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Paul D. Svigos v. Merrill Lynch, Pierce, Fenner & Smith - 10/6/2000

Award Amount- $2,264,479.00

Case Summary: On October 6, 2000, a two-member arbitration panel based in Chicago, Illinois awarded our client, Paul D. Svigos, $2,264,479.81 against Merrill Lynch for defamation and wrongful termination. Mr. Svigos was a former top Merrill Lynch stockbroker who the firm fired in October 1992 from its Oakbrook, Illinois branch office. The award appears to be the largest ever for a retail stockbroker against a NASD registered securities firm, and the third largest Form U-5 defamation award in the history of the securities industry. The award is also the largest ever for wrongful termination where securities industry arbitrators have been asked to determine whether a brokerage firm had a common law obligation to prove just cause to fire a registered stockbroker. The award includes $1,025,000.00 as compensatory damages for defamation, $515,000.00 as compensatory damages for wrongful termination and punitive damages of $607,679.81. Mr. Svigos requested an award of punitive damages and attorneys' fees and costs based on Merrill Lynch's defamation of his character and its misconduct in litigating the case. One element of punitive damages for defamation under Illinois law is an award of attorneys' fees and costs. Such an award is also appropriate to punish a party for engaging in misconduct during the course of the litigation. The panel awarded Mr. Svigos $357,679.81 in attorneys' fees and costs and $250,000.00 as punitive damages. The arbitrators also directed Merrill Lynch to pay forum fees of $116,800.00 to the NASD, constituting all the arbitrators' fees in the case and refunded forum fee assessments of $21,650.00 to Mr. Svigos. Most significantly, the panel ordered Merrill Lynch to restore Mr. Svigos' professional reputation by filing an amended Form U-5 Uniform Termination Notice for Securities Industry Registration with the Central Registration Depository (CRD), a database run jointly by NASD Regulation, Inc. and the North American Securities Administrators Association containing stockbroker employment and regulatory history available to securities industry firms and on a limited basis to investors. Based on the defamatory Form U-5, Mr. Svigos has been barred from obtaining other employment as a stockbroker since October 1992. The amended Form U-5 is to indicate that Mr. Svigos had been fired based on a misunderstanding with superiors, rather than for violating a Firm directive as Merrill Lynch originally indicated. One of the major questions before the arbitrators was whether Merrill Lynch had ever given Mr. Svigos a Firm directive. Mr.Svigos' counsel tried repeatedly to have Merrill Lynch articulate the nature of the directive at issue. When pressed by the arbitrators, Merrill Lynch's counsel was unable to identify a precise directive, and no documents from Merrill Lynch's files, including notes prepared by a Merrill Lynch attorney and compliance officer during a meeting when the directive was allegedly issued, reflect that a Firm directive was ever given to Mr. Svigos. Additionally, the arbitrators instructed Merrill Lynch to change its original "Yes" answer to "No" to the following question listed on the Form U-5: Currently is, or at termination was, the individual under internal review for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct? The award constitutes the most significant application ever, at least in terms of amount of damages awarded, of the principle explained at length in 1995 by the United States Court of Appeals for the Eighth Circuit in PaineWebber, Inc. v. Agron and in 1981 by the United States Court of Appeals for the Seventh Circuit Court in Shearson Hayden Stone, Inc. v. Liang that mandatory predispute arbitration agreements about employee discharges imply a requirement that discharges be only for just cause, or discernable cause. Similarly, where there is an employment relationship between a securities industry representative (such as a stockbroker) and a brokerage firm under which the NASD contemplated the use of arbitration for settling employment-related disputes, the employment relationship is altered from an at-will relationship to one where either just cause or discernable cause is required to justify firing an employee. Accordingly, the arbitrators are empowered to determine whether a firing was justified, and award damages, or render other relief, if it was not. This rule ensures that registered employees in the securities industry will be able to challenge and obtain compensation for unfair and arbitrary terminations. The arbitration hearings started in 1995 and ended in June 2000 after 75 hearing sessions. The arbitrators heard from 11 witnesses whose testimony covered over 8,000 pages and reviewed approximately 100 exhibits before reaching their decision. The third arbitrator on the original three-member panel resigned from panel in June 1998.

Jeffrey L. Liddle

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