Petition for Writ of Certiorari — Christopher N. Caputo, Petitioner v. Wells Fargo Advisors, LLC

Supreme Court briefSep 15, 2022

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APPENDIX

TABLE OF CONTENTS

Appendix A Opinion in the United States Court of

Appeals for the Third Circuit

(May 9, 2022) . . . . . . . . . . . . . . . . App. 1

Appendix B Opinion in the United States District

Court for the District of New Jersey

(May 29, 2020) . . . . . . . . . . . . . . App. 15

Appendix C Order in the United States District

Court District of New Jersey

(May 29, 2020) . . . . . . . . . . . . . . App. 37

Appendix D Opinion in the United States District

Court for the District of New Jersey

(September 11, 2020) . . . . . . . . . App. 39

Appendix E Order in the United States District

Court District of New Jersey

(September 11, 2020) . . . . . . . . . App. 54

Appendix F Award FINRA Office of Dispute

Resolution

(July 26, 2019) . . . . . . . . . . . . . . App. 56

Appendix G Order Denying Rehearing in the

United States Court of Appeals for the

Third Circuit

(June 17, 2022) . . . . . . . . . . . . . App. 66

Appendix H Excerpted Testimony of Wells Fargo

Witness Anthony Citro

(December 10, 2018) . . . . . . . . . . App. 68

Appendix I Response on Behalf of Christopher

Caputo to Wells Fargo’s Post-Hearing

Submission in the Financial Industry

Regulatory Authority Dispute

Resolution

(June 28, 2019) . . . . . . . . . . . . . . App. 81

Appendix J Post-Hearing Brief in Response to

Respondent Christopher Caputo’s

October 29, 2018 Pre-Hearing Memorandum

(June 25, 2019) . . . . . . . . . . . . . App. 118

Appendix K Statutory Provisions Involved

. . . . . . . . . . . . . . . . . . . . . . . . . . App. 134

App. 1

APPENDIX A

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 20-3059

[Filed: May 9, 2022]

____________________________________

CHRISTOPHER N. CAPUTO,

)

Appellant

)

WELLS FARGO ADVISORS, LLC

)

____________________________________)

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 3:19-cv-17204)

Honorable Freda L. Wolfson, Chief District Judge

Argued: November 17, 2021

Before: CHAGARES, Chief Judge, BIBAS and

FUENTES, Circuit Judges

(Opinion filed: May 9, 2022)

Timothy W. Bergin

[ARGUED]

Potomac Law Group

1300 Pennsylvania Ave., N.W.

App. 2

Suite 700

Washington, D.C. 20004

Mark A. Kriegel

1479 Pennington Road

Ewing, NJ 08618

Counsel for Appellant

Megan M. Christensen

Yio Kyung Lee

Jonathan A. Scobie

[ARGUED]

Stevens & Lee

Princeton Pike Corporate Center

100 Lenox Drive

Suite 200

Lawrenceville, NJ 08648

Counsel for Appellee

__________

OPINION*

__________

FUENTES, Circuit Judge.

Petitioner-Appellant Christopher N. Caputo appeals

the District Court’s order denying his motion to vacate

an arbitration award issued in favor of RespondentAppellee Wells Fargo Advisors, LLC (“Wells Fargo”)

and granting Wells Fargo’s cross-motion to confirm the

award. Caputo argues that the award should be

vacated because it violates public policy and is in

manifest disregard of law. He also argues that it should

be vacated because the arbitration panel exceeded its

This disposition is not an opinion of the full Court and under

I.O.P. 5.7 does not constitute binding precedent.

App. 3

authority and excluded certain evidence. For the

following reasons, we will affirm the District Court’s

order.

Wells Fargo hired Caputo as a financial advisor in

February 2011. Under the terms of his employment

offer, Caputo became eligible for certain bonuses and

awards upon meeting particular performance-based

benchmarks. Specifically, Caputo qualified to receive a

Transitional Bonus of $1,202,294, paid in monthly

installments of $12,833 from 2011 to 2021. He also

qualified to receive three separate Production Bonuses

of $240,459, as well as a Best Practice Award of

$240,459, which were to be paid in monthly

installments over approximately ten years.

Caputo could choose to get cash for his bonuses and

awards upfront in the form of a loan. So from 2011 to

2014, Wells Fargo and Caputo executed five Promissory

Notes, each for a principal sum of each bonus and

award amount—one for $1,202,294 and four for

$240,459—totaling over two million dollars. In other

words, rather than waiting to receive the bonuses and

awards in monthly installments over ten years, Caputo

elected to receive them in an upfront lump sum.

Each of the Promissory Notes set forth a schedule of

debt obligations under which Caputo was

“unconditionally” obligated to pay Wells Fargo back in

full.1 Critically, Caputo’s decision to execute the

Promissory Notes did not alter Wells Fargo’s payment

See, e.g., App. 199.

App. 4

of the bonuses or awards. Rather, while Wells Fargo

employed Caputo, it still paid him his bonuses and

awards in monthly installments, which in turn offset

Caputo’s debt obligations under the Promissory Notes.

Most importantly, under the Promissory Notes, if

Caputo were ever terminated, Wells Fargo was entitled

to “declare the entire unpaid principal balance of [each]

Note immediately due and payable.”2

Wells Fargo terminated Caputo’s employment in

December 2014 after conducting an internal

investigation and determining that he had engaged in

inappropriate practices. Wells Fargo found that Caputo

had traded certain clients’ long-term investments for

other long-term investments to the clients’ detriment,

resulting in multiple violations of company policy. At

the time of his termination, Caputo had repaid Wells

Fargo around $300,000 through his monthly bonus and

award installments. Wells Fargo sent Caputo a notice

of demand for the outstanding amount due under the

Promissory Notes (about $1.7 million) and advised

Caputo that it had placed an administrative hold on his

Wells Fargo brokerage accounts. When Caputo failed to

pay, Wells Fargo commenced a Financial Industry

Regulatory Authority (“FINRA”) arbitration, asserting

claims for breach of contract against Caputo. Caputo

asserted multiple counterclaims, including for breach

of contract, unconscionability based on fraudulent

inducement, unjust enrichment, breach of implied duty

of good faith and fair dealing, defamation, fraudulent

inducement to accept employment, expungement, and

breach of New Jersey employment law.

See, e.g., id.

App. 5

In July 2019, after multiple days of hearings, the

FINRA arbitration panel issued an award in favor of

Wells Fargo, concluding that Caputo was liable to

Wells Fargo for the entire balance owed under the

Promissory Notes. The arbitration panel also denied

Caputo’s counterclaims in their entirety. Caputo then

moved to vacate the arbitration award in the U.S.

District Court for the District of New Jersey. Wells

Fargo opposed the motion and filed a cross-motion to

confirm the award. In May 2020, the District Court

denied Caputo’s motion and granted Wells Fargo’s.

Caputo then filed a motion for reconsideration, which

the District Court denied in September 2020. Caputo

filed a timely notice of appeal.3

Caputo simultaneously moved for a stay of the District Court’s

judgment before the District Court, which the District Court

denied. He then filed the same motion before this Court, which we

also denied on October 29, 2020. That same day, Caputo filed for

Chapter 7 bankruptcy in the U.S. Bankruptcy Court for the

District of New Jersey (“Bankruptcy Court”). The Bankruptcy

Court ultimately discharged Caputo’s debts, including the

approximately $1.7 million he owed to Wells Fargo under the

District Court judgment, and ordered the bankruptcy case closed.

App. 6

II.4

The District Court had jurisdiction under 9 U.S.C.

§§ 9 and 10 and 28 U.S.C. § 1332. We have jurisdiction

under 28 U.S.C. § 1291 and 9 U.S.C. § 16(a).5 “When

reviewing a district court’s denial of a motion to vacate

an arbitration award, we review its legal conclusions de

novo and its factual findings for clear error.”6 “[T]he

correlative grant of a motion to confirm” an arbitration

award is also reviewed de novo.7 Given the “strong

federal policy in favor of commercial arbitration, we

Wells Fargo asserts that the instant appeal is moot given that

Caputo’s debt to Wells Fargo pursuant to the District Court’s

judgment was discharged in bankruptcy. We disagree. Assuming

that Caputo could prevail in this appeal, we could fashion

“meaningful relief.” See In re Surrick, 338 F.3d 224, 230 (3d Cir.

2003) (internal quotation marks omitted). A reversal of the District

Court’s decision and (eventual) vacatur of the arbitration award

could result in Caputo receiving the money from his Wells Fargo

brokerage accounts, which were placed on administrative hold

after Caputo failed to pay Wells Fargo the amount he owed under

the Promissory Notes. Thus, Caputo’s appeal is not moot.

Hamilton Park Health Care Ctr. Ltd. v. 1199 SEIU United

Healthcare Workers E., 817 F.3d 857, 861 (3d Cir. 2016).

Whitehead v. Pullman Grp., LLC, 811 F.3d 116, 119 n.23 (3d Cir.

2016) (citing Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 219

(3d Cir. 2012), aff’d, 569 U.S. 564 (2013)).

First Options of Chi., Inc. v. Kaplan, 514 U.S. 938, 941, 949

(1995).

App. 7

begin with the presumption that the award is

enforceable.”8

Under the Federal Arbitration Act (“FAA”), four

narrow grounds exist for vacating an arbitration

award.9 Even so, “a reviewing court will decline to

sustain an award ‘only in the rarest case.’”10 Caputo

challenges the award on two vacatur grounds not

enumerated in the FAA: (1) that the arbitration award

violated public policy, and (2) that the award was in

manifest disregard of law.11 He also challenges the

award on two of the four grounds enumerated in the

FAA: (1) that the arbitration panel exceeded its

authority under § 10(a)(4), and (2) that the panel

Sutter, 675 F.3d at 219 (citing Moses H. Cone Mem’l Hosp. v.

Mercury Constr. Corp., 460 U.S. 1, 24–25 (1983)).

9 U.S.C. § 10(a).

Newark Morning Ledger Co. v. Newark Typographical Union

Loc. 103, 797 F.2d 162, 165 (3d Cir. 1986) (internal citation

omitted).

As the District Court correctly noted, we have recognized these

grounds as additional bases for vacatur. See, e.g., Dluhos v.

Strasberg, 321 F.3d 365, 370 (3d Cir. 2003) (manifest disregard);

Serv. Emps. Int’l Union Loc. 36 v. City Cleaning Co., 982 F.2d 89,

92 (3d Cir. 1992) (public policy). That said, we have not yet

weighed in on whether these grounds for vacatur survive the

Supreme Court’s decision in Hall Street Associates, L.L.C. v.

Mattel, Inc., 552 U.S. 576 (2008). Like the District Court, we will

presume, for the purposes of this appeal, that these grounds

“continue to exist as a basis for vacatur after Hall Street.” App. 10.

App. 8

excluded pertinent and material evidence under

§ 10(a)(3).12 We address each vacatur ground in turn.13

III.

First, Caputo argues that the arbitration award

should be vacated for violating dominant public policy

because (1) it enforced contract provisions prohibited by

state labor statutes and designed to evade taxes; and

(2) Caputo was discharged without just cause. We

disagree.

An arbitration award may be vacated when

enforcing it violates explicit public policy.14 However,

“the public policy must be well defined and dominant,

and is to be ascertained by reference to the laws and

legal precedents and not from general considerations of

supposed public interests.”15 We must use “common

sense” to determine “whether a public policy exists[,]

. . . keeping in mind that a formulation of public policy

based only on general considerations of supposed public

See 9 U.S.C. § 10(a)(3)–(4).

We will address Caputo’s arguments regarding manifest

disregard of law and § 10(a)(4) together, as the basis for both is

that the arbitration panel ignored state labor laws.

W.R. Grace & Co. v. Loc. Union 759, 461 U.S. 757, 766 (1983);

United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 42–43

(1987).

United Transp. Union Loc. 1589 v. Suburban Transit Corp., 51

F.3d 376, 381 (3d Cir. 1995) (internal citation and quotation marks

omitted).

App. 9

interests is not the sort that permits [us] to set aside

an arbitration award.”16 We have characterized this

exception as “slim.”17 Indeed, it “is available only when

the arbitration decision and award create an explicit

conflict with an explicit public policy.”18

Caputo asserts that enforcing the contractual

provisions at issue would violate state labor laws, and

that “[a]n express statutory override of particular types

of contractual provisions . . . is by definition an

expression of dominant public policy.”19 And, he adds,

the Promissory Notes run afoul of “law[s] condemning

tax evasion,” so they are unenforceable for that reason

too.20 The case law that Caputo cites in support of these

propositions is inapposite.21 In fact, these arguments

improperly conflate the manifest disregard and public

Id. at 381–82 (internal citation and quotation marks omitted).

Id. at 382 (internal citation and quotation marks omitted).

Id. (emphasis added) (internal citation and quotation marks

omitted).

Caputo Opening Br. at 14.

Id. at 26.

Along with the case law cited in his briefing, Caputo submitted

several Rule 28(j) letters containing mostly out-of-circuit case law

purporting to support his public policy arguments. Rule 28(j)

Letter (filed March 13, 2022); Rule 28(j) Letter (filed Dec. 1, 2021).

These cases are distinguishable and do not persuade us that the

arbitration award issued in favor of Wells Fargo (or the contract

provisions at issue in this case) violates public policy.

App. 10

policy doctrines.22 Even if these laws articulated some

public policy, it would not be “well defined [or]

dominant.”23 Caputo identifies no other explicit public

policy that the arbitration award violates.

Caputo also argues that the arbitration award is

contrary to public policy because he was terminated

without cause. Yet besides “general considerations of

supposed public interests,” Caputo does not explain

how being fired without cause violates public policy.

And it is hard to see how that could be true here, given

that Caputo’s employment was at-will.

Second, Caputo argues that the arbitration award

should be vacated for being in manifest disregard of

law for ignoring state labor statutes. This argument

also fails. “The manifest disregard standard requires

more than legal error.”24 “Rather, the arbitrators’

decision must fly in the face of clearly established legal

precedent, such as where an arbitrator appreciates the

existence of a clearly governing legal principle but

Cf. Seneca Nation of Indians v. New York, 988 F.3d 618, 628 (2d

Cir. 2021) (stating in dicta that “a court could certainly vacate an

arbitration award that interpreted an agreement to require

something expressly prohibited by law or statute, insofar as that

would show that the arbitrators willfully flouted the governing law

by refusing to apply it” or, in other words, manifestly disregarded

the law (internal citation and quotation marks omitted)).

United Transp. Union Loc. 1589, 51 F.3d at 381.

Whitehead, 811 F.3d at 121.

App. 11

decides to ignore or pay no attention to it.”25 It is an

“extremely deferential” standard.26

Caputo also argues that the award should be

vacated for exceeding the arbitrator’s authority under

§ 10(a)(4) on the same basis. Caputo asserts that Wells

Fargo invited the arbitration panel to disregard the law

and that they did so, as evidenced by the panel

restricting Caputo’s cross-examination of certain

witnesses and granting an arbitration award in favor

of Wells Fargo. As the District Court recognized,

“[u]nder § 10(a)(4) of the FAA, a court cannot examine

the merits of an arbitrator’s decision, correct factual or

legal errors, or overrule an award based on a mere

disagreement with the arbitrator’s interpretation of a

contract.”27 Simply put, “we must enforce an arbitration

award if it is based on an arguable interpretation of”

the contract.28 The terms of an award may not be

revised “unless they are completely irrational.”29 As we

have explained, “[s]o deferential is the ‘irrationality’

standard under the FAA that we ‘may not overrule an

arbitrator simply because [we] disagree . . . . [T]here

Id. (internal citations and quotation marks omitted).

Id. (internal citation and quotation marks omitted).

App. 15 (internal citations omitted).

Exxon Shipping Co. v. Exxon Seamen’s Union, 73 F.3d 1287,

1291 (3d Cir. 1996).

Ario v. Underwriting Members of Syndicate 53 at Lloyds for 1998

Year of Acct., 618 F.3d 277, 295 (3d Cir. 2010) (internal citation

and quotation marks omitted).

App. 12

must be absolutely no support at all in the record

justifying the arbitrator’s determinations for a court to

deny enforcement of an award.’”30

Even if the FINRA arbitration panel got it wrong, it

is hard to see how this would be more than legal error,

as required to vacate an arbitration award under the

manifest disregard doctrine. Further, despite Caputo’s

assertions to the contrary, there is no evidence in the

record that Wells Fargo urged the FINRA arbitration

panel to disregard the law. The arbitrators’ decisions to

cut off the cross-examination of certain witnesses and

rule in favor of Wells Fargo do not support the

inference that the FINRA arbitration panel

disregarded the law such that they exceeded their

authority. Unlike the Supreme Court’s decision in

Stolt-Nielsen S.A. v. AnimalFeeds International Corp.,

which Caputo cites in support of his arguments, the

FINRA arbitration panel did not impose its own “policy

choice” in making its decision.31 Instead, the arbitral

panel “rationally derived” the arbitration award in

favor of Wells Fargo “from the agreement between the

parties.”32

Id. at 295–96 (quoting United Transp. Union Loc. 1589, 51 F.3d

at 379); see also Sutter, 675 F.3d at 220 (“In other words, the task

of an arbitrator is to interpret and enforce a contract. When he

makes a good faith attempt to do so, even serious errors of law or

fact will not subject his award to vacatur.” (citation omitted)).

559 U.S. 662, 677 (2010).

Ario, 618 F.3d at 295.

App. 13

Lastly, Caputo asserts that the arbitration award

should be vacated because the arbitrators excluded

evidence showing that Wells Fargo discharged him

without just cause. We are not persuaded. The FAA

permits district courts to vacate arbitration awards

“where the arbitrators were guilty of misconduct . . . in

refusing to hear evidence pertinent and material to the

controversy.”33 But we have cautioned that § 10(a)(3)

“cannot be read . . . to intend that every failure to

receive relevant evidence constitutes misconduct which

will require the [vacatur] of an arbitrator’s award.”34

Vacatur under § 10(a)(3) is “warranted only where the

arbitrator’s refusal to hear proffered testimony so

affects the rights of a party that it may be said that he

was deprived of a fair hearing.”35 Like the manifest

disregard of law standard, this is an “extremely

deferential standard” and typically results in

confirmation of an arbitration award.36

We are not convinced that the arbitrators’ decision

to exclude evidence of Caputo’s discharge deprived him

of a fair hearing. Given that Caputo was an at-will

9 U.S.C. § 10(a)(3).

Century Indem. Co. v. Certain Underwriters at Lloyd’s, London,

Subscribing to Retrocessional Agreement Nos. 950548, 950549 &

950646, 584 F.3d 513, 557 (3d Cir. 2009) (internal citation and

quotation marks omitted).

Id. (internal citations and quotation marks omitted).

Id. (internal citation and quotation marks omitted).

