Facing $1M clawback, advisor finally gets day in court — and wins
All Tom Pair wanted was his day in court.
On March 15, the advisor got it. A federal judge wiped out a $1 million arbitration award against him, which concluded a chapter in his three-year long battle with Barclays, his ex-employer. It’s a rare triumph in an industry in which advisors typically do not win arbitration cases against their former employers, let alone succeed in reversing an earlier loss.
The judge ruled the Atlanta-based advisor had been unfairly forced into FINRA arbitration over Barclays' claims that he had breached a promissory note. The arbitration panel overstepped its authority and never should have even heard Barclays' claims, the judge said in his decision. It was a point Pair had been making since 2014.
"It’s really a great victory," says Pair's attorney, Craig Kuglar.
Advisors usually do not succeed in vacating arbitration awards, according to experts.
"It is very rare for a court to overturn an arbitration award," says Thomas Lewis, at attorney at Stevens & Lee who is not affiliated with the case.
Kuglar said that made his client's victory all the more important: "Judges are loath to second guess arbitrators."
Barclays could still press its claims on the promissory note in civil court in New York, per the judge's ruling. It could also seek an appeal. Judge Richard Story's decision also let stand the arbitrators' rejection of counterclaims of wrongful discharge that Pair raised during the arbitration process, as those were employment dispute subject to FINRA rules.
Yet, in a further blow to Barclays, the judge's order vacating the award also wiped out $360,000 of attorney's fees that the arbitration panel ordered Pair to pay the firm.
"It matters because the arbitrators improperly assessed hundreds of thousands of dollars in attorney’s fees to Mr. Pair. That was not consistent with New York law. If there is a round two, then Mr. Pair will not be assigned those attorney’s fees," Kuglar says.
A spokeswoman for Barclays declined to comment. FINRA also declined to comment on its arbitrators' decision to hear the case.
Even if victorious in civil court, Barclays likely will not win again such a large sum for legal fees, according to Lewis.
"The odds of receiving legal fees in that amount are very slim because the case has to do with just the promissory note itself," he says, noting that Pair's counterclaims can't be re-litigated.
The parties could also settle now. That could be an enticing option if interest on the unpaid promissory note is continuing to accumulate; Pair and Barclays parted ways in 2014.
But should Barclays press its claims in court, Kuglar is optimistic of his client's chances to prevail.
"We’re happy to be in court because there are affirmative defenses under New York law that we believe are viable and that will get more of a reception than they would in arbitration," the Atlanta-based attorney says.
"I lose years of my life. They can settle, write a check and move on," says an adviser whose book of business dropped by $40 million after he alleges he was wrongfully terminated.
The former planner says she was wrongfully terminated and that she did not agree to settle with the wirehouse.
One planner says there's no reasonable basis for a delay, while another says he can't afford all the compliance costs.
ENFORCING A CONTRACT
The British bank first pursued Pair in FINRA arbitration for breach of promissory note after terminating him in January 2014 for allegedly disregarding management's instructions "by including an unapproved page in a larger presentation to a client," according to a note in his BrokerCheck record.
Pair, who was an advisor for about two decades, disputed that and contended that Barclays' claims on the promissory note should be heard in a New York court, not FINRA arbitration, per a clause in the contract.
The promissory note Pair signed in December 2010, replacing an earlier one, says he "expressly agrees that any and all actions to enforce the terms of this note shall be litigated only in the state or federal courts sitting in the state and county of New York and in no other, and borrower hereby consents to the jurisdiction of said courts."
That promissory note was between Pair and Barclays Bank, per court documents. The day after his termination, the note was transferred from Barclays Bank to Barclays Capital, which is a different unit of the British firm and also a member of FINRA. The firm argued that any dispute between it and Pair had to be heard in FINRA arbitration as Barclays Capital was a member of the self-regulatory organization.
Despite Pair's protest, the FINRA arbitrators heard the case and issued its (their?) decision in December 2015, according to a copy of the award. Pair, who represented himself during arbitration hearings, hired Kuglar as his attorney for the civil case they filed last year.
Story's ruling hinged on the language in the promissory note because this was the contract Barclays was attempting to enforce.
"Reviewing that language independently, the court finds no evidence that Mr. Pair agreed to arbitrate the dispute over the new note before a FINRA panel," the judge ruled.
He also noted language in the contract that emphasized it superseded any previous agreements, and therefore raised doubts about the arbitrability of the matter; whether you agreed to arbitrate a dispute in the first place.
Story said: "It is doubly difficult to imagine how Mr. Pair could have unequivocally agreed to arbitrate arbitrability in an agreement that does not mention arbitration at all."
Dana Pescosolido, a retired attorney who runs his own mediation and consulting firm, says the judge's decision isn't shocking, given that "the note itself doesn't change the language when you reassign it to another firm."
He adds: "If the court had said that they should have granted the counterclaims – that would have been earth shattering because that would be a case of the court deciding the merits of the case.