Ex-Wachovia Broker Beats Wells on Promissory Note Claim
A former Wells Fargo Advisors broker does not have to pay the six-figure balance on a promissory note that came due when he left for an independent broker-dealer in 2014 because Wells pressured him to sign a note amendment in 2010 that was “unenforceable,” an arbitration panel ruled last week.
The case is notable because the three-person Financial Industry Regulatory Authority panel split in its decision and the arbitrators colorfully explained their views in what are typically laconic award documents. Also, according to employment lawyers, few brokers prevail in breach-of-promissory-note cases tied to forgivable loans.
Mark Agre owed an outstanding balance and interest of $146,091 on his $415,870 forgivable loan when he left for Commonwealth Financial Network in November 2014 after eight years at Wells Advisors and predecessor firm Wachovia Securities, according to Wells’ May 2015 arbitration claim. At issue was a 2010 amendment to the 88-month promissory note agreement that Agre was “circumstantially pressured” to accept and that extended the note period by about four years, two of the arbitrators wrote. Without the extension, the loan would have been retired before he left.
Wells argued that the amendment was aimed solely at helping advisors who were ‘choking on taxes’ in the aftermath of 2008-2009 market crisis by extending their deferral periods and substituting a lower post-crisis interest rate, according to the decision. The majority of the panel was skeptical.
“The Amendment added about four additional years of lender control over [Agre],” the two panelists wrote, and Wells was “disingenuous” to argue it received no benefit from the contract extension.
“The Amendment is significantly unbalanced in Claimant’s favor and, most importantly places [Agre] in a worse position,” they wrote. “There was no new bonus money with the Amendment and the extended deferral of taxes” helped Wells reduce its monthly bonus payment by more than $2,700 while having a “de minimus” interest-rate impact on Agre until the principal became due.
Agre fulfilled his obligation under the note by having worked for Wachovia and Wells for the time set out in the unamended note, the majority wrote. However, they denied his counterclaim for $525,000 in compensatory damages, interest, attorneys’ fees and other costs.
Philip Glick, chairperson of the Kansas City-based arbitration panel, took a narrower view, saying the amendment was valid because it was signed by both parties and supported by lower taxable payments and a “substantially reduced” interest rate. It was also ratifiedby the fact that Agre had been making payments until he left, Glick wrote.
Arbitration decisions do not have precedential value but the rarity of a split decision “increases the chance that Wells Fargo will try to overturn the award,” said George Miller, an employment lawyer at Shustak Reynolds & Partners in San Diego, who represents both firms and employees and also is a Finra arbitrator.
Although note extensions are not unique and there are instances where extending the taxable moment on loan forgiveness and corresponding bonuses have tangible benefits to brokers, Wells could be concerned that other brokers who signed the amendment might follow Agre’s lead.
A Wells Fargo spokeswoman did not respond to requests for comment on the decision or on whether the bank-owned broker-dealer will try to vacate the award.
While the majority of the panel wrote that “substance over form was an important factor” in their decision, Glick responded that Finra arbitrators are “bound by fact and law [and] need to decide awards that consider the transaction structure and legal elements we are examining.”
“The arbitrators spoke eloquently,” Agre, who works in Overland Park, Kansas, said of the ruling. “The amendment to my note was unenforceable. I fulfilled my obligation.”