App. 14

employee who signed Promissory Notes promising that

he would pay Wells Fargo back in full, we are skeptical

that excluding the evidence at issue resulted in an

unfair hearing.

IV.

For these reasons, we will affirm the District

Court’s order denying Caputo’s motion to vacate the

arbitration award and granting Wells Fargo’s motion to

confirm the arbitration award.

App. 15

APPENDIX B

*NOT FOR PUBLICATION*

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Civil Action No. 19-17204 (FLW)

[Filed: May 29, 2020]

_______________________________________

CHRISTOPHER N. CAPUTO,

)

Petitioner,

)

WELLS FARGO ADVISORS, LLC,

)

Respondent.

)

_______________________________________)

OPINION

WOLFSON, Chief Judge:

Petitioner Christopher Caputo (“Petitioner”)

initiated this action against Wells Fargo Advisors, LLC

(“Wells Fargo Advisors”) to vacate an arbitration award

(“Award”) that a panel of FINRA arbitrators entered

against him in a prior proceeding. Pending before the

Court are the following: (1) Petitioner’s Motion to

vacate the Award; and (2) Wells Fargo Advisor’s CrossMotion to confirm the Award. For the reasons

App. 16

expressed herein, the Court confirms the Award and

denies Petitioner’s Motion.

BACKGROUND

HISTORY

AND

PROCEDURAL

Wells Fargo Advisors is a broker-dealer that is

registered with the U.S. Securities and Exchange

Commission, and a member of the Financial Industry

Regulatory Authority (“FINRA”). On February 17,

2011, Wells Fargo Advisors hired Petitioner on an atwill basis, as a registered financial advisor at its

branch office in Spring Lakes, New Jersey. Prior to his

employment at Wells Fargo Advisors, Petitioner

worked as a financial advisor at UBS Wealth

Management.

Pursuant to his contract, Wells Fargo Advisors

agreed to provide Petitioner with a “Transitional

Bonus” of $1,202,294.00, paid in installments of

$12,883.50 once a month from 2011 to 2021. In

addition, sometime during his tenure at Wells Fargo

Advisors, Petitioner qualified to receive four separate

“Production Bonuses” of $240,459.00, because his “total

gross production” exceeded specific benchmarks set

forth in his contract. Like the transitional bonus, the

production bonuses were paid in installments, once a

month over the course of a specified period.

Petitioner elected to execute five separate loan

agreements (the “Notes”) that allowed him to receive

each bonus upfront, in a lump sum amount. Under

their terms, Petitioner agreed to reimburse Wells

Fargo Advisors for the Notes, which each set forth a

schedule of debt obligations; the debt obligations were

App. 17

matched each month by the transitional and production

bonus installments that Petitioner received. The Notes

also contained acceleration provisions triggered upon

an event of default, including termination. In such

instances, Wells Fargo Advisors was entitled under the

Notes to “declare the entire principal balance of [each]

Note immediately due and payable.”

During Petitioner’s tenure at the firm, Wells Fargo

Advisors conducted an internal investigation into

Petitioner’s business practices, which resulted in his

discharge on December 2014. Thereafter, on August 4,

2015, Wells Fargo Advisors commenced an arbitration

proceeding against Petitioner with FINRA, in order to

recoup the outstanding principal owed on the Notes,

along with interest, costs, and fees. Petitioner counterclaimed against Wells Fargo Advisors, alleging

numerous causes of action, including: breach of

contract, unconscionability based on fraudulent

inducement, unjust enrichment, breach of the implied

duty of good faith and fair dealing, defamation,

fraudulent inducement to accept employment,

expungement, and employment law breach.

In resolving the parties’ dispute, a FINRA

arbitration panel of three members (the “Panel”) held

over 22 separate hearings that spanned from December

10, 2018 to June 21, 2019, during the course of which

more than 13 witnesses testified. On July 26, 2019,

following the conclusion of the hearings, the Panel

issued a final award (the “Award”). In the Award,1 the

Although the Award does not set forth the Panel’s reasoning, it

is-well established that

App. 18

Panel found that Petitioner was liable to Wells Fargo

Advisors in the amount of $1,663,529.71 in

compensatory damages. The Panel also considered and

rejected all of Petitioner’s counterclaims against Wells

Fargo Advisors. To date, Petitioner has not satisfied his

obligations under the Award.

On August 26, 2019, Petitioner filed the instant

action to vacate the Award. On October 23, 2019,

Petitioner filed a brief in support of his Motion to

vacate the Award, wherein he argues, among other

things, that the Award is in conflict with certain

fundamental pubic policies in connection with the

forfeiture of an employee’s promised and earned

remuneration. On December 2, 2019, Wells Fargo

Advisors opposed Petitioner’s Motion to vacate, and

cross-moved to confirm the Award.

II.

STANDARD OF REVIEW

The Federal Arbitration Act (“FAA”) establishes a

“strong presumption” in favor of enforcing arbitration

awards. See Brentwood Med. Assocs. v. UMW, 396 F.3d

237, 241 (3d Cir. 2005) (“There is a strong presumption

under the [FAA] in favor of enforcing arbitration

awards . . . .”). As such, a reviewing court must take a

limited approach and vacate an arbitration award “in

the rarest case[s].” Newark Morning Ledger Co. v.

Newark Typographical Union, 797 F.2d 162, 165 (3d

Cir. 1986). “[M]indful of the strong federal policy in

favor of commercial arbitration, [the Court] begin[s]

with the presumption that the award is enforceable.”

Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240,

251 (3d Cir. 2013); see Rite Aid of N.J., Inc. v. UFCW,

Local 1360, 501 Fed. Appx. 189, 192 (3d Cir. 2012) (“We

App. 19

presume that any arbitration award is valid unless the

party seeking to vacate the award “affirmatively

show[s]” that it is invalid on one of the grounds listed

in the Federal Arbitration Act.”) (citations omitted)

(alteration in original).

Section 10 of the FAA, however, provides four

explicit grounds under which a district court can vacate

an arbitration award, including: “(1) where the award

was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or corruption in

the arbitrators, or either of them; (3) where the

arbitrators were guilty of misconduct . . . or of any

other misbehavior by which the rights to any party

have been prejudiced; or (4) where the arbitrators

exceeded their powers . . . . “ 9 U.S.C.A. § 10(a)(1)-(4).

“The party seeking to overturn an award bears a heavy

burden, as these are ‘exceedingly narrow

circumstances,’ and courts accord arbitration decisions

exceptional deference.” Handley v. Chase Bank USA

NA, 387 Fed. Appx. 166, 168 (3d Cir. 2010) (citation

omitted); see Giant Eagle, Inc. v. United Food &

Commerical Workers Union Local 23, 547 Fed. Appx.

106 (3d Cir. 2013) (“[O]ur review of an arbitration

award is quite narrow and we must give substantial

deference to the arbitrator’s award.”) (citation omitted).

On this Motion, Petitioner raises two challenges to

the Award: (1) it conflicts with certain public policies;

and (2) it was rendered in manifest disregard of the

law. Although these grounds are not explicitly set forth

in the FAA, the Third Circuit has previously recognized

them as additional bases for vacatur. See Black Box

Corp. v. Markham, 127 Fed. Appx. 22, 25 (3d Cir.

App. 20

2005); Service Employees Int’l Union Local 36 v. City

Cleaning Co., 982 F.2d 89, 92 (3d Cir. 1992). However,

importantly, the Supreme Court has since cast doubt

on whether a petitioner can continue to dispute an

arbitration award, on such non-statutory grounds. In

Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S.

576 (2008), the Supreme Court found that parties

cannot contract to “expand” or supplement the basis

upon which to “review” an arbitration award under the

FAA. Id. at 583. In so holding, the Supreme Court

reasoned that §§ 10 and 11 of the FAA “provide the

[statute’s] exclusive grounds for expedited vacatur and

modification.” Id. at 583 (emphasis added).

A split among the Circuit Courts of Appeals has

emerged in the wake of the Hall Street decision. In

particular, as to the manifest disregard doctrine, the

Second, Fourth, and Ninth Circuits have found that it

continues to exist as a “judicial gloss” under § 10(a)(4),

because arbitrators who render a decision in violation

therewith have “exceeded their powers” under that

provision of FAA.2 On the other hand, the Fifth,

Eighth, and Eleventh Circuits have concluded that, in

See Wachovia Sec., LLC v. Brand, 671 F.3d 472, 480 (4th Cir.

2012) (“[W]e find that manifest disregard continues to exist as

either an independent ground for review or as a judicial gloss [on

the statutory grounds for vacatur].”); Comedy Club, Inc. v. Improv

W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009) (“We have already

determined that the manifest disregard ground for vacatur is

shorthand for . . . § 10(a)(4).”); Stolt-Nielsen SA v. AnimalFeeds

Intern. Corp., 548 F.3d 85, 95 (2d Cir. 2008) (discussing manifest

disregard standard “as a judicial gloss on the specific grounds for

vacatur enumerated in section 10 of the FAA”), overruled on other

grounds, 559 U.S. 662 (2010).

App. 21

the aftermath of Hall Street, the manifest disregard

standard no longer survives because it is not

enumerated in the FAA.3 Based on these same reasons,

the Circuit Courts of Appeals have, too, disagreed on

whether the public policy exception continues to serve

as cognizable means for challenging an arbitration

award. Compare, e.g., Titan Tire Corp. of Freeport v.

United Steel, Paper & Forestry, Rubber, Mfg., Energy,

Allied Indus. & Serv. Workers Int’l Union, 734 F.3d

708, 717 (7th Cir. 2013) (“Hall Street Court did not

overrule [the] public policy exception to the general

prohibition on overturning arbitrator awards.”), with

Frazier, 604 F.3d at 1324 (holding that the Supreme

Court barred all extra-statutory grounds for vacatur

after the decision in Hall Street).

Despite various opportunities, the Third Circuit has

declined to weigh in on whether these common law and

judicially-created exceptions are still available, in light

of the Supreme Court’s decision in Hall Street. See

CD&L Realty LLC v. Owens Ill., Inc., 535 Fed. Appx.

Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir.

2010) (“We hold that our judicially-created bases for vacatur are no

longer valid in light of Hall Street.”); Citigroup Global Mkts., Inc.

v. Bacon, 562 F.3d 349, 355 (5th Cir. 2009) (“Hall Street

unequivocally held that the statutory grounds are the exclusive

means for vacatur under the FAA. Our case law defines manifest

disregard of the law as a nonstatutory ground for vacatur. Thus,

to the extent that manifest disregard of the law constitutes a

nonstatutory ground for vacatur, it is no longer a basis for vacating

[arbitration] awards.”); Medicine Shoppe Int’l, Inc. v. Turner, 614

F.3d 485, 489 (8th Cir. 2010) (“Appellants’ claims, including the

claim that the arbitrator disregarded the law, are not included

among those specifically enumerated in § 10 and are therefore not

cognizable.”).

App. 22

201, 205 (3d Cir. 2013) (“We assume, without deciding,

that the ‘violation of public policy’ and the ‘manifest

disregard of law’ grounds for vacatur survive [Hall

Street].”); see also Rite Aid N.J., Inc. v. United Food

Commer. Workers Union, Local 1360, 449 Fed. Appx.

126, 129 (3d Cir. 2011) (“Assuming, post-Hall Street,

that an ‘[a]rbitration award . . . can be vacated when

such awards violate public policy,’ or exhibit ‘manifest

disregard for the law,’ . . . .”) (citation omitted). As

such, in the absence of more specific guidance from the

Third Circuit, I will presume, for the purposes of this

Motion, that these extra-FAA mechanisms continue to

exist as a basis for vacatur after Hall Street,

particularly since neither basis entitles Petitioner to

vacate the Award. See Santomeno v. United States

Mineral Prods. Co., No. 12-3782, 2013 U.S. Dist. LEXIS

2441, at *23 n.7 (D.N.J. 2013) (assuming that the

common law grounds for review of an arbitration award

are still viable after Hall Street).

As to public policy violations, the Third Circuit has

explained that this exception “‘does not . . . sanction a

broad judicial power to set aside arbitration awards as

against public policy.’” Service Employees Int’l Union

Local 36, 982 F.2d at 92 (quoting United States v.

Misco, 484 U.S. 29, 43 (1987)). Rather, according to the

Third Circuit, the exception is “limited.” Id; see United

Transp. Union Local 1589 v. Suburban Transit Corp.,

51 F.3d 376, 382 (3d Cir. 1995) (“In Service Employees,

we explained that ‘the public policy exception’ to the

enforcement of arbitration awards is slim indeed.”)

(quotation marks and citations omitted). In that

regard, the Third Circuit has instructed that the

exception applies only when “the arbitration decision

App. 23

and award create an explicit conflict with an explicit

public policy” that is both “well defined and dominant

and [can be] ascertained by reference to the laws and

legal precedents and not from general considerations of

supposed public interests.” Id. (quoting W.R. Grace

Company v. International Rubber Workers Union, 461

U.S. 757, 766 (1983)); see also First Nat’l Supermarkets

v. Retail, Wholesale & Chain Store Food Emples. Union

Local 338, 118 F.3d 892, 897 (2nd Cir. 1997). (“Courts

may invoke public policy to vacate an arbitral award

“only in those rare cases.”).

Likewise, the manifest disregard of the law doctrine

is “used ‘only [in] those exceedingly rare circumstances

where some egregious impropriety on the party of the

arbitrators is apparent, but where none of the

provisions of the [FAA] apply.” Black Box Corp, 127

Fed. Appx. at 25 (explaining that, in order to vacate an

arbitration award, it must “evidence[] [a] manifest

disregard of the law rather than an erroneous

interpretation”); Bender v. Smith Barney, Harris

Upham & Co., 901 F. Supp. 863, 870 (D.N.J. 1994)

(“The ‘manifest disregard’ doctrine may provide a basis

for vacating an award in some circumstances, but its

scope is exceedingly narrow[.]”); DiRussa v. Dean

Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997)

(“[T]he reach of the manifest disregard doctrine is

severely limited.”) (quotations and citation omitted). As

such, a court reviewing an arbitration award for

manifest disregard of the law “should not vacate an

award unless it finds ‘both that (1) the arbitrators

knew of a governing legal principle yet refused to apply

it or ignored it altogether, and (2) the law ignored by

the arbitrators was well defined, explicit and clearly

App. 24

applicable to the case.’” Merrill Lynch, Pierce, Fenner

& Smith, Inc. v. Millar, 274 F. Supp. 2d. 701, 706 (W.D.

Pa. 2003) (citations omitted); New York Tel. Co. v.

Communs. Workers Local 1100, 256 F.3d 89, 91 (2d Cir.

2001).

For the reasons explained infra, I find that

Petitioner has failed to demonstrate that the dispute,

here, concerns a “well defined and dominant” public

policy which requires vacatur, or that the Panel

rendered an Award in manifest disregard of the law. I

turn to Petitioner’s public policy arguments.

III.

DISCUSSION

A. Public Policy

First, Petitioner argues that he “earned” five

bonuses during his tenure as a financial advisor, based

on his “generation of gross commissions” and

“exceeding” certain “contractual benchmarks.”

Petitioner’s Opposition Brief (“Petr.’s Opp.”), at 8.

Petitioner contends that Wells Fargo Advisors paid

each of these bonuses in the form of a separate, lump

sum “forgivable” loan. Id. at 9. Under the terms of his

contract, Petitioner maintains that he received bonus

installments that offset his obligations under the loans

each month, contingent upon his continued tenure with

Wells Fargo Advisors. Id. However, in the event of his

resignation or discharge from Wells Fargo Advisors,

Petitioner argues that an unenforceable contractual

forfeiture provision stated that he would “forfeit . . .

unpaid installments . . . due under [h]is [b]onus[es].”

Id. At that same time, according to Petitioner, the

outstanding balance under all of his loans “become due

App. 25

in full out of pocket.” Id. Citing various labor laws,

Petitioner argues that the contract’s forfeiture

provision, in essence, deprived him of “wages” that he

“earned,” based on his performance at Wells Fargo

Advisors. Moreover, according to Petitioner, Wells

Fargo Advisors prevented him from working off his

loan “obligation[s],” because he was discharged without

cause.

I find that Petitioner’s contentions do not raise any

cognizable public policy concerns. For example, while

not exclusive to such circumstances, federal courts will

typically vacate arbitration awards on public policy

grounds, “where the safety of the general public [is]

implicated.” Exxon Shipping Co. v. Exxon Seamen’s

Union, 788 F. Supp. 829, 840 (D.N.J. 1992); see, e.g.,

Delta Air Lines, Inc. v. Air Line Pilots Ass’n, Int’l, 861

F.2d 665, 666-68 (11th Cir. 1988) (vacating an

arbitration award that reinstated a pilot who flew

while intoxicated, because he “endangered the lives of

his passengers and crew.”); Iowa Elec. Light & Power

Co. v. Local Union, 204 of Int’l Bhd. of Elec. Workers,

834 F.2d 1424, 1427-30 (8th Cir. 1987) (overruling an

award that reinstated an employee who violated a

“public safety regulation at a nuclear power plant[.]”);

United States Postal Serv. v. American Postal Workers

Union, 736 F.2d 822, 826 (1st Cir. 1984) (overturning

an award reinstating a postal worker who was

discharged for “embezzling” government funds, as his

actions “violated” “the public[’s] trust.”); Amalgamated

Meat Cutters & Butcher Workmen, Local Union 540 v.

Great Western Food Co., 712 F.2d 122, 124-25 (5th Cir.

1983) (vacating an award that reinstated a driver who

“course[d] the highways in a massive tractor-trailer

App. 26

rig,” because he was “caught drinking liquor on

duty[.]”); Amalgamated Meat Cutters & Butcher

Workmen v. Jones Dairy Farm, 680 F.2d 1142, 1144

(7th Cir. 1982) (holding that a company policy which

prevented workers who “processed meat products” from

“contacting inspectors” jeopardized “the heath and

welfare of consumers[.]”).

Unlike the cited cases above, the instant dispute

does not implicate notions of public policy or public

harm. Petitioner cites to New Jersey and Missouri

wage labor statutes, both of which, he submits, are

applicable here, and argues that the forfeiture

provision in his contract deprives him of owed “sales

commissions.” However, Petitioner has not shown that

his “transitional” and “production” bonuses constitute,

as he claims, compensable “sales commissions” rather

than, for example, supplemental or incentive based

forms of income that fall outside of the purview of New

Jersey4 and Missouri5 labor laws. Nor has Petitioner

The New Jersey Wage And Hour Law excludes “supplementary

incentives and bonuses which are calculated independently of

regular wages . . . .” See N.J.S.A. 34:11-4.2; see also Gaytan v. G&G

Landscaping Constr., Inc., 145 F. Supp. 3d 320, (D.N.J. 2014)

(“Defendant is correct that the NJWPL does not apply to . . .

bonuses.”); Sluka v. Landau Uniforms, Inc., 383 F. Supp. 2d 649,

656 (D.N.J. 2005) (holding that the NJWHL does not apply to

“incentive based” compensation and that “[s]upplementary

incentives are the types of incentives that, by definition, are not

included under the” statute); Dubler v. Hangsterfer’s Labs., No. 095144, 2012 U.S. Dist. LEXIS 28386, *18 (D.N.J. Mar. 5, 2012)

(finding that the plaintiff’s “year-end bonus payment [does] not fall

within the WPL’s definition of wages.”); Bintliff-Ritchie v. Am.

