Wells Fargo's bid to claw back $146,000 from an adviser for alleged breach of promissory note failed in a rare split decision by three arbitrators.
Brokerages typically win such cases against advisers. Yet this unusual decision in Mark Agre's favor hinged on how the Kansas City arbitration panel interpreted an amendment that extended the term of the $415,000 upfront bonus loan Agre received in 2006.
Two of three arbitrators ruled that Wells Fargo's amendment was "unenforceable" because Agre has "fulfilled his obligation" under the original note, according to a copy of the March 23 arbitration award. The presiding chairman dissented from the judgment.
In another twist, the arbitrators also explained their ruling in the award. Typically, such awards do not include an explanation.
“The arbitrators made some eloquent comments and the panel saw it mostly my way. For that I am very much grateful,” Agre said in a statement. “Some cases should be won. Some cases should be lost. Some cases should never have been filed. This one should never have been filed.”
Agre’s father was “slowly dying of cancer” during the nearly two years it took for the case to go through claim, counterclaim and 10 different hearing sessions, he added. The arbitrators “never knew” about his father’s declining condition, but “Wells Fargo did,” says Agre.
Representatives for Wells Fargo Advisors did not respond to a request for comment on the case. The in-house attorney who represented the firm did not reply to an email seeking comment.
PROMISSORY NOTES A SLAM DUNK?
Firms filing a claim of breach of promissory note won 63 out of 72 cases in 2015, a 95% rate, according to Rick Ryder, the founding editor and publisher of Securities Arbitration Commentator. Firms often settle in cases where advisers have a strong defense, partially explaining the high rate, Ryder says.
Yet advisers who, like Agre, retain outside counsel reduce the company’s chances, according to Dana Pescosolido, a retired attorney and owner of a mediation and consulting firm. Companies won the full damages they sought in 63% of cases in 2015 when advisers fully contested the case and hired an attorney, according to Pescosolido.
The data proves advisers “should get themselves a qualified attorney, even if only to negotiate a settlement agreement,” Pescosolido wrote in a study on company’s promissory note claims last year.
Wells Fargo filed its claim against Agre in May 2015, five months after he left an Overland Park, Kansas, branch. The firm accused him of failing to pay the outstanding loan balance required under a promissory note Wachovia provided him in August 2006.
Arbitrators M.W. Gear and Michael Rzewnicki ruled that Agre had been “circumstantially pressured” to agree to an amendment to the note in 2010. The amendment cut the interest rate, as well as Agre’s monthly repayments and bonus reimbursements by Wells Fargo, which acquired Wachovia in 2008.
The amendment was “significantly imbalanced” because it shrank the bonus reimbursements to $2,992 per month from $5,720 and extended the term by four years, according to the majority. The amendment, therefore, subjected Agre to four more years of “loan risk and control,” Gear and Rzewnicki found.
Agre, one of many Wachovia advisers inherited by Wells Fargo, complied with the promissory note because he stayed longer than the original term of seven years and four months, according to the decision. The majority held that Wells Fargo had no evidence that Agre wanted to amend the note.
Wells Fargo “solely initiated” the amendment, and Agre “had no input into its terms,” Gear and Rzewnicki wrote. The majority struck down the amendment and cleared Agre of liability.
Yet Philip Glick, the panel’s chairman, argued that Agre still owed more than $131,000 at the time he quit Wells Fargo in 2014. The amendment “did not cancel the obligation to repay,” Glick wrote. The initial promissory note required full repayment, and the amendment was valid, according to Glick.
“The majority of the panel does state the agreements were unfair, but unclean hands requires serious wrongdoing, like fraud or dishonesty,” he wrote. “Indeed, in many contract cases, one party does not like the deal, but that does not necessarily create unclean hands.”
Glick did concur with the majority’s denial of Agre’s counterclaim seeking $525,000 in punitive damages, attorney fees and other costs. The majority decision also expunged the case from Agre’s record, though Gear and Rzewnicki wrote that the case should not be considered a precedent for others like it.
Agre, who now works for an Overland Park independent broker-dealer named Commonwealth Financial Network, is “disappointed” the panel didn’t award him damages or attorney fees, but “everyone gets to move on now,” he said in his statement. His father died days after the final hearing, he said.
“My father gave my brother and me advice all through our lives,” Agre said. “One piece of advice he told us again in his final days: Keep on keeping on. That is what my plan is.”
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