New York Securities Lawyer Blog
On July 17, 2020, the Supreme Court of the State of New York (Commercial Division) confirmed a FINRA Arbitration Award against Credit Suisse for approximately $6.68 million, including unlawfully withheld deferred compensation, interest, attorneys’ fees, and liquidated damages pursuant to the New York Labor Law. See Lerner and Winderbaum v. Credit Suisse Securities (USA) LLC, Index No. 652771/2019 (N.Y. Sup. Ct.), Doc. 140.
The two former Credit Suisse investment advisers, represented by Lax & Neville LLP, sued Credit Suisse for breach of contract, fraud and violation of the New York Labor Law after it closed its US wealth management business in October 2015 and cancelled their earned deferred compensation. Credit Suisse defended the claims on the grounds that its former advisers voluntarily resigned after it told them they were being terminated, that future compensation by their next employer “mitigated” their damages, and that the New York Labor Law does not apply to deferred compensation. A three member FINRA Arbitration Panel found for the advisers and ordered Credit Suisse to pay compensatory damages totaling $2,787,344 and interest, attorneys’ fees, FINRA forum fees, and liquidated damages equal to 100% of the advisers’ unpaid wages pursuant to New York Labor Law § 198(1-a). The FINRA Panel also recommended that the “Reason for Termination” on the advisers’ Form U-5 be changed from “Voluntary” to “terminated without cause.”
Credit Suisse petitioned to vacate the Award for manifest disregard of the law, “challeng[ing] FINRA’s finding that petitioners’ deferred compensation qualified as wages under Labor Law §198 (1-a).” Lerner at 3. Rejecting Credit Suisse’s petition to vacate the Award in its entirety, the Court held:
The court rejects CSS’s reliance on Truelove [v. Northeast Capital & Advisory, Inc., 95 NY2d 220, 223-224 (2000)] and Guiry [v. Goldman, Sachs & Co., 31 AD3d 70, 72-73 (1st Dept 2006)], which both relate to unvested incentive compensation (Truelove, 95 NY2d at 225; Guiry, 31 AD3d at 72). Here, petitioners’ deferred equity-based compensation had vested and was commission based, tied directly to their work performance (NYSCEF 29, Private Banking North America Relationship Manage[r] Compensation Guide). Indeed, implicit in respondents’ request for a “declaration that Claimants are not entitled to vesting, or delivery of their unvested contingent deferred awards” is that at least part of petitioners’ deferred compensation had vested. (NYSCEF 3, Award p. 2, ¶2). Commissions are expressly included under the definition of “wages” in Labor Law (Labor Law § 190). A bonus or incentive pay is considered wages where it is linked to labor and vested (Ryan v Kellogg Partners Institutional Services, 19 NY3d 1, 16 [2012]).
Lerner at 4. Relying on the Appellate Division’s recent unanimous decision in Credit Suisse Securities (USA) LLC v. Finn, 182 A.D.3d 493 (1st Dept’1), the Court also rejected Credit Suisse’s “voluntary resignation” and “mitigation” defenses:
The court rejects CSS’s argument based on the Appellate Division decision in Matter of Credit Suisse Securities (USA) LLC v Finn which rejected this argument under nearly identical circumstances (182 AD3d 493 [1st Dept 2020]). In Finn, CSS argued that an arbitration award to an employee should be vacated because the arbitrators failed to take into account that the employee mitigated the damages by accepting “replacement compensation” from his subsequent employer (id.). The court rejected this argument, stating, “the arbitration panel could reasonably have concluded that the transition payments respondent received from his new employer did not in fact ‘replace’ the deferred compensation benefits withheld by [CSS], as they were subject to additional conditions and restrictions.” (Id. at 494). In this case, the “replacement compensation” offered to petitioners was conditioned on them working for Morgan Stanley for nine years before the awards vested (See NYSCEF 27, 28, Morgan Stanley Compensation Incentive Plan for Lerner and Winderbaum). Likewise, here FINRA could “reasonably have concluded that the transition payments [petitioners were offered by their] new employer did not in fact ‘replace’ the deferred compensation benefits withheld by [CSS]” (Finn, 182 AD3d 493, 494 citing In re Lehman Bros. Holdings Inc., 703 F Appx 18, 21-22 [2d Cir 2017] for the proposition that mitigation or offset is a defense to payment of vested compensation is far from clear authority).
Lerner, at 7-8.
This marks the ninth loss on nine tries for Credit Suisse in the Credit Suisse Deferred Compensation Arbitrations. Seven FINRA Arbitration Panels, two justices of the Commercial Division of the New York Supreme Court and five justices of the Appellate Division have rejected Credit Suisse’s defenses and ordered it to pay the deferred compensation it indisputably owes to the employees it indisputably terminated.
Lax & Neville LLP has won more than $13 million in compensatory damages, liquidated damages, interest, costs and attorneys’ fees on behalf of former Credit Suisse investment advisers. To discuss these FINRA arbitration Awards or court decisions, please contact Barry R. Lax, Brian J. Neville, Sandra P. Lahens or Robert R. Miller at (212) 696-1999.