Reinsurance Co., No. 05-3802, 2007 U.S. Dist. LEXIS 10469, at *14

(D.N.J. February 15, 2007) (holding that a “bonus” which the

App. 27

argued that Wells Fargo Advisors did not compensate

him with the portion of his bonuses that accrued before

he was terminated—which the arbitration Award did

not require him to repay. Rather, to support his wage

claims, Petitioner relies on distinguishable case law

and authorities which do not involve bargained for

provisions requiring employees to remain with a firm,

for a specific duration before a bonus vests or accrues,

such as the one he contests here. Moreover, based upon

this Court’s own research, no New Jersey or Missouri

court has addressed the issue whether such a

provision, in a contract that two knowing parties

executed, constitutes a violation of public policy. Thus,

in the absence of applicable law, Petitioner has not

shown that the disputed provision in his contract

conflicts with “well defined and dominant” public

policies under New Jersey and Missouri labor statutes.6

plaintiff earned under an “Incentive Compensation Plan” did not

constitute “wages”).

In arguing that the disputed compensation, here, constitutes

wages under Missouri wage labor law, Petitioner cites to a single

unpublished case, Gustafson v. SAP Am. Inc., No. 14-1497, 2015

U.S. Dist. LEXIS 43999 (E.D. Mo. Apr. 3, 2015). However,

Petitioner’s reliance on that decision is misplaced, as the issue,

there, did not concern whether bonuses which were paid in

connection with an incentive based compensation structure

constituted wages under Missouri labor law.

Even if, for argument sake, Petitioner can show a bona fide

violation of the New Jersey and Missouri labor statutes, i.e., that

his bonus installments were wages, this violation, in of itself, does

not somehow transform this matter into a public concern,

App. 28

Rather, Petitioner’s disputes describe nothing more

than a knowing and willing private contractual

relationship between himself and Wells Fargo

Advisors. Thus, because the parties’ dispute, here, is

contractual in nature, Petitioner cannot seek to vacate

the Award unless he demonstrates that the “arbitrators

exceeded their powers” under § 10(a)(4) of the FAA,

based on their decision to enforce the Notes as

independent and valid loan agreements. 9 U.S.C.A.

§ 10(a)(4).

Under § 10(a)(4) of the FAA, a court cannot examine

the merits of an arbitrator’s decision, correct factual or

legal errors, or overrule an award based on a mere

disagreement with the arbitrator’s interpretation of a

contract. W.R. Grace & Company, 461 U.S. at 764;

Dauphin Precision Tool, 338 Fed. App’x 219, 222 (3d

Cir. 2009). Rather, the court “must enforce an

arbitration award if it is based on an arguable

interpretation of” a contract. Dauphin Precision Tool,

338 Fed. App’x, at 222 (quoting Exxon Shipping Co. v.

Exxon Seaman’s Union, 73 F.3d 1287, 1291 (3d Cir.

1996)). A court should not vacate an arbitration award

unless it “cannot ‘be rationally derived from the

agreement between the parties or from the parties’

submissions to the arbitrators” or when the terms of

the arbitration award itself “are completely irrational.”

Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Schwarzwaelder, 496 Fed. Appx. 227, 232 (3d Cir.

2012) (quoting Ario v. Underwriting Members of

particularly since Petitioner has not persuasively argued that the

public at large is harmed by Wells Fargo Advisor’s alleged

violations of these statutes.

App. 29

Syndicate 53 at Lloyds, 618 F.3d 277, 295 (3d Cir.

2010)).

The Third Circuit has explained that “[t]his is a

‘singularly undemanding’ standard.” Id. at 232.

Although a court “will not ‘rubber stamp’ the

interpretations and decisions of arbitrators,”

arbitration awards are entitled to “a strong

presumption of correctness.” Id. (quoting Matteson v.

Ryder Sys. Inc., 99 F.3d 108, 113 (3d Cir. 1996)); see

Major League Umpires Ass’n v. Am. League of Prof’l

Baseball Clubs, 357 F.3d 272, 280 (3d Cir. 2004). “The

parties to an arbitration agreement have bargained for

their dispute to be resolved by the arbitrators rather

than by the courts.” Id. (citing Major League Umpires

Ass’n , 357 F.3d at 280). “The role of the courts is to ask

only ‘whether the parties . . . got what they bargained

for, namely an arbitrator who would first provide an

interpretation of the contract that was rationally based

on the language of the agreement, and second would

produce a rational award.’” Id. (quoting Brentwood

Med. Assocs., 396 F.3d at 242.); Brentwood Med.

Assocs., 396 F.3d at 241 (“An award draws its essence

from a[n] . . . agreement if its interpretation can in any

rational way be derived from the agreement[.]”).

Here, it is undisputed that Petitioner was eligible to

receive five separate bonuses during his tenure at

Wells Fargo Advisors, including one “transitional” and

four “production” bonuses. Pursuant to the terms of his

employment contract, the bonuses were structured

such that Petitioner would acquire them over time,

paid once a month in separate installments during the

App. 30

course of a specified period.7 However, because

Petitioner elected to receive the future bonus

installments upfront in an immediate lump sum, he

executed five separate Notes in amounts equaling each

of his bonuses. Notwithstanding the five separate

Notes that the parties executed, Wells Fargo Advisors

continued to provide Petitioner with transitional and

production bonus installments each month, which

“offset” Petitioner’s monthly debt obligations under the

Notes.

Petitioner argues that the Notes do not constitute

bona fide loan agreements. Citing out-of-district

bankruptcy court cases,8 Petitioner contends that

“[e]ach note should . . . be considered together with the

bonus agreement on which the note is predicated.”

Petr.’s Opp., at 17. Construing these documents in

tandem, according to Petitioner, “the supposed loans

were not intended . . . to be repaid, but instead . . .

forgiven over the course of the ‘borrowers’ continued

employment.” Petr.’s Opp., at 18. In support, Petitioner

emphasizes that his bonus installments were paid each

Petitioner does not dispute that he agreed to be compensated in

a similar manner at his previous firm, or that this particular

compensation structure is common within the securities industry.

The out-of-district bankruptcy court cases that Petitioner relies

upon were not decided under the deferential standard of review

that the arbitrators are accorded with on this Motion. See In re

Killian, 422 B.R. 903 (Bankr. N.D. Ill. 2009); see also Frymire v.

PaineWebber, Inc., 107 B.R. 506 (Bankr. E.D. Pa. 1989). Moreover,

In re Killian did not address the issue of loan forgiveness, but

instead whether loaned monies constitute income for tax purposes.

In addition to these reasons, Petitioner’s reliance on these

bankruptcy cases is misplaced as further explained infra.

App. 31

month, in amounts that matched the obligations which

came due under the Notes. Petr.’s Opp., at 9. The

“economic effect” of these transactions, Petitioner

avers, equates to a “periodic and scheduled forgiveness

of [his] outstanding debt.” Petr.’s Opp., at 17. Thus,

Petitioner contends that the Panel erred in enforcing

the Notes and entering an Award against him.

Here, Petitioner fails to present a valid ground for

vacatur under the FAA. At best, Petitioner’s arguments

establish an alternate interpretation of the Notes as a

forgivable loan.9 However, in order to vacate the

Award, Petitioner must establish that the Award is

“irrational”—a demanding burden that he has not

satisfied. Indeed, the language in the parties’

agreements provides a reasonable basis for the Panel

to conclude that the Notes are valid and enforceable

loans. See Ario, 618 F.3d at 295-96 (A must cannot

“overrule an arbitrator simply because [it] disagree[s]

. . . . [T]here must be absolutely no support at all in the

record justifying the arbitrator’s determinations for a

court to deny enforcement of an award.”) (citing United

Transp. Union Local 1589 v. Suburban Transit Corp.,

51 F.3d 376, 379 (3d Cir. 1995)); Patten v. Signator Ins.

Agency, Inc., 441 F.3d 230, 235 (4th Cir. 2006) (“[A]n

arbitration award does not fail to draw its essence from

If the Court accepts Petitioner’s contention that the Note is

forgivable, he would recover a windfall that he would not have

otherwise received under the terms of his contract. Indeed, the

Notes allowed Petitioner to obtain future bonus installments

upfront, in a lump sum amount that would not have accrued,

unless Petitioner remained with Wells Fargo Advisors for a

specified period of time.

App. 32

the agreement merely because a court concludes that

an arbitrator has misread the contract.”).

First, the parties’ agreements, including the Notes

and Petitioner’s employment contract, do not contain

provisions describing the loans as a forgivable loan

transaction. Rather, each Note includes an identical

paragraph setting forth Petitioner’s rights and

obligations thereunder: “[Petitioner,] as the

undersigned maker of this Note, unconditionally

promise[s] to pay to the order of Wells Fargo Advisors,

LLC (‘WFA’), its affiliates, successors and assigns . . .

the principal of . . . . ; [t]he undersigned shall have the

right to prepay this Note in full or in part at any time

without penalty or amounts so prepaid.” Certification

of Megan M. Christensen, ¶ 6, Ex. B. The Notes also

state that, “upon the occurrence of an event of default,”

Wells Fargo Advisors reserves the right to “declare the

entire unpaid principal balance of [the] Note

immediately due and payable[.]” Id. In addition,

Petitioner’s employment contract does not reference the

Notes whosoever. Nor does it require the transitional

and production bonus installments, which Petitioner

received once a month, to be paid towards his debt

obligations under the loan agreements.

As such, I conclude that the Panel’s decision to

enforce each Note as a legitimate loan instrument finds

support in the record. See Merrill Lynch, Pierce, Fenner

& Smith, Inc., 496 Fed. Appx., at 231 (rejecting the

plaintiff’s loan forgiveness defense, even though “there

[was] a basis . . . to construe the parties’ agreements as

intending to effect a single transaction akin to a

forgivable loan,” where, among other things, the

App. 33

parties’ agreements did not describe a note “as a form

of loan forgiveness” and the plaintiff’s employment

contract did not require her to use “monthly [bonus]

compensation . . . for debt repayment.”). I proceed to

address Petitioner’s arguments in connection with the

manifest error doctrine.

B. Manifest Error of Law

Petitioner argues that the Panel rendered a decision

in manifest disregard of the law. In support, Petitioner

contends that, during the arbitration proceedings,

Wells Fargo Advisors encouraged the Panel to resolve

the parties’ dispute based on “industry practice,”

instead of the applicable law. Petr.’s Opp., at 33.

During the hearings, Petitioner also maintains that

Wells Fargo Advisors “emphasized that it could

discharge [Petitioner] at will,” and claimed that a

reviewing court was “not entitled to . . . substitute its

judgment for that of the arbitral panel, no matter how

wrong it may believe the panel’s decision to be.” Id.

Citing Montes v. Shearson Lehman Bros., 128 F.3d

1456, 1464 (11th Cir. 1997), Petitioner contends that

the representations that Wells Fargo Advisors

advanced during the proceedings, in conjunction with

the Award which it received, “raise[] an inference that

the law was ignored.” I disagree.

Here, Petitioner’s reliance on Montes to establish

that the Panel acted in manifest disregard of the law is

misplaced. In that case, the Eleventh Circuit found

that an arbitration panel violated the manifest

disregard doctrine, where the evidence revealed that

counsel “flagrantly and blatantly urged” them to ignore

App. 34

governing authorities. Indeed,

arguments, counsel stated:

his

closing

You have to decide whether you’re going to

follow the statutes that have been presented to

you, or whether you will do or want to do or

should do what is right and just and equitable in

this case. I know it’s hard to have to say this and

it’s probably even harder to hear it but in this

case this law is not right. Know that there is a

difference between law and equity and I think,

in my opinion, that difference is crystallized in

this case. The law says one thing. What equity

demands and requires and is saying is another.

What is right and fair and proper in this? You

know as arbitrators you have the ability, you’re

not strictly bound by case law and precedent.

You have the ability to do what is right, what is

fair and what is proper, and that’s what

Shearson is asking you to do.

Id. at 1459. The Eleventh Circuit explained that,

although the “arbitrators expressly took note of

[counsel’s] plea in their award when summarizing the

parties’ arguments[,] . . . nothing in the award or

elsewhere in the record . . . indicates that the[]

[arbitration panel] did not heed this plea.” Id. at 1461.

As such, according to the Eleventh Circuit, there were

no grounds to “refute[] the inference that the law was

ignored” under the particular circumstances of that

case. Id. at 1461, n.8.

The Montes decision stands in stark contrast to the

factual circumstances of this case. Indeed, such blatant

representations are not contained in the record, and

App. 35

the Panel was neither encouraged nor directed to

disregard the law in resolving the parties’ dispute

during the prior proceedings. In addition, and more

importantly, because support for the Award can be

derived from the terms and provisions of the Notes and

Petitioner’s contract of employment, the Court cannot

infer that the Panel’s decision to enforce the loan

agreements represents a manifest disregard of the law.

See Black Box Corp., 127 Fed. App’x, at 25 (explaining

that the manifest disregard doctrine is to be used in

“rare circumstances where some egregious impropriety

on the part of the arbitrators is apparent[.]”). Thus,

this ground fails to provide a basis for vacating the

Award.

C. Excluded Evidence

Finally, Petitioner contends that the Panel excluded

certain evidence during the hearings which would have

established that he was discharged from Wells Fargo

Advisors without cause. Petr.’s Opp., at 35. To the

extent that Petitioner raises this challenge under

§§ 10(a)(3) or (a)(4) of the FAA, which requires vacatur

when a litigant “has been prejudiced” or where the

“arbitrators [have] exceeded their powers,” his

arguments fail. 9 U.S.C.A. § 10(a)(1),(4). Indeed, while

“[a]rbitrators have substantial discretion to admit or

exclude evidence[,]” Kolel Beth Yechiel Mechil of

Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99,

107 (2nd Cir. 2013), no prejudice can result from the

Panel’s exclusion of evidence that related to the

circumstances of his discharge, because Petitioner’s

letter offer stated that he was hired on an at-will basis:

“[y]our employment with Wells Fargo has no specified

App. 36

term or length. Both you and Wells Fargo have the

right to terminate your employment at any time, with

or without advance notice and with or without cause.

This is called employment at will.” See Letter Offer.

Thus, these grounds fail to provide a basis for vacatur.

IV.

CONCLUSION

Based on the foregoing, Petitioner’s Motion to

vacate the Award is DENIED. Consequently, because

Petitioner has failed to provide a basis for vacatur

under the provisions of the FAA or the manifest error

doctrine, Wells Fargo Advisor’s Cross-Motion to

confirm the Award is GRANTED.

/s/ Freda L. Wolfson

Freda L. Wolfson

U.S. Chief District Judge

App. 37

APPENDIX C

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Civil Action No. 19-17204 (FLW)

[Filed: May 29, 2020]

_______________________________________

CHRISTOPHER N. CAPUTO,

)

Petitioner,

)

WELLS FARGO ADVISORS, LLC,

)

Respondent.

)

_______________________________________)

ORDER

THIS MATTER having been opened to the Court

by Mark A. Kriegel, Esq., counsel for Petitioner

Christopher N. Caputo (“Petitioner”), on a Motion to

vacate an arbitration award (“Award”) that a panel of

FINRA arbitrators entered against Petitioner in a prior

proceeding; it appearing that Wells Fargo Advisors,

LLC (“Wells Fargo Advisors”), through its counsel,

Megan M. Christensen, Esq., opposes the Motion and

cross-moves to confirm the Award; it appearing that

the Court having considered the parties’ submissions in

connection with the Motion pursuant to Fed. R. Civ. P.

App. 38

78, for the reasons set forth in the Opinion filed on this

date, and for good cause shown;

IT IS on this 29th day of May, 2020,

ORDERED that Petitioner’s Motion to vacate the

Award is DENIED; and it is further

ORDERED that Wells Fargo Advisor’s CrossMotion to confirm the Award is GRANTED.

/s/ Freda L. Wolfson

Freda L. Wolfson

U.S. Chief District Judge

App. 39

APPENDIX D

*NOT FOR PUBLICATION*

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Civil Action No. 19-17204 (FLW)

[Filed: September 11, 2020]

_______________________________________

CHRISTOPHER N. CAPUTO,

)

Petitioner,

)

WELLS FARGO ADVISORS, LLC,

)

Respondent.

)

_______________________________________)

OPINION

WOLFSON, Chief Judge:

Petitioner Christopher Caputo (“Petitioner”)

initiated this action against Wells Fargo Advisors, LLC

(“WFA”) to vacate an arbitration award (“Award”) that

a panel of FINRA arbitrators entered against him in a

prior proceeding. Presently before the Court is a

Motion by Petitioner seeking reconsideration of the

Court’s May 29, 2020 Opinion and Order, wherein the

Court denied his motion to vacate on public policy

grounds and confirmed the Award. For the reasons

App. 40

expressed herein, the Court finds that Petitioner has

failed to meet his burden of demonstrating that

reconsideration of the prior decision is warranted, and

thus, the Motion is DENIED.

BACKGROUND

HISTORY

AND

PROCEDURAL

Because the factual background of this matter is set

forth in the Court’s May 29, 2020 Opinion, I will only

recount the necessary facts for the resolution of this

Motion. On February 17, 2011, WFA hired Petitioner

on an at-will basis, as a registered financial advisor at

its branch office in Spring Lakes, New Jersey.

Pursuant to his contract, WFA agreed to provide

Petitioner with a “Transitional Bonus” of

$1,202,294.00. The Transitional Bonus was to be paid

in installments of $12,883.50 once a month from 2011

to 2021. In addition, at separate times during his

tenure at WFA, Petitioner qualified to receive four

separate “Production Bonuses” of $240,459.00, because

his “total gross production” exceeded specific

benchmarks set forth in his contract. Like the

Transitional Bonus, the Production Bonuses were paid

in once-a-month installments over a specified period.

Petitioner elected to execute five separate loan

agreements (the “Notes”) that allowed him to receive

each bonus upfront, in a lump sum amount. The terms

of the Notes, among other things, required Petitioner to

reimburse WFA in accordance with a schedule of debt

obligations; the debt obligations were “offset” each

month with the transitional and production bonus

installments that Petitioner received. Moreover, each

of the Notes contained an acceleration provision that

App. 41

was triggered upon Petitioner’s termination from WFA.

