FINRA Arbitration Awards Employer Over $500,000 for Promissory Notes Accelerated by Employee’s Termination

In the Matter of the Arbitration between Claimants Morgan Stanley Smith Barney and Morgan Stanley Smith Barney FA Notes Holdings, LLC v. Respondent Robert W. Hathaway (2012 WL 2675417)

In a recent Financial Industry Regulatory Authority (FINRA) arbitration, a sole FINRA arbitrator held that an employee is liable to satisfy his indebtedness on promissory notes, including interest, to his employer upon termination of employment.

Case Details

In this case, Morgan Stanley Smith Barney (“MSSB”) and Morgan Stanley Smith Barney FA Notes Holdings, LLC, alleged that Robert W. Hathaway (“Hathaway”) was in breach of two promissory notes executed while he was employed by MSSB.  In its arbitration filing, MSSB claimed the principal balances due under both notes, per diem interest for both notes, and costs of collection and arbitration.  This matter proceeded pursuant to Rule 13806 of the Code of Arbitration Procedure because Hathaway neither filed a Statement of Answer nor appeared at the hearing.

On or about March 8, 2008, Hathaway executed the first promissory note with MSSB for $729,560, at an interest rate of three-percent per annum, to be repaid in nine consecutive annual installments beginning on March 19, 2009.  The terms of the note included an agreement to pay all costs and expenses of collection, including reasonable attorneys’ fees.  On or about June 9, 2009, Hathaway executed the second promissory note for $75,257.83 at an interest rate of 2.25-percent per annum, to be repaid in eight consecutive annual installments beginning on June 9, 2010.

The Decision

On or about September 19, 2011, Hathaway’s employment at MSSB ended.  MSSB alleged that termination of employment triggered acceleration of the promissory notes and made a demand for immediate re-payment.   Hathaway failed and refused to satisfy the indebtedness.

After considering the pleadings and the submissions, the sole arbitrator decided that Hathaway was liable for the principal balance due under each promissory note.  Hathaway was also liable for per diem interest accruing from the date employment was terminated through the date of payment on each note.  Finally, Hathaway was to reimburse MSSB for the non-refundable portion of its initial claim filing fee.  The final award to MSSB totaled $542,816.00.


Should you have any questions relating to FINRA, arbitration or employment issues generally, please do not hesitate to contact Attorney Joseph C. Maya in the firm’s Westport office in Fairfield County at 203-221-3100 or at JMaya@Mayalaw.com.