Explained Award: Broker Wins $3 Million Award on Breach of Contract Charges against Former Employer
Posted on Categories Arbitration, Arbitration Awards, FINRA Code of Arbitration, Securities ArbitrationTags , , ,

We like this Award for a number of reasons, one of which is an Arbitrator dissent that draws a rebuttal from the majority. That dissent was filed by a Public Arbitrator, who disagreed with a Chair and Non-Public Arbitrator majority over a procedural ruling -- which he believes cost the Claimant millions of dollars in additional damages.

Claimant Hitesh Mittal was awarded $3 million in compensatory damages by the Panel, together with almost four years of pre-Award interest at the rate of 9% per annum. Punitive damages against Respondent ITG Inc. were denied; however, costs in the amount of $310,695 were granted. The Panel mentions a Separation Agreement in support of its attorney-fee award of more than $1.55 million. Respondents began with a number of counterclaims, but withdrew all but its request for attorney fees; that claim failed (see Mittal v. ITG Inc., No. 18-02692 (New York, 10/24/19)).

Discharge Following Regulatory Settlement

So often, regulatory settlements are disputed evidence, because, among other things, they do not customarily contain admissions and they may not address the same set of facts that apply in the case before the Arbitrators. In this case, an August 2015 Consent Order between the SEC and ITG lay at the heart of this employment dispute. It also contained findings of fact to which Respondent ITG admitted. That Consent Order was issued on August 12. Coincident with that Order and the corresponding SEC Litigation Release, according to a BrokerCheck entry, Mr. Mittal was terminated by his then-employer. The discharging employer, AQR, also filed an “Employment Separation After Allegations,” indicating that Mr. Mittal’s discharge was “based on reported allegations of compliance issues at his prior employer, ITG Inc.”

$65 Million Wrongful Termination Claim

Mr. Mittal was out of the industry until 2019, when he became registered again. He commenced the FINRA action in July 2018, within three years of the AQR termination, claiming breach of contract and tortious interference with business relationship. He requested damages of $64.7 million and herein may lie the predicate for the issue separating the Panel members. Just prior to the start of the hearings, which lasted for 18 sessions, Respondent withdrew its claims for compensation clawbacks, setoff and breach of contract and then filed a motion to preclude evidence about aspects of the SEC Consent Order. The Panel promptly considered the matter and, according to the Award, ruled that Claimant would be precluded from the “admission of evidence for the purpose of challenging the veracity of the SEC Order....”

Procedural Ruling Prompts Dissent by Public Arbitrator

Despite that restriction, the ruling indicated, Claimant could still present evidence to rebut any defenses raised by Respondent. To the dissent, that hobbled Claimant: “The fact that Claimant was not allowed to present evidence to rebut the factual contentions of the Order prevented Claimant from making a full presentation of his case. There was a sufficient number of demonstrably false statements in the Consent Order to call into serious question the main contention of the Consent Order, that is, that Claimant Mittal was culpable in the manner described in the Order.” In the dissent’s view, the amount of the compensatory award “for the breach of contract claim” was “inadequate” as a result and the failed tortious interference claim might have been sustained, leading to additional compensatory and, perhaps punitive, damages. 

Majority Rebuttal

In almost as many words the Majority responded, explaining that its ruling was designed only to prevent an “unbridled re-evaluation by the Panel of the SEC’s investigation into ITG and the ensuing Consent Order.” By leaving open the ability for Claimant to “present evidence ... to rebut Respondent’s defenses” vis-a-vis the Consent Order, “Claimant was afforded a fair and full opportunity to present evidence in support of each of his claims..., including evidence challenging the factual underpinnings of the SEC Order....”

(ed: *We puzzled over what the alleged “breach” was, because, if it related to Claimant’s employment with ITG, that employment ended in 2011, more than six years before the Statement of Claim was filed. We conclude that it must relate to undertakings in the Separation Agreement, as that would have been in effect at the time of the later termination and loss of industry employment. Might ITG have agreed, for instance, not to “disparage” Claimant? Note, on the subject of claims, that Claimant alleged tortious interference, not defamation. Case law might immunize a former employer who alerts a current employer to a change in U5 termination representations. **Dissents are rare enough in FINRA arbitrations; rebuttals from the majority are almost unheard-of. Thus, we question the Majority’s wisdom in issuing a reply to their colleague’s dissent. Mr. Mittal is not likely to challenge the awarded amounts, so what was the point of rebuttal? The response does not explain in what way the dissent was wrong, only that there is disagreement on the ruling; that just emphasizes the fracture and adds gravity to the dissent’s protest. ***The thought often occurs to us in reviewing Explained Awards just how much insight they offer into the neutrals involved and Panel dynamics. ****The ITG Consent Order makes interesting reading -- all about “dark pools” and the gathering and use of information about those who trade on these alternative trading systems.) (SAC Ref. No. 2019-46-02)

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