In such instances, WFA was entitled to “declare the

entire principal balance of [each] Note immediately due

and payable.”

In December 2014, after conducting an internal

investigation into his business practices, WFA

discharged Petitioner. Thereafter, on August 4, 2015,

WFA commenced a FINRA arbitration proceeding

against Petitioner to recoup the outstanding principal

owed on the Notes, along with interest, costs, and fees.

In resolving the parties’ dispute, a FINRA arbitration

panel of three members (the “Panel”) held over 22

separate days of hearings from December 10, 2018 to

June 21, 2019. Following the conclusion of the hearings

on July 26, 2019, the Panel issued a final award,

finding that Petitioner was liable to WFA in the

amount of $1,663,529.71 in damages.

On August 26, 2019, Petitioner filed the instant

action to vacate the Award. On October 23, 2019,

Petitioner submitted a brief in support of his Motion to

vacate the Award, wherein he argued that the Award

is in conflict with certain fundamental pubic policies

relating to earned wages. On December 2, 2019, WFA

opposed Petitioner’s Motion to vacate, and cross-moved

to confirm the Award. On May 29, 2020, this Court

entered an Opinion and Order that denied Petitioner’s

motion and granted WFA’s cross-motion to confirm the

Award. In the instant matter, Petitioner moves for

reconsideration on the basis that the Court should have

vacated the Award, because the Award is in conflict

with certain public policies against the forfeiture of

earned wages.

App. 42

II.

DISCUSSION

A. Standard of Review

Federal Rule of Civil Procedure 59(e) and Local

Civil Rule 7.1 govern motions for reconsideration. In

particular, pursuant to Local Civil Rule 7.1(i), a litigant

moving for reconsideration must “set[ ] forth concisely

the matter or controlling decisions which the party

believes the Judge or Magistrate Judge has

overlooked[.]” L. Civ. R. 7.1(i). Motions for

reconsideration are considered “extremely limited

procedural vehicle[s].” Resorts Int’l v. Greate Bay Hotel

& Casino, 830 F. Supp. 826, 831 (D.N.J. 1992). Indeed,

requests for reconsideration “are not to be used as an

opportunity to relitigate the case; rather, they may be

used only to correct manifest errors of law or fact or to

present newly discovered evidence.” Blystone v. Horn,

664 F.3d 397, 415 (3d Cir. 2011) (citing Howard Hess

Dental Labs., Inc. v. Dentsply Int’l Inc., 602 F.3d 237,

251 (3d Cir. 2010)); see also N. River Ins. Co. v. CIGNA

Reinsurance Co., 52 F.3d 1194, 1218 (3d Cir. 1995).

A “judgment may be altered or amended [only] if the

party seeking reconsideration shows at least one of the

following grounds: (1) an intervening change in the

controlling law; (2) the availability of new evidence that

was not available when the court granted the motion

for summary judgment; or (3) the need to correct a

clear error of law or fact or to prevent manifest

injustice.” Blystone, 664 F.3d at 415 (quotations

omitted). “A party seeking reconsideration must show

more than a disagreement with the Court’s decision,

and ‘recapitulation of the cases and arguments

considered by the court before rendering its original

App. 43

decision fails to carry the moving party’s burden.’” G-69

v. Degnan, 748 F. Supp. 274, 275 (D.N.J. 1990) (citation

omitted). In other words, “a motion for reconsideration

should not provide the parties with an opportunity for

a second bite at the apple.” Tischio v. Bontex, Inc., 16 F.

Supp. 2d 511, 533 (D.N.J. 1998) (citation omitted).

Rather, a difference of opinion with the court’s decision

should be dealt with through the appellate process.

Florham Park Chevron, Inc. v. Chevron U.S.A., Inc.,

680 F. Supp. 159, 162 (D.N.J. 1998).

B. Analysis

The Court previously determined that the Award

did not violate “well defined and dominant” public

policies against the forfeiture of earned wages,

pursuant to New Jersey and Missouri labor laws.

Therefore, the arbitration decision was confirmed

under a deferential standard of review. See Caputo v.

Wells Fargo Advisors, LLC, No. 19-17204, 2020 U.S.

Dist. LEXIS 93856, at *18 (D.N.J. May 29, 2020).

Petitioner challenges the Court’s findings and argues

that his bonuses do, in fact, fall within the scope of

state wage labor statutes as covered “sales

commissions.” Petitioner’s Motion, at 1. For this

reason, Petitioner contends that the Award deprived

him of earned wages, and the Court erred in failing to

vacate the arbitrator’s decision under a de novo

standard of review.

As I explained in the prior opinion, courts are not

accorded with a “broad judicial power to set aside

arbitration awards as against public policy.’” Service

Employees Int’l Union Local 36 v. City Cleaning Co.,

982 F.2d 89, 92 (3d Cir. 1992) (citation omitted).

App. 44

Rather, according to the Third Circuit, this exception is

“limited.” Id; see United Transp. Union Local 1589 v.

Suburban Transit Corp., 51 F.3d 376, 382 (3d Cir.

1995) (“[W]e [have] explained that ‘the public policy

exception’ to the enforcement of arbitration awards is

slim indeed.”). In that regard, the Third Circuit has

instructed that the exception applies when “the

arbitration decision and award create an explicit

conflict with an explicit public policy” that is both “well

defined and dominant . . . .” Id. (quoting W.R. Grace

Company v. International Rubber Workers Union, 461

U.S. 757, 766 (1983)).

Petitioner contends that the New Jersey Wage and

Hour Law (“NJWL”), which he attempts to invoke here,

supports a strong public policy of protecting earned

compensation. Under the statute, “wages” are defined

to include “direct monetary compensation for labor or

services rendered by an employee, where the amount is

determined on a time, task, piece, or commission basis

excluding any form of supplementary incentives and

bonuses which are calculated independently of regular

wages and paid in addition thereto.” N.J.S.A. 34:11-4.1.

According to Petitioner, the following cases lend

credence to his argument that incentive-based

compensation plans, like his, meet the NJWL’s

definition of wages: Feldman v. U.S. Sprint Com. Co.,

714 F. Supp. 727 (D.N.J. 1999); Mulford v. Computer

Leasing, Inc., 334 N.J. Super. 385 (Law Div. 1999);

Martelet v. AVAX Techs., Inc., No. 09-2925, 2012 U.S.

Dist. LEXIS 63277 (E.D. Pa. May 2, 2012).

At the outset, I note that Petitioner referenced these

same decisions in his original moving brief. In fact, in

App. 45

the prior opinion, I reviewed and distinguished them

before finding that Petitioner’s bonuses are excluded

forms of supplemental income under the NJWHL. In

lieu of citing to “an intervening change in the

controlling law” on the instant Motion, Petitioner urges

the Court to “reconsider[]” cases that were rejected in

the prior opinion. However, the Court, in refusing to

vacate the Award, found those same decisions

unpersuasive, and Petitioner’s disagreement with that

outcome does not constitute a valid ground for

reconsideration. Indeed, it is axiomatic that a litigant

cannot file a reconsideration motion to “ask the Court

to rethink what is had already thought through—

rightly or wrongly.” Oritani Sav. & Loan Ass’n v.

Fidelity & Deposit Co., 744 F. Supp. 1311, 1314 (D.N.J.

1990). Therefore, although the instant motion can be

denied on this basis, alone, I will again explain why

Petitioner’s reliance on the aforementioned cases is

misplaced.

In Feldman, the plaintiff sold telecommunications

products and he received from the defendant a

commission on each sale. Feldman, 714 F. Supp. at

728. The earned commission was not disbursed until

four months after a sale, because certain “difficulties

with its billing” processes prevented the defendant

from calculating the amount due on an earlier date. Id.

at 728. Following the execution of various sales orders,

but before the expiration of the four-month period, the

plaintiff resigned from his sales position and filed suit

to recover unpaid commissions. In ruling in the

plaintiff’s favor, the court explained that a contrary

finding would permit the defendant “to benefit unjustly

App. 46

from its inability to generate timely invoices.” Id. at

729.

In Mulford, the plaintiff worked as a salesman who

was paid a commission on the completed sales and

leases of computer equipment. See Mulford, 334 N.J.

Super. at 389. After the plaintiff became dissatisfied

with a drop in his rate, the defendant agreed to provide

him with $455,000 in commissions, which represented

20% of the cash profit that he had generated in

computer sales and leases. Id. at 389-90. Despite their

arrangement, the plaintiff was terminated without

receiving the agreed-upon sum, and he, in turn, sued

the defendant to recover outstanding commissions due.

Id. at 392. The court ruled in the plaintiff’s favor and

explained that his discharge “cannot alone . . . effect his

right to [the] commissions [which he had] earned.” Id.

In Martelet, the defendant hired the plaintiff to

serve as its CEO, and his contract included a provision

reading: “[f]or the first year of the [e]mployment

[p]eriod, [plaintiff] shall receive a minimum bonus of

30% of the [e]mployee’s base salary.” Martelet, 2012

U.S. Dist. LEXIS 63277, at *2-3. Despite working for

the required timeframe, the plaintiff was terminated

from his position without receiving a bonus. Id. at *710. He then sued the defendant. The Defendant took

the position that the bonus was not guaranteed under

the contract. Id. at *21. However, the court disagreed,

and found that the contract’s language could be

construed to entitle the plaintiff to a “guaranteed

bonus,” and that, in such an instance, the bonus would

App. 47

meet the definition of a wage.1 Id. at *24 (citation

omitted).

Here, unlike the cases cited above, where the

plaintiffs’ interests in the unpaid commissions had

accrued, Petitioner received the vested portions of his

transition and production bonuses from WFA. As I

explained in the prior opinion, Petitioner was not

eligible to receive a bonus award, without having first

satisfied two contractual conditions. In particular,

under the terms of his contract, Petitioner had to

exceed certain performance-based benchmarks. In

addition, and in contrast to the cases that he relies

upon in seeking reconsideration, Petitioner was

required to retain his position at WFA for a particular

period of time (the “Bonus Period”) for his bonus to vest

in full. The second condition is set forth in § 5(b) of the

agreement and reads:

I note that the incentive based compensation plans in the above

cases are distinguishable from the one here. For instance, in

Mulford and Feldman, the plaintiffs received a specific commission

rate on each individual sale that was completed, while Petitioner’s

bonus plan, here, is not expressed as a percentage of sales. Rather,

a plain reading of Petitioner’s contract reveals the he was entitled

to receive a lump sum bonus upon exceeding certain sales quotas

set forth in his contract. Indeed, § 4(d) provides as follows: “[i]f

your total gross production equals or exceeds $865,652.00 . . . you

will be eligible to receive a [Production Bonus Award] of

$240,459.00.” Agreement, § 4(d). Thus, while the plaintiffs in

Mulford and Feldman were entitled to a certain percentage of

generated sales under their incentive plans, Petitioner received

nothing unless he met specified contractual benchmarks.

Moreover, the Mulford court was tasked with determining whether

a “guaranteed” bonus, not a performance-based award, like the one

here, could fall within the scope of the NJWL.

App. 48

Your receipt of continued payments on your

Bonuses is conditioned upon your continued

active employment with [WFA] and holding the

functional title of Financial Advisor (or the

equivalent). In the event your employment

terminates for any reason . . . or if you no longer

hold the functional title of Financial Advisor (or

the equivalent), then you will no longer be

eligible to receive any further payments on any

Bonuses and you will forfeit any unpaid

installments or other amounts due under the

Bonuses.

Agreement, § 5(b).

The five bonuses that Petitioner qualified for were

structured so that he would receive them on a periodic

basis. Indeed, the bonuses were paid in separate

installments on a once-a-month basis over the course of

a specific timeframe, and the continued receipt of those

installments was subject to § 5(b) of Petitioner’s

contract.2 However, as explained above, Petitioner

chose to execute five loan agreements (the “Notes”) that

equaled each of his incentive-based bonus awards.

Therefore, in practical effect, the Notes served as

“compensation advances” which allowed Petitioner to

obtain future installments—to which he was otherwise

not entitled—in the form of an upfront immediate lump

sum.3 See Wells Fargo Advisors, LLC v. Watts, 858 F.

To be clear, Petitioner’s transition and production bonuses were

both subject to § 5(b) of his contract.

For background purposes, I note that WFA continued to remit

transitional and production bonus installments to Petitioner each

App. 49

Supp. 2d 591, 602 (W.D.N.C., 2012) (citing Banus v.

Citigroup Global Mkts., Inc., No. 09-7128, 2010 U.S.

Dist. LEXIS 40072, at *7 (S.D.N.Y. Apr. 23, 2010)). The

arbitration award that was entered against Petitioner

did nothing more than require him to return the

unvested portion of his bonuses that he would not have

otherwise acquired but for the execution of the Notes.

Thus, the Award neither deprives nor requires

Petitioner to forfeit earned wages, and its enforcement

does not violate public policies under state labor laws,

as I held in the prior opinion.4

Moreover, Petitioner’s position that § 5(b) operates

as an illegal forfeiture under the NJWL has no merit.

Indeed, courts in this district have enforced bargained

for provisions that require workers to remain with a

firm for a specific duration before a bonus accrues. For

instance, in Bintliff-Ritchie v. Am. Reinsurance Co., No.

05-3802, 2007 U.S. Dist. LEXIS 10469 (D.N.J. Feb. 15,

2007), the plaintiff participated in an incentive-based

month, in amounts that offset the obligations coming due under his

Notes. Upon his termination, WFA ceased remitting the bonus

installments to Petitioner.

Petitioner contends that the Award violates Missouri wage labor

laws which, like the NJWL, protects earned wages, and he cites to

the same lone unpublished decision that he relied upon in his

original moving brief, Gustafson v. SAP Am. Inc., No. 14-1497,

2015 U.S. Dist. LEXIS 43999 (E.D. Mo. Apr. 3, 2015). However, as

I explained in the previous opinion, Petitioner’s reliance on

Gustafson is misplaced; the issue, there, did not concern whether

bonus awards paid in connection with an incentive based

compensation plan constitute earned wages under Missouri labor

law. Petitioner references no additional Missouri cases in seeking

reconsideration.

App. 50

plan that included a bargained for retention provision.

Id. at *13-14. Although the plaintiff had been approved

to receive a $112,000 performance-based bonus, she

was terminated from her job before the contractual

date on which it was paid. Id. at *14. In finding that

the bonus did not constitute an earned wage under the

NJWPL, the court explained that the plaintiff’s interest

in the award had not “vested,” and thus, she could not

recover the funds under the statute.5 Id. at *14-15; see

also Schweikert v. Baxter Healthcare Corp., No. 125876, 2015 U.S. Dist. LEXIS 98627, at *29 (D.N.J. July

29, 2015) (finding that the plaintiff was not entitled to

receive a retention bonus, because he failed to retain

his position with the defendant throughout the entire

duration of the applicable period).

Petitioner avers that he was discharged without cause, and WFA

prevented him from retaining his job through the Bonus Period so

that he could earn additional bonus installments. To the extent

that Petitioner maintains that WFA’s bad faith conduct prevented

him from fulfilling his contractual duties, this position does not

implicate notions of public policy. Rather, such arguments are

rooted in traditional principles of contract law, which are

insufficient to disregard the deferential standard of review that is

accorded to an arbitrator’s decision. Nevertheless, I note that,

based on the Award entered in favor of WFA, the Court can infer

that the Panel, which conducted more than 22 separate hearings

from December 10, 2018 to June 21, 2019, concluded that WFA did

not act in bad faith in terminating Petitioner. While their decision

could have provided more detail in this regard, it is-well

established that “[an arbitration] award may be made without

explanation of [its] reasons . . . . ” Wilko v. Swan, 346 U.S. 427, 436

(1953); Newark Morning Ledger Co. v. Newark Typographical

Union Local 103, 797 F.2d 162, 168 (3d Cir. 1986) (“Arbitrators

have no obligation to the court to give their reasons for an award.”)

(citing United Steelworkers of America v. Enterprise Wheel & Car

Corp., 363 U.S. 593 (1960)).

App. 51

Because Petitioner, on reconsideration, fails to

demonstrate that the Award conflicts with “well

defined and dominant” public policies under state wage

labor statutes, the Panel’s decision is entitled to “a

strong presumption of correctness.” Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Schwarzwaelder, 496

Fed. Appx. 227, 232 (3d Cir. 2012). Under this

standard, “[t]he role of the courts is to ask only

whether the parties . . . got what they bargained for,

namely an arbitrator who would first provide an

interpretation of the contract that was rationally based

on the language of the agreement, and second would

produce a rational award.” Id. For the reasons

explained in the previous opinion, which the Court

need not reiterate here, the Panel’s decision to enforce

each of the Notes against Petitioner as a legitimate

loan instrument finds sufficient support in the record.

Indeed, in seeking reconsideration, Petitioner does not

contend that the Award is based on a “completely”

unreasonable or irrational interpretation of the Notes,

and therefore, the Panel’s decision in favor of WFA

remains undisturbed. Id. (internal citation omitted).

I note that other district courts have confirmed

arbitration decisions to enforce executed notes, like the

ones here, between a financial advisor and an employer

as bona fide loan instruments. For instance, in

rejecting a litigant’s request to vacate an arbitration

award, the Southern District Court of New York, in

Banus v. Citigroup Global Mkts., Inc., No. 09-7128,

2010 U.S. Dist. LEXIS 40072, *7, (S.D.N.Y. April 23,

2010), provided the following succinct explanation:

App. 52

To begin with, plaintiffs signed the Notes,

received the substantial loan proceeds (interest

free it should be noted), and had the ability to

use those proceeds for any purpose they chose,

not least of them being the investment of the

loan proceeds to generate interest income or

capital gains. There was no lack of consideration

or mutuality . . . . In this case, the loan proceeds

were paid to the plaintiffs at the start of their

employment and were to be repaid out of their

annual compensation during the continuation of

that employment. There is nothing inequitable

about accelerating any unpaid balance where a

broker left [a firm] before fully repaying the

loan.

Id. at *34; see also Wells Fargo Advisors, LLC v. Watts,

858 F. Supp. 2d 591, 602 (W.D.N.C. March 9, 2012)

(enforcing a loan agreement between a financial broker

and WFA, and explaining that “[t]he . . . note in this

case was simply not in violation of any public policy, or

otherwise illegal, such that the arbitrator’s award could

be vacated.”). Therefore, Petitioner has failed to

provide sufficient grounds to vacate the Award, nor has

he satisfied any of the basis for granting a motion for

reconsideration. Accordingly, Petitioner’s Motion for

reconsideration is denied.

III.

CONCLUSION

For the reasons set forth above, Petitioner’s Motion

for reconsideration is DENIED.

