efficiency by consolidating operations, closing branches, changing payouts, etc. The Panel found that some of Wells Fargo’s decisions violated Grundstedt’s reasonable expectations under the agreements he signed with Wachovia. Specifically, the Panel found that as a result of some of the changes implemented by Wells Fargo, Grundstedt’s production dropped from 25% to 50% in various categories. Based on that fact, the Panel discounted the first promissory note by one third.

The Panel did not award Grundstedt any offset to the second and third promissory notes at issue because they were executed after the merger and after Wells Fargo implemented some of the changes that Grundstedt complained about. As such, Grundstedt is required to pay back the entire balances on those two promissory notes.

Lax & Neville has extensive experience in successfully representing financial advisors in employment dispute matters, including breach of promissory note arbitrations. Additionally, Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.

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