App. 53

/s/ Freda L. Wolfson

Freda L. Wolfson

U.S. Chief District Judge

App. 54

APPENDIX E

UNITED STATES DISTRICT COURT

DISTRICT OF NEW JERSEY

Civil Action No. 19-17204 (FLW)

[Filed: September 11, 2020]

_______________________________________

CHRISTOPHER N. CAPUTO,

)

Petitioner,

)

WELLS FARGO ADVISORS, LLC,

)

Respondent.

)

_______________________________________)

ORDER

THIS MATTER having been opened to the Court

by Mark A. Kriegel, Esq., counsel for Petitioner

Christopher N. Caputo (“Petitioner”), on a Motion for

reconsideration of the Court’s May 29, 2020 Opinion

and Order; it appearing that Wells Fargo Advisors,

LLC, through its counsel, Megan M. Christensen, Esq.,

opposes the Motion; it appearing that the Court having

considered the parties’ submissions in connection with

the Motion pursuant to Fed. R. Civ. P. 78, for the

reasons set forth in the Opinion filed on this date, and

for good cause shown;

IT IS on this 11th day of September, 2020,

App. 55

ORDERED that Petitioner’s

reconsideration is DENIED.

Motion

/s/ Freda L. Wolfson

Freda L. Wolfson

U.S. Chief District Judge

for

App. 56

APPENDIX F

Award

FINRA Office of Dispute Resolution

Case Number: 15-02044

[Filed: July 26, 2019]

__________________________________________________

In the Matter of the Arbitration Between:

Claimant

Wells Fargo Advisors, LLC

vs.

Respondent

Christopher N. Caputo

Hearing Site: Newark, New Jersey

__________________________________________________

Nature of the Dispute: Member vs. Associated Person

REPRESENTATION OF PARTIES

For Claimant Wells Fargo Advisors, LLC: Megan M.

Christensen, Esq. and Jonathan Scoble, Esq, Stevens

& Lee, Lawrenceville, New Jersey.

For Respondent Christopher N. Caputo: Timothy W.

Bergin, Esq., Potomac Law Group, PLLC, Washington,

District of Columbia.

App. 57

CASE INFORMATION

Statement of Claim filed on or about: August 4, 2015.

Answer to Counterclaim filed on or about: November

19, 2015.

Wells Fargo Advisors, LLC signed the Submission

Agreement: August 4, 2015.

Statement of Answer and Counterclaim filed by

Respondent on or about: October 16, 2015.

Christopher N. Caputo signed the Submission

Agreement: October 13, 2015.

CASE SUMMARY

Claimant asserted the following causes of action:

breach of contract- non-payment of amounts due under

promissory notes.

Unless specifically admitted in the Statement of

Answer and Counterclaim, Respondent denied the

allegations made in the Statement of Claim and

asserted various affirmative defenses. In his

Counterclaim, Respondent asserted the following

causes of action: breach of contract, unconscionability

based on fraudulent inducement, unjust enrichment,

breach of implied duty of good faith and fair dealing,

defamation, fraudulent inducement to accept

employment, expungement and New Jersey

employment law breach.

Unless specifically admitted in the Answer to

Counterclaim, Claimant denied the allegations made in

the Counterclaim and asserted various affirmative

defenses.

App. 58

RELIEF REQUESTED

In the Statement of Claim, Claimant requested

compensatory damages of $1,663,529.71 plus interest,

attorneys’ fees, costs, and such other legal or equitable

relief as the arbitration Panel deems appropriate,

including but not limited to the right of set-off.

In the Statement of Answer and Counterclaim,

Respondent requested compensatory damages not less

than $1,000,000.00, dismissal with prejudice all of

Claimant’s claims, costs, attorneys’ fees, expungement

of the false and defamatory Form U5 from his CRD

record, such other and further relief, including punitive

damages, as the Panel deems appropriate, personal

and reputational damages in the amount of

$5,000,000.00 and an award that clarifies that any

setoff damages, including punitive damages, awarded

to Respondent can be netted or subtracted against

Claimant’s claims, and not require a separate payment.

In the Answer to Counterclaim, Claimant requested an

award dismissing Respondent’s Counterclaim, denying

Respondent’s requested relief, and awarding attorneys’

fees, costs and all other relief that the Panel deems

necessary and appropriate.

OTHER ISSUES CONSIDERED AND DECIDED

The Arbitrators acknowledge that they have each read

the pleadings and other materials filed by the parties.

The parties present at the hearing have agreed that the

Award in this matter may be executed in counterpart

copies or that a handwritten, signed Award may be

entered.

App. 59

AWARD

After considering the pleadings, the testimony and

evidence presented at the hearing, and the posthearing submissions, the Panel has decided in full and

final resolution of the issues submitted for

determination as follows:

1. Respondent is liable for and shall pay to Claimant

the sum of $1,663,529.71 in compensatory damages.

2. Respondent is liable for and shall pay to Claimant

interest on the above-stated sum at the rate of

2.57% per annum from the date of the award to date

full payment is made.

3. Respondent’s Counterclaim is denied.

4. Respondent’s request for expungement of his CRD

records is denied.

5. Any and all claims for relief not specifically

addressed herein, including punitive damages and

attorneys’ fees, are denied.

FEES

Pursuant to the Code of Arbitration Procedure, the

following fees are assessed:

Filing Fees

FINRA Office of Dispute Resolution assessed a filing

fee* for each claim:

Initial Claim Filing Fee

Counterclaim Filing Fee

=$ 3,400.00

=$ 2,250.00

App. 60

*The filing fee is made up of a non-refundable and a

refundable portion.

Member Fees

Member fees are assessed to each member firm that is

a party in these proceedings or to the member firm that

employed the associated person at the time of the event

giving rise to the dispute. Accordingly, as a party,

Claimant Wells Fargo Advisors, LLC is assessed the

following:

Member Surcharge

Member Process Fee

=$ 3,025.00

=$ 6,800.00

Postponement Fees

Postponements granted during these proceedings for

which fees were assessed or waived:

January 17-20, & 27, 2017, postponement by Parties.

=$ 1,500.00

__________________________________________________

Total Postponement Fees

=$ 1,500.00

The Panel has assessed $750.00 of the adjournment

fees to Claimant.

The Panel has assessed $750.00 of the adjournment

fees to Respondent.

Discovery-Related Motion Fee

Fees apply for each decision rendered on a discoveryrelated motion.

One (1) decision on a discovery-related motion on the

papers with one (1) arbitrator @ $200.00/decision

=$ 200.00

App. 61

Claimant submitted one discovery-related motion

__________________________________________________

Total Discovery-Related Motion Fees =$ 200.00

The Panel has assessed $160.00 of the discoveryrelated motion fees to Claimant.

The Panel has assessed $ 40.00 of the discovery-related

motion fees Respondent.

Hearing Session Fees and Assessments

The Panel has assessed hearing session fees for each

session conducted. A session is any meeting between

the parties and the arbitrators, including a pre-hearing

conference with the arbitrators, that lasts four (4)

hours or less. Fees associated with these proceedings

are:

Three (3) pre-hearing sessions with the Panel @

$1,500.00/session

=$ 4,500.00

Pre-hearing conferences:

January 27, 2016

1 session

January 23, 2018

1 session

December 3, 2018

1 session

Twenty-two (22) hearing sessions @ $1,500.00/session

=$33,000.00

Hearing Dates:

December 10, 2018

2 sessions

December 11, 2018

2 sessions

December 12, 2018

2 sessions

December 13, 2018

2 sessions

December 14, 2018

2 sessions

April 9, 2019

2 sessions

April 11, 2019

2 sessions

April 12, 2019

2 sessions

App. 62

June 11, 2019

2 sessions

June 20, 2019

2 sessions

June 21, 2019

2 sessions

__________________________________________________

Total Hearing Session Fees

=$37,500.00

The Panel has assessed $18,300.00 of the hearing

session fees to Claimant.

The Panel has assessed $19,200.00 of the hearing

session fees to Respondent.

All balances are payable to FINRA Office of Dispute

Resolution and are due upon receipt.

ARBITRATION PANEL

Paul Allan Massaro

Jay Alan Kranis

Ronald J. Colombo

Public Arbitrator,

Presiding Chairperson

Public Arbitrator

Non-Public Arbitrator

I, the undersigned Arbitrator, do hereby affirm that I

am the individual described herein and who executed

this instrument which is my award.

Concurring Arbitrators’ Signatures

/s/ Paul A. Massaro

Paul Allan Massaro

Public Arbitrator, Presiding Chairperson

July 25, 2018

Signature Date

App. 63

___________________

Jay Alan Kranis

Public Arbitrator

______________

Signature Date

___________________

Ronald J. Colombo

Non-Public Arbitrator

______________

Signature Date

July 26, 2019

Date of Service (For FINRA Office of Dispute

Resolution office use only)

ARBITRATION PANEL

Paul Allan Massaro

Jay Alan Kranis

Ronald J. Colombo

Public Arbitrator,

Presiding Chairperson

Public Arbitrator

Non-Public Arbitrator

I, the undersigned Arbitrator, do hereby affirm that I

am the individual described herein and who executed

this instrument which is my award.

Concurring Arbitrators’ Signatures

Paul Allan Massaro

Public Arbitrator, Presiding Chairperson

______________

Signature Date

/s/ Jay A. Kranis

Jay Alan Kranis

Public Arbitrator

7/25/18

Signature Date

App. 64

___________________

Ronald J. Colombo

Non-Public Arbitrator

______________

Signature Date

July 26, 2019

Date of Service (For FINRA Office of Dispute

Resolution office use only)

ARBITRATION PANEL

Paul Allan Massaro

Jay Alan Kranis

Ronald J. Colombo

Public Arbitrator,

Presiding Chairperson

Public Arbitrator

Non-Public Arbitrator

I, the undersigned Arbitrator, do hereby affirm that I

am the individual described herein and who executed

this instrument which is my award.

Concurring Arbitrators’ Signatures

Paul Allan Massaro

Public Arbitrator, Presiding Chairperson

______________

Signature Date

___________________

Jay Alan Kranis

Public Arbitrator

______________

Signature Date

/s/ Ronald J. Colombo

Ronald J. Colombo

Non-Public Arbitrator

7/25/2019

Signature Date

App. 65

July 26, 2019

Date of Service (For FINRA Office of Dispute

Resolution office use only)

App. 66

APPENDIX G

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 20-3059

(D NJ No. 3-19-cv-17204)

[Filed: June 17, 2022]

____________________________________

CHRISTOPHER N. CAPUTO,

)

Appellant

)

WELLS FARGO ADVISORS, LLC

)

____________________________________)

SUR PETITION FOR REHEARING

Present: CHAGARES, Chief Judge, McKEE, AMBRO,

JORDAN, SHWARTZ, KRAUSE, RESTREPO, BIBAS,

PORTER, MATEY, PHIPPS, and FUENTES* , Circuit

Judges

The petition for rehearing filed by appellant, in the

above-entitled case having been submitted to the

judges who participated in the decision of this Court

and to all the other available circuit judges of the

circuit in regular active service, and no judge who

Pursuant to Third Circuit I.O.P. 9.5.3., Judge Fuentes’s vote is

limited to panel rehearing.

App. 67

concurred in the decision having asked for rehearing,

and a majority of the judges of the circuit in regular

service not having voted for rehearing, the petition for

rehearing by the panel and the Court en banc, is

denied.

BY THE COURT,

s/ Julio M. Fuentes

Circuit Judge

Dated: June 17, 2022

Lmr/cc: All Counsel of Record

App. 68

APPENDIX H

****

Excerpted Testimony of Wells Fargo Witness

ANTHONY CITRO

(from recording no. 7, December 10, 2018)

MS. CHRISTENSEN: [3:56] Thank you very much

for flying in and being here to testify in person. Would

you mind, I don’t believe that the Chairperson had

asked you about your title?

MR. CITRO: I work for Wells Fargo Advisors. My

title is Market Growth and Development Manager. I’m

a 19-year veteran of the company and I currently reside

in Charlotte, North Carolina.

CHAIR MASSARO: Market growth and --?

MR. CITRO: -- development manager.

CHAIR MASSARO: Thank you.

MS. CHRISTENSEN: And Mr. Citro, what is the

market growth development manager? What are the

responsibilities of that job?

MR. CITRO: Sure. Currently I work on

compensation strategies and business development

work for Wells Fargo Advisors.

MS. CHRISTENSEN: Is it fair to say then, to

simplify it, that you help develop compensation

packages for financial advisors for Wells Fargo?

App. 69

MR. CITRO: Yes, ma’am. Previous to this role, I

worked in finance and was responsible for developing

offer summaries and promissory notes for newly hired

advisors as well as for production-based bonuses that

were earned.

****

[p. 5]

MS. CHRISTENSEN: [6:17] Okay. Mr. Citro, I’m

going to ask that – and there were several questions for

Mr. Mairs earlier about the bonus structure. So I’m

going to ask that you walk the Panel through the

different bonuses that are offered and incentivized by

Wells Fargo to recruit financial advisors. The first is, if

you look on paragraph 1 there [CA3.App.377], the

transitional bonus. Can you tell us what a transitional

bonus is and how it’s generally structured?

MR. CITRO: Sure. The transitional bonus is the

initial bonus that an advisor would get for agreeing to

come. The firm typically certifies what’s called a

trailing 12 months of revenue and in some cases, as

was prescribed here, in assets under management.

Generally, they offer percent of trailing 12, which is

very common in the industry, in the form of a

transition bonus, and it’s outlined here that that bonus

is paid in equal installments over 112 months. It states

the beginning date, the end date, as well as an

additional interest rate that’s added.

****

MS. CHRISTENSEN: [13:27] Mr. Caputo has also

alleged that this transition payment is akin to a

signing bonus. Is this accurate?

App. 70

MR. CITRO: No. Typically a signing bonus would be

paid in a lump sum and taxed at the time of payment.

Signing bonuses may or may not have repayment terms

associated with them, but for – signing bonuses are

typically not of this size either, if they’re paid in a lump

sum and taxed at the time of payment.

MS. CHRISTENSEN: And why is that?

MR. CITRO: It’s two things. One, the employee has

a benefit where they get to stretch the taxation so this

cash bonus being paid in monthly installments

stretches out the taxable income over a period of 10

years, little under 10 years. And the firm also doesn’t

have to recognize the full expense paid out on their

initial that way outlay.

MS. CHRISTENSEN: Okay. And is it – would it be

typical for any at-will employee to be given a signing

bonus?

MR. CITRO: No. The only time they’re typically

given is if they’re less than 20 – if it’s $59,600 or

something like that, they would be given in a lump

sum.

MS. CHRISTENSEN: Okay. And is this designed to

ensure that financial advisors don’t just take a check

and run off to the next firm?

MR. CITRO: Yeah. I mean at the end of the day, we

are a company that’s owned by shareholders and it will

be bad for us to lay out cash and have somebody to be

able to take that cash and then move firm-to-firm and

collect other checks, not to mention the client

experience that would be there.

App. 71

MS. CHRISTENSEN: Okay. And that’s perhaps

why it’s designed to be paid on a monthly basis, is that

correct?

MR. CITRO: That’s correct.

MS. CHRISTENSEN: Okay. Are these types of

transition packages common in the industry?

MR. CITRO: It’s very common in the industry. ...

****

[from recording no. 8, December 10, 2018]

MS. CHRISTENSEN: [1:21] So if you could describe

for the Panel what a production bonus is and more

specifically, how it is different than a transition bonus?

MR. CITRO: Sure. So production-based bonuses,

and they’re labeled in here as production bonuses and

best practice awards, are essentially another set of

bonus installments that can be earned if at a particular

point in time certain thresholds and requirements are

met. They’re typically done based on a scale, on the

pre-hire trailing 12, so just as the initial amount was

set, the production-based bonuses will say, if you meet

x of your pre-hire trailing 12 on this date, you can then

earn another subsequent installment period of bonuses.

And they usually go out sometimes up to four years.

And then they can also have additional requirements

attached to them, such as best practice components,

which are usually planning type engagement things.

MS. CHRISTENSEN: Okay. Is there a difference

between a, just a production bonus and a best practice

bonus?

App. 72

MR. CITRO: They can be different. In this, in these

particular offers they are tied together. They’ll say you

have to meet both a production basis and have a

certain number, in these cases, there are key

households with a plan of record.

MS. CHRISTENSEN: Okay. Is it fair to say that

these production bonuses call for a goal and quality

checks in any given, like, snapshot of a time period?

MR. CITRO: Yes, so they’ll have a timeframe

outlined of when you need to meet these parameters,

and if those parameters are met, it will pay the

according bonus installments that are outlined. The

paragraphs do stipulate there’s a maximum that an FA

can be paid between the upfront and the performance

bonuses, and that’s to maintain profitability for the

firm.

MS. CHRISTENSEN: And Mr. Citro, does it have

the same sort of condition that the FA has to remain

employed with Wells Fargo?

MR. CITRO: Yes, ma’am. They say that there, the

performance bonuses are outlined in paragraph four

[CA3.App.378-379], the paragraph that we referred to

earlier where the additional terms and conditions are

applicable to all bonuses, so that includes both the

transition and the performance, sorry, productionbased bonuses.

MS. CHRISTENSEN: Thank you. So like the

transitional bonus, was the goal to incentivize a

financial advisor not only to meet certain production

levels but also to stay with Wells Fargo over a period of

time?

App. 73

MR. CITRO: Correct. That’s correct. They were

production-based and there’s also this client wrapper in

here, that there’s an expectation that a certain number

of key households have a plan of record, so stay with

Wells Fargo, take care of your clients, and meet your

production goal.

MS. CHRISTENSEN: And if these bonus monies

were paid in one lump sum, would you not have the

same concern that you spoke of earlier which is,

financial advisor taking the check and jumping ship?

MR. CITRO: Yes, ma’am.

MS. CHRISTENSEN: Okay. And are production

bonuses unique to Wells Fargo?

MR. CITRO: No, they are not. Typically, in those

results we would get back, we get total package deals.

We do a lot of attrition analysis when financial advisors

leave Wells Fargo, even trying to find out where they

went, what they got. So it will usually get reported

back that they got some sort of package, and a total

percent of the deal, so much upfront and so much

available on the back end.

****

MS. CHRISTENSEN: [6:03] 59 is the next one,

you’re correct.

CHAIR MASSARO: Do you have more tabs in this

case?

MS. CHRISTENSEN: Yes, we do. Mr. Citro, you’ve

never seen this document [CA3.App.301-306], have

you?

App. 74

MR. CITRO: No, ma’am.

MS. CHRISTENSEN: Okay. So if you wouldn’t

mind just taking a moment to review it and then I’ll

ask you some questions.

[Silence]

MS. CHRISTENSEN: Have you had enough time to

review this document?

MR. CITRO: Briefly, yes.

MS. CHRISTENSEN: Okay. Thank you. I

understand it’s new to you. What is your

understanding of what this document is?

MR. CITRO: It appears to be an offer from UBS

dated January 5th, 2006 to Chris Caputo, and it has a

very similar layout to the offer that we reviewed before,

with terms and conditions of an upfront, what is

referred to in here as an employee forgivable loan.

MS. CHRISTENSEN: Okay. And if I can draw your

attention also to paragraphs 6 and 7.

MR. CITRO: Yes. These are production-based

bonuses where there was an opportunity to earn

additional loans after it looks like 14 months of

employment and 26 months of employment, subject to

some production thresholds and things like that.

MS. CHRISTENSEN: And it has the same sort of –

what do you call them? Quality check, the ROA at

1.5%?

MR. CITRO: That is correct.

App. 75

MS. CHRISTENSEN: And it’s similar to what we

saw with the production bonuses that Wells Fargo

offered, correct?

MR. CITRO: Yeah, with the only exception is these

are specified as forgivable loans.

MS. CHRISTENSEN: Yeah, we’ll get to that in one

second. But the production, it also has that in order to

receive this production bonus you would have at least

75% of your original trailing 12?

MR. CITRO: Correct, yes.

MS. CHRISTENSEN: That would be what would be

the equivalent to the benchmark that Wells Fargo sets

out in its production bonuses?

MR. CITRO: Yes, ma’am.

MS. CHRISTENSEN: Okay. And the same for

paragraph 7, is that an additional production bonus

that was offered by UBS?

MR. CITRO: Yeah. This one is 10% of gross

commissions produced during months 15 through 26,

provided production is at least 85% of the trailing 12.

MS. CHRISTENSEN: Okay. And that’s equivalent,

again, to the production bonuses that were offered by

Wells Fargo, or similar I should say. Equivalent,

similar, correct?

MR. CITRO: Yes, ma’am.

MS. CHRISTENSEN: And do these production

bonuses that were provided to Mr. Caputo by UBS

require that they be paid over time?

App. 76

MR. CITRO: They do not because they structured as

forgivable loans.

MS. CHRISTENSEN: So what is the difference

there between what Wells Fargo does and what UBS

did?

MR. CITRO: So, in the – there’s a paragraph in here

that talks about an employee forgivable loan agreement

and it says, it’s a cash loan in the amount of $812,819

and “shall be forgivable over six years.” We don’t have

a copy of the loan agreement, but typically when

they’re offered, you have a loan disclosure statement

that says, we will impute to your income, in this case,

it will be over six years, if it’s done monthly it would be

1/72nd every month in your pay check, and that’s one

payment that you do not have to repay should you

depart prior to the end of the six-year period. So

instead of it being paid as a cash bonus, it’s imputed

income and taxed, it’s taxed that way.

MS. CHRISTENSEN: So, Mr. Citro, just for clarity

here, for those firms that offer it as a forgivable loan,

do they require that the money be paid back if the

employee leaves the employment of that firm?

MR. CITRO: Yes, they do require repayment of the,

an amortized balance.

MS. CHRISTENSEN: Okay. We also do have the

note, so I would like to introduce that as well as tab 60

[CA3.App.307-312].

[Silence]

App. 77

MS. CHRISTENSEN: Have you had an opportunity

to briefly, or as much as you possibly could in that time

period, to review this document?

MR. CITRO: Yes, ma’am.

MS. CHRISTENSEN: Okay. And can you state for

the record what this document represents?

MR. CITRO: This appears to be one of the

performance bonus or production bonus promissory

notes that was issued on April the 7th, 2008. It’s in the

amount of $72,605. It stipulates that Chris Caputo

would receive that $72,605 and he must repay it by

April the 7th, 2012 in full. Then there are provisions in

here that basically say, on an annual basis as long as

he’s employed, they will forgive one of the payments.

Looks like one fourth.

MS. CHRISTENSEN: Okay. If I could ask you, Mr.

Citro, if you could read the last line of that first page

into the record, starting with “If employees...”

MR. CITRO: Sure. It’s under the paragraph entitled

forgiveness of principal amount. “If employee’s

employment with UBS Financial Services or UBS shall

terminate, whether voluntarily or involuntarily, other

than by reason of disability, as hereinafter defined, or

death, no part of the unpaid principal amount shall be

forgiven.”

MS. CHRISTENSEN: And then continue with the

acceleration part.

MR. CITRO: Acceleration. “This note shall

immediately become due and payable without

App. 78

presentment, demand, protest, notice of default or any

other notice of any kind, which the employee hereby

expressly waives, in the event that the employee’s

employment with UBS Financial Services or UBS is

terminated, either voluntarily or involuntarily by the

employee, UBS Financial Services or UBS for any

reason whatsoever other than disability or death.”

MS. CHRISTENSEN: Thank you. And as you’ve

been reading these UBS documents, do they stand out

to you to be unique to the industry?

MR. CITRO: They don’t stand out as unique because

they have similar terms of what we’ve reviewed in the

previous documents from Wells Fargo.

MS. CHRISTENSEN: Is it fair to say, then, that

each of these bonuses from both Wells Fargo and from

UBS are structured in a way to incentivize both

production levels as well as retention with Wells

Fargo?

MR. CITRO: Yes, ma’am.

MS. CHRISTENSEN: Now Mr. Citro, does Wells

Fargo pay the monthly installments, the bonus monies

to the financial advisors even when they elect to take

a promissory note?

MR. CITRO: Yes, ma’am.

****

[p. 15]

MR. CITRO: So in – both when an FA offer is

extended or in those performance-based, sorry,

production-based opportunities, the bonuses are

App. 79

outlined in the offer summary [CA3.App.377-382].

Wells Fargo does offer the option for an FA to borrow

the proceeds upfront. It is a loan document that stands

alone by itself and it basically has similar conditions

that say, you receive an allotment of money. You don’t

even have to borrow the full amount. So, if I was

offered a million dollars to come over to the firm today,

I don’t have to borrow a million dollars. I could borrow

a half a million. But Wells Fargo would still pay me the

equivalent of the million in installments.

****

[p. 16]

MS. CHRISTENSEN: [20:56] Okay. Mr. Citro, are

the disbursed proceeds in the form of promissory note

considered wages? In other words, if the financial

advisor chose to enter into a loan agreement with Wells

Fargo and was given a certain amount in check form,

would that be taxable income?

MR. CITRO: No, ma’am. Promissory note is issued

in after-tax dollars, which is why it’s being repaid in

after tax dollars on the pay stub.

MS. CHRISTENSEN: So it’s not considered

compensation at all?

MR. CITRO: That’s correct.

MS. CHRISTENSEN: And the financial advisor

does not pay taxes on the loan?

MR. CITRO: No, ma’am.

MS. CHRISTENSEN: The financial advisor does

pay taxes on the monthly bonus payments?

App. 80

MR. CITRO: Yes, ma’am.

****

MS. CHRISTENSEN: Mr. Citro, would you agree

with me that it can’t be wages unless it’s taxed?

MR. CITRO: That’s correct.

****

[p. 18]

MS. CHRISTENSEN: Okay. Thank you. And I just

have a few questions left. Under the offer, what would

happen to the monthly bonus payments if the FA’s

employment with Wells Fargo ended?

MR. CITRO: If the employment status of the

financial advisor would end for any reason other than

death or disability, the payments would stop.

MS. CHRISTENSEN: And under the hypothetical

that the financial advisor elects to enter into a

promissory note agreement, what happens if the

financial advisor’s employment with Wells Fargo ends?

MR. CITRO: The note should contain a paragraph

that states, if you no longer hold the title of financial

advisor or are no longer employed, the note balance is

due and callable.

****

App. 81

APPENDIX I

FINANCIAL INDUSTRY REGULATORY

AUTHORITY

DISPUTE RESOLUTION

FINRA Dispute Resolution

Arbitration No. 15-02044

[Dated: June 28, 2019]

_______________________________________

In the Matter of Arbitration between:

)

WELLS FARGO ADVISORS, LLC,

)

Claimant and Counter)

Claim Respondent,

)

CHRISTOPHER CAPUTO,

)

Respondent and

)

Counter-Claimant

)

_______________________________________)

RESPONSE ON BEHALF OF CHRISTOPHER

CAPUTO TO WELLS FARGO’S POST-HEARING

SUBMISSION

June 28, 2019

App. 82

Overview

In its post-hearing submission, Wells Fargo asks the

Panel to require Christopher Caputo to pay Wells

Fargo at least $434,010 in attorney fees and costs, on

top of more than $2,084,550 supposedly due under five

promissory notes (including penalty interest). Wells

Fargo should not be awarded any attorney fees or costs

because for the reasons set forth below, it is not

entitled to recover under the notes.

Moreover, Mr. Caputo is entitled to an award of

damages that more than offsets the amounts claimed

by Wells Fargo in this case.1 Mr. Caputo’s counterclaims fall into two broad categories: (1) damages for

breach of his employment contract (Caputo Ex. 41),

insofar as Wells Fargo has refused to pay Mr. Caputo

(a) the full production bonuses that he was promised

and fully earned (by meeting annual production

benchmarks), and funds of Mr. Caputo held in his

frozen Wells Fargo accounts, and (b) the full

transitional bonus (and other deferred compensation)

promised to induce him to leave UBS and join Wells

Fargo;2 and (2) damages for defamatory statements

Mr. Caputo incorporates by reference herein (1) his Pre-Hearing

Memorandum (submitted October 29, 2018) (“Pre-Hg. Mem.”),

(2) his Reply to Wells Fargo’s Pre-Hearing Letter (submitted

November 6, 2018), and (3) his Restatement of Claimed Damages,

and Proofs as to Claimed Attorney Fees and Costs (submitted

November 20, 2018) (Caputo Ex. 40). Any exhibit cited herein (or

otherwise admitted into evidence) will be provided upon request.

See Mr. Caputo’s Restatement of Claimed Damages, and Proofs

as to Claimed Attorney Fees and Costs, pp. pp. 1-2. Compensatory

damages claimed by Mr. Caputo for Wells Fargo’s breach of

App. 83

made by Wells Fargo about Mr. Caputo to FINRA and

to his prospective employers, past and prospective

clients, and the public at large.3

Wells Fargo has argued that the promissory notes

at issue should be viewed not as forgivable loans

(forgiven to the extent that corresponding retention

bonuses are earned over time, or to the extent the

broker is prevented from doing so by a discharge at

will), but rather in isolation from the bonus that gave

rise to the note. This approach is neither fair nor

contract exceed $1,948,530. Mr. Caputo also seeks additional

recovery of $3,295,928 under an applicable Missouri statute

requiring employers who fail to pay earned commissions to pay

punitive damages “as if the sales representative were still earning

commissions calculated on an annualized pro rata basis from the

date of termination to the date of payment.” Id., p. 4.

See id., pp. 2-5. Compensatory damages claimed by Mr. Caputo

for Wells Fargo’s defamatory statements amount to approximately

$2,569,191, consisting of the following components: (1) attorney

fees and costs incurred in complying with information requests by

FINRA’s enforcement department; (2) net commissions lost and

costs incurred while seeking to renew registrations with state

securities regulators that were called into question due to Wells

Fargo’s defamatory Form U-5; (3) the present value of net

commissions Mr. Caputo would likely have received from the 27

clients he lost due to Wells Fargo’s defamatory statements; (4) the

present value of net commissions Mr. Caputo would likely have

received from new clients but for Wells Fargo’s defamatory

statements; (5) the value of an incentive compensation package

that Mr. Caputo would likely have received from a new employer,

after leaving Wells Fargo, but for its defamatory statements; and

(6) compensation for humiliation and mental suffering caused by

Wells Fargo’s defamatory statements. Mr. Caputo also seeks

punitive damages for Wells Fargo’s defamatory statements.

App. 84

realistic (as Wells Fargo’s own witnesses recognized),4

and is contrary to controlling case law.5 Moreover, it is

pointless because even if Wells Fargo were otherwise

entitled recovery on the notes standing alone, Mr.

Caputo would clearly be entitled to an offsetting

recovery on the corresponding bonus awards,6 as shown

below.

See “Case Law and Testimony Referenced in Closing Argument”

on behalf of Mr. Caputo (hereinafter, “Closing References”), pp. 2328 (hand-numbered). Mr. Citro testified that the “forgivable loans”/

production bonuses that Mr. Caputo received from UBS were

“equivalent” to those he received from Wells Fargo — each month

UBS or Wells Fargo would credit him with bonus income that

offset a corresponding portion of the loan. Id. p. 23. Mr. Citro

showed that each monthly bonus credit from Wells Fargo fully

offset the corresponding monthly loan payment otherwise due. Id.

at pp. 26-27. Additional money was deducted from Mr. Caputo’s

paycheck only to the extent Wells Fargo also paid his income taxes

on the bonus installments. Id. p. 28.

See Pre-Hg. Mem., p. 14, ¶1 & note 37. In the words of a federal

court addressing loans by Wells Fargo to brokers just like those at

issue here: “the economic effect is exactly the same as periodic and

scheduled forgiveness of the outstanding ‘debt’.” Id. In the case

cited by Wells Fargo in this regard, Merrill Lynch v.

Schwartzwaelder, 496 Fed. Appx. 227 (3d Cir. 2012), the court

“acknowledge[d] that there is a basis in the record to construe the

parties’ agreements as intending to effect a single transaction akin

to a forgivable loan” but did not decide the issue, deferring instead

to the finding of an arbitral panel that a departed broker had

executed a release extinguishing her claim to bonus compensation

that would otherwise offset a corresponding promissory note. Id.

at 232-33. All emphasis in quotations herein is by the undersigned.

See Caputo’s Restatement of Claimed Damages, and Proofs as to

Claimed Attorney Fees and Costs, pp. 1-2.

App. 85

Legal Framework for Contract Claims

in This Case

Four of the promissory notes at issue were for

upfront payment of compensation that Mr. Caputo had

already fully earned at the time, as reflected by the

four Production Bonuses (Caputo Ex. 42) awarded to

him by Wells Fargo prior to the corresponding notes.

These bonuses were payable in monthly installments

over roughly ten years (so structured to discourage Mr.

Caputo from resigning within that period) that more

than offset the monthly installments due under the

corresponding notes, as Wells Fargo witness Citro

confirmed (see note 4, supra). Likewise, as Wells Fargo

witness John Mairs acknowledged (in reference to

Caputo Ex. 41, pp. 703-704), monthly installments due

under the other (first) note were more than fully offset

by monthly installment payments of the transitional

bonus awarded to Mr. Caputo to induce him to leave

UBS and join Wells Fargo.

Thus, having awarded the bonuses, Wells Fargo had

no expectation that any of corresponding notes would

be repaid out of pocket — as opposed to cancelled out

by bonuses earned by or promised to Mr. Caputo — so

long as he remained employed by Wells Fargo during

the 10-year payment period.7 The employment contract

For this reason, a federal court has held, in accord with uniform

case law, that loans by Wells Fargo to brokers just like those at

issue here are not bona fide loans, but rather simply payment of

bonuses (subject to a condition of continued employment during

the ‘loan’ term). See Pre-Hg. Mem., pp. 14-15 (¶2) & note 38. Thus,

the only lawful function of the notes was as a contractual clawback provision to the extent (if any) that a bonus was not fully

App. 86

(Caputo Ex. 41) provided in that regard that if he

resigned — or was discharged by Wells Fargo for any

reason or no reason at all (at will) — he would “forfeit

any unpaid installments ... due under the Bonuses”

(¶5.b) if such forfeiture was “allowed by applicable law”

(¶4.g). For two broad reasons, no such forfeiture is

allowed by applicable law in this case.

First, it is fundamental public policy, under

statutes and case law of both Missouri (by which the

employment contract is expressly governed) and New

Jersey as well as virtually every other state, that while

an employee may be discharged at will, the employee

may not be deprived of compensation promised and

earned for services rendered, irrespective of whether

the employee was discharged without good cause (or

resigned), and any contractual provision to the contrary

is void and unenforceable.8 As a matter of law,

48.5344% of Wells Fargo’s aggregate claim (i.e., all

claims relating to the four production bonuses) should

earned at the time Mr. Caputo’s employment by Wells Fargo

ended.

See Pre-Hg. Mem. pp. 15-18 (¶¶3-5); Reply to Wells Fargo’s PreHg. Letter, pp. 3-4. Under choice of law rules, New Jersey law

applies to the extent it provides greater protection of employees

than Missouri law, and vice versa (and the relevant case law of

other states is applicable if not inconsistent with Missouri or New

Jersey law). See Pre-Hg. Mem. p. 14 note 36. It is immaterial that

Mr. Caputo did not invoke such law instead of paying off UBS

production-bonus notes with funds provided by Wells Fargo for

that purpose (i.e., from the transitional bonus it awarded him).

App. 87

be rejected on this ground.9 In its Post-Hearing Brief

(p. 5), Wells Fargo accordingly states that it “does not

seek to recoup compensation ... earned by Mr. Caputo

during his employment” at Wells Fargo.

Second, it is likewise fundamental public policy,

under long-established case law of Missouri and New

Jersey as well as other states, that contractual

provisions for forfeiture of compensation promised in

recruiting an employee are unconscionable and

unenforceable to the extent the forfeiture results from

discharging the employee at will — as opposed to

resignation by the employee, or breach of the

employment contract by the employee so serious as to

preclude continued employment.10

This body of law is not necessarily contrary to the

industry practices that Wells Fargo invokes — it

simply precludes forfeiture of bonuses promised and

As of December 10, 2018, Wells Fargo claimed $1,072,826.38 on

the transitional-bonus note (WF Ex. 1.B), $227,799.46 on the first

production-bonus note (WF Ex. 2.B), $248,937.35 on the second

production-bonus note (WF Ex. 3.B), $249,928.47 on the third

production-bonus note (WF Ex. 4.B), and $285,058.27 on the fourth

production-bonus note (WF Ex. 5.B), for a total of $2,084,549.93

(before post-12-10-2018 interest, attorney fees and costs).

$1,072,826.38 + $2,084,549.93 x 100 = 51.4656%

See Pre-Hg. Mem., pp. 18-20 (¶¶6-7) & note 54 in particular; id.

p. 2 note 4; Reply to Wells Fargo’s Pre-Hg. Letter, pp. 7-10; Closing

References, pp. 1-19 (copies of the Frymire and Agron cases). See

also Wells Fargo Advisors v. Shaffer, 2011 WL 2669479, at *1, 4

(N.D. Cal.) (confirming arbitral award “ruling ... unconscionable”

and unenforceable Wells Fargo’s contract provisions for calling

forgivable loans due upon discharge of broker “‘for any reason

whatsoever’”).

App. 88

fully earned, and also requires payment of retention

bonuses promised to employees who are later

discharged at will, and thus deprived of an opportunity

to fully earn the retention bonus that induced the

employment. To the extent any bonus is paid upfront

subject to a promissory note, and is not fully earned

when the employee resigns (as in the cases cited in

Wells Fargo’s Post-Hearing Brief), the note is

enforceable, as Mr. Caputo has always recognized in

this case (see note 7, supra). If a production bonus

already fully earned is subject to a promissory note,

however, the note is merely a mechanism for forfeiture

of earned compensation, and is thus void and

unenforceable by statute and otherwise.

As summarized by the federal court in the Frymire

case (Closing References, p. 14) in rejecting

PaineWebber’s claim based on a forgivable loan to a

securities broker, discharged at will, that was tied to a

transitional retention bonus, it is not sufficient even if

the employer may have some grounds for discharging

the broker. Only if the broker had engaged in conduct

“so egregious as to have compelled his discharge” —

precluding “other active steps” by PaineWebber “to

preserve its relationship with the [broker]” — could it

be said that the broker was more responsible than the

employer (despite PaineWebber’s “great degree of

control over the [broker’s] employment status”) for the

broker’s failure to satisfy the condition (continued

employment during the ‘loan’ term) for extinguishing

the ‘debt’ that neither had intended at the outset to be

repaid.

App. 89

Similarly, in the Agron case (Closing References, pp.

16-19), the federal court of appeals confirmed an

arbitral decision rejecting a similar forfeiture claim by

PaineWebber, even though the broker was discharged

for violating a rule of the NASD (FINRA’s predecessor),

because the NASD had found that only a “letter of

caution” was warranted in view of “mitigation in the

client’s consent” (id. p. 17). The court rejected

PaineWebber’s position (echoed by Wells Fargo in this

case) that the discharge was required because

PaineWebber would otherwise itself “risk discipline by

the NASD” (id. p. 18) for having failed to supervise its

broker adequately.11

It is indisputable that — as Wells Fargo informed

FINRA in response to its direct questions — Mr.

Caputo was discharged because of the number of

transactions by his clients surrendering variable

Wells Fargo misses the point in attempting to distinguish Argron

in its Post-Hearing Brief. First, irrespective of contract language,

public policy precludes enforcement of any promissory note or

other contractual provision that would deprive an employee of a

promised retention bonus due to a discharge at will (see Pre-Hg.

Mem., p. 19 & note 54). Second, that principle applies even if the

employer had some cause to discharge the employee, as in Agron,

unless the employee’s conduct was “so egregious as to have

compelled his discharge” and precluded any discipline short of

discharge. Frymire, supra. Further, Wells Fargo is wrong in

suggesting that under Agron, courts necessarily defer to

arbitrators. Rather, Agron recognized that courts “review ...

[arbitral] conclusions de novo to determine if they violate public

policy.” 49 F.3d at 350.

App. 90

annuities and investing the proceeds in mutual funds.12

As detailed below, however, the record in this case does

not support any finding that Mr. Caputo violated any

established rule or policy of Wells Fargo in that regard.

Rather, he was admittedly discharged only because

— despite his repeated assurances that he would

adhere fully to any Wells Fargo rule or policy of which

he was given fair notice — his past transactions were

perceived by Wells Fargo compliance personnel as

presenting a risk that FINRA could impose sanctions

on Wells Fargo itself for having failed to monitor such

transactions adequately, and for permitting and

approving such transactions. See, e.g., Closing

References, pp. 32-34 (testimony of Shea Hicks);13 and

E.g., Caputo Ex. 19 (Jan. 29, 2015 letter from Stuart Sakosits to

FINRA) (hand-numbered pp. 223-224) (“... Mr. Caputo’s clients

were liquidating annuities in order to generate cash to invest in A

share mutual funds. ... [T]here appeared to be many instances in

which the mutual funds did not produce the level of income

produced by the formerly held annuities. ... For this reason, the

firm made the decision to discharge Mr. Caputo and that action

was carried out on December 17, 2014”); Caputo Ex. 22 (January

8, 2016 letter from Shea Hicks to FINRA) (hand-numbered pp.

231-265) (presenting 46 such transactions by Mr. Caputo’s clients

“which directly led to his termination”). In other words, there is no

evidence that Mr. Caputo was discharged in December 2014 due

to alerts by monitors in 2013 calling for an explanation of whether

additional breakpoint discounts could have been obtained by

purchasing more mutual fund A-shares (or more within the same

mutual fund family), or why some mutual fund A-shares were sold

within five years.

Wells Fargo’s legal and compliance departments “push[ed] for

immediate termination” of Mr. Caputo (even prior to the Capital

Forensics report) because the “volume of transactions” presented

App. 91

recall the emphatic testimony of Otha Jones in this

regard. In other words, Mr. Caputo was discharged

essentially as a “sacrificial lamb” to mitigate Wells

Fargo’s own supposed potential exposure to FINRA

sanctions.14 Indeed, Wells Fargo emphasizes in its PostHearing Brief (pp. 7-8) that Mr. Caputo was discharged

“at-will” — for “business reasons”.

a “regulatory risk” to Wells Fargo itself “given a lot of

pronouncements that FINRA had issued to the industry about

concerns in switches and making sure that movement from long

term products to other long term products was in the client’s best

interest.” Id., pp. 32-33. See, e.g., In re Great American Advisors,

Inc., Letter of Acceptance, Waiver and Consent, approved by

FINRA on May 22, 2014; In re Wachovia Securities, L.L.C., n/k/a

Wells Fargo Advisors, L.L.C., Letter of Acceptance, Waiver and

Consent, approved by FINRA on August 28, 2009; In re Wells

Fargo Investments, L.L.C., Letter of Acceptance, Waiver and

Consent, approved by FINRA on July 23, 2009 — all provided to

the Panel on June 21, 2019.

See also Closing References, pp. 43-44, 57 (testimony by

Matthew Hulbert that Wells Fargo had no monitoring system for

exchanging variable annuities for mutual funds) (discharge

recommendation presented on Sept 8, 2014 conference call “was

not that there was a suitability issue” but instead was “based on

sheer numbers, they felt that there was a clear pattern” of annuity

redemptions); Caputo Ex. 30, at 524 (weekly report by Greg Thies

for period ending August 15, 2014, noting concerns by Surveillance

regarding “potential gaps around the liquidation of annuities”);

Caputo Ex. 24, p. 304 (October 5, 2016 email to Shea Hicks from

Kamran Fotouhi) (“we did not identify any Wells Fargo centric

records pertaining to annuity liquidations”). Wells Fargo’s abortive

plan to compensate Mr. Caputo’s clients (never implemented) was

likewise apparently designed to mitigate its supposed potential

exposure to FINRA sanctions, as were its “soft” calls to clients

(designed to avoid generating any client complaint).

App. 92

By no means, therefore, does the discharge of Mr.

Caputo meet the standards applied in the analogous

Frymire and Agron cases for requiring Mr. Caputo to

forfeit compensation promised by Wells Fargo in

recruiting him, and awarded to him in the form of a

transitional bonus payable over time (offsetting the

corresponding promissory note) so long as he remained

employed by Wells Fargo. Rather, Wells Fargo

prevented him from meeting that condition by

discharging him at will — not for any “conduct so

egregious as to have compelled his discharge” despite

his assurances that he would comply with any Wells

Fargo policy of which he had fair notice.15 Had it

chosen, Wells Fargo could have instead maintained

heightened supervision of Mr. Caputo (requiring

advance supervisory approval of transactions in

question) and/or issued a formal “memorandum of

education” or “memorandum of warning” in accord with

its Team Member Handbook (Caputo Hx. 38, p. 669).

See Closing References, pp. 59-60 (testimony of

Matthew Hulbert).

Further Evidence Supporting Mr. Caputo’s

Contract Claims

Mr. Caputo had no fair notice of any Wells Fargo

policy that supposedly prohibited him from permitting

See, e.g., Caputo Ex. 10 (Interview Notes), hand-numbered p. 183

(“I understand the firm doesn’t want me to liquidate annuities for

profit. I have to be more diligent going forward”); Caputo Ex. 12,

p. 209 (post-interview email from Caputo to supervisors) (“I have

decided to change some of my business practices going forward”

including to “stress the need to hold existing annuity contracts ...

for the very long term”).

App. 93

his clients to surrender variable annuities for the

purpose of investing the proceeds in mutual funds, not

only because his supervisor, Mr. Sakosits, permitted

and approved such transactions,16 but also because

there admittedly was no such policy. See, e.g., Closing

References, p. 29 (testimony of Shea Hicks) (no rule or

policy against liquidating annuities to take a profit),

pp. 45-52, 55 (testimony of Matthew Hulbert)

(approving four such transactions in April 2014) (“no

Wells Fargo policies ... that would prohibit any such

exchanges”) (“no policy that variable annuities should

not be surrendered in order to capture a profit or an

investment gain”); and recall the similar testimony of

Wells Fargo witnesses Carroll, Sakosits, and Biggs.

Then why was Mr. Caputo investigated so

aggressively by surveillance and compliance officers

beginning in late March 2014? Because incredibly, as

Mr. Hulbert explained (see Closing References, pp. 4044), they misread a mid-2013 audit report (Caputo Ex.

26, p. 426) as supposedly “citing” Mr. Caputo for “this

exact activity” (permitting his clients to surrender

variable annuities for the purpose of investing the

proceeds in mutual funds), and thus recklessly

considered him to be a recidivist violator of a Wells

Fargo policy made known to him in mid-2013. Id. p.

424. See also Caputo Ex. 10 (Interview Notes), p. 183

(same error made by compliance interrogators).

See, e.g., Caputo Ex. 26, p. 438-442 (supervision note of client

call by Mr. Sakosits, approved by Mr. Hulbert, regarding

surrender of Hartford variable annuity on behalf of Lydia Ledeen);

Caputo Ex. 27, pp. 444-467 (surrender request forms signed by Mr.

Sakosits on behalf of several clients).

App. 94

In fact, the precise opposite was true, as Mr. Hulbert

(who participated in the audit) confirmed: (1) the audit

exonerated Mr. Caputo because the transaction in

question — surrender of a Hartford variable annuity on

behalf of Lydia Ledeen, and reinvesting the proceeds in

mutual funds — was wholly transparent (Hartford sent

the surrender proceeds check directly to Wells Fargo

with an explanation of the transaction, id. p. 443),

unlike a similar transaction executed by another

broker ( whose client deposited the surrender proceeds

with Wells Fargo by personal check);17 (2) the

transaction for Lydia Ledeen was approved both by Mr.

Caputo’s supervisor, Mr. Sakosits, after calling the

client (id. p. 438) and by Mr. Hulbert (after reviewing

Mr. Sakosits’ supervision note and questioning it in an

extended email exchange, id. pp. 439-442); and (3) the

approval was communicated by Mr. Sakosits (and Mr.

Ledeen, on behalf of his wife) to Mr. Caputo, who never

received any notice of any concern regarding such

transactions until he was notified of the investigation

in early April 2014. See Closing References, p. 60

(testimony of Mr. Hulbert).

Throughout the investigation, Mr. Caputo

communicated to his supervisors and compliance

officers that if such transactions were now deemed ipso

facto contrary to Wells Fargo policy (as was asserted by

See also Closing References, pp. 61-62 (testimony of Mr. Hulbert)

(variable annuity surrender requests for annuities held in IRA

accounts are submitted for processing to Wells Fargo’s affiliate,

First Clearing, as the custodial owner of the annuities) (variable

annuity surrender proceeds are now mostly transmitted by

insurers to Wells Fargo by wire, for the convenience of all

concerned).

App. 95

compliance interrogator Rebecca Rogers,18 but later

denied by other Wells Fargo witnesses), he would

discourage them, and would comply with whatever

policy Wells Fargo laid down, provided only that he

was given fair notice of it.19 These efforts by Mr.

Caputo to resolve any issues going forward fell on deaf

ears, however, and were instead unfairly used to taint

Mr. Caputo in widely circulated progress reports

regarding the investigation,20 culminating in the final

version of the Matter Summary sent to FINRA21 —

which deleted all recognition (in prior drafts of the

“Compliance Findings”) of the mitigating factor that all

See Caputo Ex. 10 (Interview Notes), p. 180 (“Rebecca Rogers

advised that liquidating annuities for a profit should not be a

sgrategy”).

See note 15, supra.

See, e.g., Caputo Ex. 30, p. 515 (Caputo supposedly

“acknowledged that he did not fully understand the income riders

on the annuity contracts. Additionally, he indicated that he did not

perform proper due diligence when making recommendations to

several clients. He understands now that it is not a proper

business practice to liquidate annuities to take a profit”), p. 320

(“pattern with this FA ... possible exposure to the firm”), p. 327

(“The FA was cited in the 2013 audit for liquidating an outside

annuity with a surrender charge and rider fee and investing the

proceeds in a mutual fund A share. ... Since then, the FA has been

circumventing that action plan by having the clients wire the

funds directly into the accounts”).

Caputo Ex. 9, p. 148 (“Introduction”), pp. 166-167 (“Compliance

Findings”): “The FA acknowledged that he did not fully understand

the income riders on annuity contracts. Additionally, he indicated

that he did not perform proper due diligence when making

recommendations to several clients.”

App. 96

clients contacted by Wells Fargo were fully informed (of

benefits forgone as well as surrender fees and

commissions) and supportive of the transactions in

question.22

By mid-August 2014, as Wells Fargo compliance

officers became aware of more such transactions (which

had never been concealed, but rather were reported

contemporaneously to Wells Fargo’s affiliate First

Clearing), the Wells Fargo compliance department

recommended that Mr. Caputo be discharged without

further investigation (by Capital Forensics) — because

of their perception (as shown above) that Wells Fargo

could itself be exposed to FINRA sanctions for having

permitted and approved such transactions, and

otherwise for lack of an adequate monitoring system.

Accordingly, neither the Matter Summary nor any of

Wells Fargo’s related communications to FINRA

acknowledged that four such transactions were

expressly approved by Mr. Hulbert even during the

investigation of Mr. Caputo. See Closing References,

pp. 45-50 (testimony of Mr. Hulbert).

Wells Fargo discharged Mr. Caputo “at will” (as it

concedes in its Post-Hearing Brief) — to protect itself

from perceived exposure to potential FINRA sanctions

— not because of any “conduct so egregious as to have

compelled his discharge” (Frymire, supra). FINRA’s

Department of Enforcement has not asserted that Mr.

See Caputo Ex. 29, p. 509 (draft “Mitigating Factors: Clients

were contacted and outlined that they were aware of the benefits

that they were forfeiting, associated fees and commissions and

wanted to move forward with liquidating the annuities”).

App. 97

Caputo violated any FINRA rule, or given any notice

that it may do so, despite interrogating Mr. Caputo for

two full days in 2016,23 based on all the documents and

analysis provided to it by Wells Fargo as well as

FINRA’s interviews with the clients in at least 27 of

the 46 variable annuity surrender transactions

reported to it by Wells Fargo. FINRA’s suitability rules

focus on purchasing variable annuities, or exchanging

one variable annuity for another, and are not violated

simply by a “pattern” of such exchanges.24

FINRA’s Department of Enforcement is not required to give

notice that its investigation of Mr. Caputo has been concluded.

See FINRA Dept. of Enforcement v. Pierce, 2013 WL 5503319

(National Adjudicatory Council, Oct. 1, 2013) (provided to the

Panel on June 21, 2019), at *23-24 (rejecting claims that broker’s

recommendations to seven clients to surrender variable annuities

and use the proceeds to purchase other variable annuities were

unsuitable, despite surrender charges and adverse tax

consequences, absent evidence — including customer testimony

and contracts — at least that the exchanges caused net harm to

customers); id. at *6 note 14, at *21 note 53 (irrelevant that broker

reportedly admitted to supervisor that he should have done more

due diligence, or that the broker admittedly did not fully

understand the tax implications at issue); FINRA Dept. of

Enforcement v. SWS Financial Services, Inc., 2015 WL 5782976

(Extended Hearing Panel, Aug. 13, 2015) (provided to the arbitral

Panel on June 21, 2019), at *1-2, 15-17 (rejecting claims that

broker-dealer lacked reasonable basis to approve 12 variable

annuity surrenders, solicited by two brokers for purposes of

reinvesting the proceeds in other variable annuities, despite

surrender fees, higher annual fees, and reduced market value of

substituted investments, ruling that a suitability determination

requires a reasonable balancing of all relevant factors pertaining

to particular transactions) (recognizing that “in many cases, ...

customers, not unreasonably, are reluctant to turn over ownership

of their VA [variable annuity] investments to the insurance

App. 98

The Record Provides No Basis for Fairly

Determining That Wells Fargo’s Suitability

Guideline Was Violated.

Likewise, Wells Fargo’s discharge of Mr. Caputo

was not based on a determination that Mr. Caputo

violated its applicable suitability guideline (Caputo Ex.

37, pp. 625, 663). That guideline required that Mr.

Caputo have a “reasonable basis to believe” that any

“recommendation” he made to exchange a variable

annuity for mutual funds would ultimately benefit the

client, in light of the comparative benefits and costs of

the new and existing investments, as well as the

financial circumstances, goals, and risk tolerance of the

client. For the following reasons, the discharge could

not have been based on a reasonable determination

that Mr. Caputo violated this guideline.

• Compliance consultant Rebecca Rogers had

never before investigated any exchange of

variable annuities for mutual funds. Her

experience was limited to exchanges of one

variable annuity for another variable annuity, or

to purchases of variable annuities. See Closing

References, p. 38.

• In weighing the comparative benefits of mutual

funds, Ms. Rogers considered only projected

short-term dividends, and ignored a key

component of annual income from mutual funds

— distribution of realized capital gains (from the

companies — i.e., they do not want to annuitize them” and thus

may choose instead to surrender them) (rejecting inquiry into

circumstances under which annuities were originally purchased).

App. 99

periodic sale of mutual fund assets), by check if

the investor so elects.25 Ms. Rogers also failed to

consider unrealized capital gains of mutual

funds, projected by investors (from past

performance) seeking long-term growth in the

value of their mutual fund shares.26

• On the other side of the ledger, Ms. Rogers

ignored all annual costs of variable annuities, in

the form of various annual fees (insurance

premiums), despite her recognition that such

fees offset by at least half any guaranteed

payments under variable annuity riders. See

Closing References, p. 39.

• Ms. Rogers also relied on postulated payments

under variable annuity riders that could not

occur for many years, if ever — because the

client was well below the age (at least 59.5) at

which payments could begin under a guaranteed

lifetime withdrawal benefit (GLWB) rider, or

because the client had a guaranteed minimum

income benefit (GMIB) rider with at least a 10-

See SEC.gov/Mutual Funds and Exchange-Traded Funds (ETFs)

– A Guide for Investors, at p. 10 (copy distributed to the Panel on

June 21, 2019, at hand-numbered p. 944). No witness disputed

that capital gain distributions by mutual funds constitute current

“income” — as confirmed by witnesses Carroll and Sakosits, as

well as witnesses Olsen and Gauvreau.

See id. According to Wells Fargo’s Matter Summary (Caputo Ex.

9, hand-numbered p. 165), for only half the transactions in

question did Mr. Caputo indicate a client focus on increasing

income.

App. 100

year waiting period for any guaranteed

payment, available only through annuitization.27

• Any variable annuity surrender fee, or mutual

fund sales charge, is more than fully offset by

any net gain from the transactions. While a

surrender fee would reduce the amount of

surrender proceeds received, and a sales charge

would further reduce the number of mutual fund

shares that could be purchased with the

surrender proceeds, the client is still better off so

long as annual returns on the mutual funds

exceed any annual ‘returns’ from the

surrendered annuity.28

Thus, in the Exhibits to her Interview Notes (Caputo Ex. 11,

hand-numbered pp. 198-200), Ms. Rogers postulates that

Stephanie Hyacinth, “[a]ge 52” when she surrendered her GLWB

rider from PacLife, could have received payments thereunder “if

client began taking income at age 591/2”. In the case of Robert

Ledeen, who had no lifetime payment rider under his AXA annuity

according to Ms. Rogers, she postulates as annual ‘income’ the

“10% free withdrawal from annuity” (id. pp. 191-192) — which

would simply amount to gradual surrender of the annuity.

Moreover, as explained by expert witness John Olsen,

guaranteed lifetime payments under variable annuity riders

generally are simply a return of the annuity owner’s own money (a

return of investment, rather than a return on investment), unless

and until the owner exceeds actuarial life expectancy. Mr. Olsen

also confirmed that Wells Fargo and Capital Forensics double

counted surrender fees and sales charges because, as explained

above, they are already factored into the ‘income’ comparison

between surrendered variable annuities and the mutual funds

purchased with surrender proceeds.

App. 101

As acknowledged by Shea Hicks (Closing

References, p. 37), the report issued by Capital

Forensics in December 2014 followed as a template the

same fundamentally-flawed framework of analysis

applied by Rebecca Rogers — (1) ignoring annual

capital gain distributions by mutual funds (as well as

their long-term growth in value), (2) ignoring all

annual fees of variable annuities, which offset most of

any guaranteed payments under the annuity riders,

and (3) postulating payments under variable annuity

riders that could not occur for many years, if ever. Mr.

Fotouhi of Capital Forensics acknowledged these flaws

in his testimony. See, e.g., Closing References, pp. 6377.

For example, Mr. Fotouhi confirmed in his sworn

testimony that under GMIB riders, (a) guaranteed

lifetime payments are available only through

annuitization, (b) which is available only after a

waiting period of at least 10 years, but (c) is generally

avoided annuity owners ( who generally prefer to retain

control over their assets).29 See id. pp. 63-64, 66, 72, 77.

Yet in its December 2014 report, Capital Forensics had

postulated income “based on withdrawals from the

GMIB and not through annuitization” — and “assumed

the maximum withdrawal amount per year which

John Olsen testified to the same phenomenon, referred to in the

industry as the “annuitization puzzle.” See also FINRA Dept. of

Enforcement v. SWS Financial Services, Inc., supra note 24 (“in

many cases, ... customers, not unreasonably, are reluctant to turn

over ownership of their VA [variable annuity] investments to the

insurance companies — i.e., they do not want to annuitize them”).

App. 102

would not reduce the Income Benefit Base.”30 Mr.

Fotouhi conceded in his testimony, however, that the

latter assumption was contradicted by the AXA

prospectus (Caputo Ex. 57, p. 983: “withdrawals will

reduce each ... [GMIB] benefit base on a dollar-fordollar basis” at least). See id., pp. 67-71, 77. Mr.

Fotouhi nonetheless told the Panel that contrary to the

statements in its report, Capital Forensics had always

assumed that guaranteed payments under GMIB

riders were available only through annuitization,

several years in the future, which was not expected to

actually occur. See id. pp. 66-72, 77.

For all these reasons, the record in this case

provides no sound basis on which the Panel could fairly

determine that Mr. Caputo violated Wells Fargo’s

suitability guideline in respect of any of the

transactions at issue. The truncated quantitative

presentations by Rebecca Rogers and Capital Forensics

fall far short of the cost/benefit comparison required by

that rule because those presentations (1) ignore all the

annual costs of the variable annuities, (2) ignore key

benefits of the mutual funds, including capital gain

“income” distributed annually, and (3) postulate

benefits of variable annuities that were not available

for many years, if then. Further, there is no basis for

any finding that any of the transactions in question

were inconsistent with client goals, financial

Caputo Ex. 12 (summary report), note **. Capital Forensics

repeated those statements in its full December 2014 report, for

each variable annuity surrender transaction addressed that

involved a GMIB rider. Caputo Ex. 25, pp. 362, 366, 382, 386, 393,

396.

App. 103

circumstances, or risk tolerance because all of the

clients that Wells Fargo chose to contact were

admittedly fully informed regarding comparative costs

and benefits and sought to proceed or were fully

satisfied with the transactions.31

Further, with all respect, the proper role of the

Panel in these circumstances is not to speculate

whether any of the transactions in question might have

unsuitable under Wells Fargo’s guidelines. Rather,

under the Frymire and Agron cases, as well as kindred

applicable case law, the proper role of the Panel in this

The transactions were not even subject to Wells Fargo’s

suitability guideline unless they were solicited (recommended) by

Mr. Caputo rather than directed by the client. Absent any

standard written definition, the concept of solicitation is subject to

interpretation. Mr. Caputo’s understanding that a transaction is

unsolicited if it was conceived and initially raised by the client

rather than the broker has support from Wells Fargo’s in-house

counsel, and witnesses Olsen and Gauvreau, as well as case law.

See Closing References, p. 35 (testimony of Shea Hicks); In re

McGee, 2017 WL 1132115, at *6 (S.E.C. March 27, 2017) (also

available at FINRA.org, S.E.C. Release No. 80314, p. 7) (securities

transaction is unsolicited if it was initially the client’s idea, rather

than the broker’s); Schmid v. Langenberg, 526 S.W.2d 940, 944-945

(Mo. App. 1975) (similar). In any event, a solicited transaction can

of course be suitable. Moreover, Mr. Caputo’s characterization of

most of the transactions at issue as unsolicited is evidence at least

that he was not “pushing” such transactions on clients simply to

generate commissions, and without any reasonable expectation

that the client would ultimately benefit. Any speculation to the

contrary is belied by the evidence that of the total variable

annuities held by Mr. Caputo’s clients at Wells Fargo (which

constituted only about 20% of the assets under his management),

at least 75% were not surrendered (and clients who did surrender

annuities often retained annuities as well). See Caputo Ex. 64.

App. 104

case is to determine whether the record shows that Mr.

Caputo was “guilty of any conduct so egregious as to

have compelled his discharge.” Closing References, p.

14.32

If not, the discharge should be deemed “at will” and

Wells Fargo “should gracefully accept the fact that

severance of this relationship” — “which would allow

[Mr. Caputo] ... to ‘work off’ his obligation to [Wells

Fargo]” — “should logically constitute a waiver of its

right to reimbursement of the [transitional advance

compensation award], which it never could have

anticipated to have recovered from the outset of the

parties’ relationship in any event” Id.33

This standard is an objective one. In both Frymire and Agron,

the employer had some plausible grounds for discharging the

broker, but the courts found such grounds to be inadequate. The

Panel thus should not defer to any sincere but unwarranted

reliance by any particular Wells Fargo decision-maker on the glib

but fundamentally flawed analysis of Rebecca Rogers and Capital

Forensics. In this regard, the knowledge and doubts of all agents

of Wells Fargo should be imputed to Wells Fargo, no less than for

Mr. Caputo’s defamation claims against Wells Fargo, addressed

infra.

In this regard, Frymire is consistent with the Killian case

(quoted in Pre-Hg. Mem., pp. 14-15, ¶2), which held in accord with

uniform case law that a promissory note underlying a transitional

bonus awarded by Wells Fargo does not reflect bona fide debt (only

a contractual claw-back provision, e.g., if the broker resigns before

fully earning the bonus) because the parties expect the ‘loan’ to be

satisfied by future service, rather than repayment of the bonus.

Frymire recognizes that such ‘loan’ is not necessarily unenforceable

as a claw-back provision (e.g., if the broker gives the employer no

choice but to discharge the broker before the bonus is fully earned),

but also recognizes that the ‘loan’ is not enforceable if the

App. 105

As shown at the outset, Wells Fargo should not in

any event be permitted to recover any portion of the

four production bonuses that were fully earned by Mr.

Caputo. Thus, Wells Fargo’s promissory note claims

should at least be reduced by $821,482, and its claim

for attorney fees should be reduced proportionately, by

48.5344%%. Further, any remaining portion of such

claims should be more than offset by damages incurred

by Mr. Caputo as a result of Wells Fargo’s defamation

of him.

Legal Framework for Mr. Caputo’s

Defamation Claims

Under applicable Missouri law, Mr. Caputo’s

defamation claims against Wells Fargo are governed in

part by a statute, designed by the NASD, holding

broker-dealers like Wells Fargo liable for compensatory

damages (for “humiliation and mental suffering” as

well as pecuniary losses), under a negligence standard,

for defaming brokers in misleading communications

required by FINRA (including forms U-5, among other

things). See Pre-Hg. Mem., p. 20 (¶8) & note 57. The

same standard applies to the broker-dealer’s

communications to clients of a discharged broker. Id.

Further, punitive damages are warranted, under a

recklessness standard, for an employer’s defamatory

statement about a current or former employee despite

the employer’s serious doubt whether the statement is

true and not misleading. Id. p. 21. This standard is met

(by clear and convincing evidence) where such doubt is

employer, by discharging the broker at will, prevents the broker

from “working off” the loan as the parties intended.

App. 106

inferable from objective evidence such as inconsistent

statements by the employer, or the employer’s omission

of known mitigating factors or countervailing

information.34 Id. Moreover, for purposes of

compensatory or punitive damages, the knowledge and

statements of employees or other agents (e.g., Capital

Forensics) acting on behalf of the employer are imputed

to the employer itself, rendering it fully liable based on

their defamatory statements or their serious doubt

regarding any such statement. Id. pp. 21-22.

Evidence Supporting Mr. Caputo’s

Defamation Claims

Under these standards, and the analogous case law

addressed below, compensatory and punitive damages

should be awarded to Mr. Caputo for Wells Fargo’s

defamatory statements about him to FINRA (apart

from this arbitration), and to his clients, prospective

employers, and the public, including (among other

things) the following statements:

• At FINRA’s request (Caputo Ex. 20, p. 226),

Wells Fargo submitted to FINRA in February

2015 its Matter Summary (Caputo Ex. 9), which

broadly stated that clients were not better off

as a result of the transactions in question

(id., pp. 148, 167), according to analysis by

Rebecca Rogers and Capital Forensics —

Thus, a “defamatory assessment of facts can be actionable even

if the facts [or some of the relevant facts] ... are accurately

presented.” Nazeri v. Missouri Valley College, 860 S.W.2d 303, 314

note 6 (Mo. 1993) (quoting U.S. Supreme Court).

App. 107

thereby implicating Mr. Caputo in a

supposed potential violation of Wells Fargo’s

suitability guideline, despite Wells Fargo’s

actual and imputed knowledge of the gross

omissions and other fundamental flaws in

such analysis, and thus its serious doubts as

to the validity of such analysis;

was edited to delete from its “Compliance

Findings” a prior recognition of “Mitigating

Factors” that “Clients were contacted and

outlined that they were aware of the benefits

that they were forfeiting, associated fees and

commissions and wanted to move forward

with liquidating the annuities” (Caputo Ex.

29, pp. 509, 513) — thereby obscuring the

facts that clients did not concur with the

analysis of Rebecca Rogers and Capital

Forensics, and that Wells Fargo had preapproved four of the transactions at issue

even during its investigation of such

transactions (a fact that might increase its

supposed exposure to potential FINRA

sanctions, and reduce the exposure of Mr.

Caputo);

was further edited to delete from its

“Compliance Findings” that Mr. Caputo

“understands now that it is not a prudent

business practice to liquidate annuities to

take a profit” (id.) — thereby obscuring the

facts that Mr. Caputo had no prior notice of

any such policy, yet had agreed to comply

with it, irrespective of client directives, even

App. 108

though the supposed policy was inconsistent

with Wells Fargo’s suitability guideline

(balancing comparative costs and benefits);

asserted erroneously that “the 2013 audit ...

specifically cited Chris Caputo and this exact

activity as a finding” (Caputo Ex. 9, p. 149),

as though he were a recidivist violator of a

Wells Fargo policy of which he had prior

notice;

stated at the beginning and conclusion of the

Matter Summary that Mr. Caputo

“acknowledged that he did not fully

understand the income riders on annuity

contracts” and “indicated that he did not

perform proper due diligence when making

recommendations to clients” (id., pp. 148,

166-167) — although his underlying

statements reflect only his assurance that he

would more “diligent” in resisting client

requests to surrender variable annuities, as

well as his understanding in 2009 (when

client Hyacinth purchased her PacLife

annuity) that a 47-year-old unemployed

client with a GLWB rider also needed a

GMIB rider (cancelable) in case she needed

withdrawals prior to age 59.5.

• At FINRA’s request (Caputo Ex. 20, p. 226),

Wells Fargo submitted to FINRA by February 6,

2015 a letter from Mr. Caputo’s immediate

supervisor, Stuart Sakosits (Caputo Ex. 19),

which

App. 109

broadly stated that according to analysis by

Rebecca Rogers and Capital Forensics, the

transactions in question “did not appear to be

in the best interests of the customers” and

that “[f]or this reason, the firm made the

decision to discharge Mr. Caputo” (id., p. 224)

— thereby implicating Mr. Caputo in a

supposed violation of Wells Fargo’s

suitability guideline, despite Wells Fargo’s

actual and imputed knowledge of the gross

omissions and other fundamental flaws in

such analysis, and thus its serious doubts as

to the validity of such analysis;

Mr. Sakosits added that Wells Fargo “plans

to put an action plan in place to address

these issues with the firm’s customers” (id.)

— thereby suggesting that customers had

been harmed, and that Wells Fargo would

compensate them (to mitigate its supposed

exposure to potential sanctions by FINRA for

permitting and approving the transactions in

question), although Wells Fargo never

compensated any such customer.

• Wells Fargo submitted to FINRA on January 8,

2016 a letter from its in-house counsel Shea

Hicks (Caputo Ex. 22, pp. 231-265) in response

to FINRA’s request for information regarding

transactions on behalf of Mr. Caputo’s clients

“which directly led to his termination” by Wells

Fargo (id., p. 231).

The information provided by Mr. Hicks was

based on the above-referenced analysis by

App. 110

Rebecca Rogers and Capital Forensics,

implicating Mr. Caputo in a supposed

violation of Wells Fargo’s suitability

guideline, despite Wells Fargo’s actual and

imputed knowledge of the gross omissions

and other fundamental flaws in such

analysis, and thus its serious doubts as to the

validity of such analysis;

Mr. Hicks did not disclose to FINRA that

four of the transactions he addressed in the

letter (including two in which the customer

supposedly suffered a loss) had been

expressly pre-approved by a Wells Fargo

supervisor (Mr. Hulbert) even during Wells

Fargo’s investigation of such transactions

(and that others were approved by

supervisors prior thereto), thus shielding

Wells Fargo from potential exposure to

FINRA sanctions, and increasing unfairly the

exposure of Mr. Caputo;

Among the 46 transactions addressed in the

letter as having “directly led to ...

termination” of Mr. Caputo, half did not

apparently result in any loss even under the

fundamentally flawed analysis of Rebecca

Rogers and Capital Forensics, and many

were clearly beneficial to the client —

indicating that Mr. Caputo was discharged

under an informal Wells Fargo policy (not

contained in its Associates Guide, and at

odds with its suitability guideline) that as

asserted by Rebecca Rogers, it supposedly is

App. 111

virtually never appropriate to surrender a

variable annuity to capture an investment

gain or invest directly inn [sic] the market (to

avoid the heavy burden of annual variable

annuity fees, i.e., insurance premiums) —

again shielding Wells Fargo from potential

exposure to FINRA sanctions, and increasing

unfairly the potential exposure of Mr.

Caputo.

• As required by FINRA, Wells Fargo submitted to

FINRA on January 6, 2015 a Form U-5 stating

that Mr. Caputo was discharged by Wells Fargo

after an internal review of alleged violations of

regulations, rules, or industry standards of

conduct resulted in “concerns regarding [his] ...

recommendations for customers to change from

one long term product to another.” Caputo Ex.

18, parts 3, 7B, and 7F.35 As shown above, Wells

Fargo subsequently clarified for FINRA that its

concerns leading to its discharge of Mr. Caputo

were focused on the analysis by Rebecca Rogers

and Capital Forensics of variable annuity

surrender transactions by Mr. Caputo’s clients,

despite Wells Fargo’s actual and imputed

knowledge of the gross omissions and other

fundamental flaws in such analysis, and thus its

serious doubts as to the validity of such analysis.

Forms U-5 become public documents (summarized on Broker

Check), and under FINRA Rule 3110(e), a job applicant’s Form U-5

must be reviewed by prospective employers in the industry.

App. 112

• Shortly after the discharge of Mr. Caputo, Wells

Fargo brokers called his clients, seeking to

persuade them to disassociate from Mr. Caputo

by falsely telling them that he had been

discharged for “illegal misconduct” (Caputo Ex.

44, p. 712) or otherwise disparaging him

unfairly. Two cease-and-desist letters from Mr.

Caputo’s attorneys at the time (Caputo Ex. 4647) were ignored by Wells Fargo. While most of

Mr. Caputo’s clients followed him from Wells

Fargo to his current firm, 27 clients did not (see

Caputo Ex. 48) — a loss of nearly $12 million in

assets under his management.

In essence, the investigation of variable annuity

surrender transactions on behalf of Mr. Caputo’s

clients, for purposes of investing the proceeds in

mutual funds directly, began with a reckless

misreading by Wells Fargo, in late March 2014, of a

mid-2013 audit report as supposedly “citing” Mr.

Caputo for evading surveillance of such transactions (a

number of which were “discovered” in late March

2014), and violating a supposed informal policy

prohibiting virtually any such transactions — when in

fact Mr. Caputo’s audited transaction was fully

transparent, and was reviewed and approved by his

three immediate supervisors (as Mr. Hulbert

acknowledged). In these upside-down circumstances,

however, Rebecca Rogers (who admittedly had scant

expertise with mutual funds) was determined to bring

Mr. Caputo down, by reporting unfairly and recklessly

that he lacked diligence and competence generally, and

that the transactions in question were somehow both

illicit and unsuitable. Contrary to Wells Fargo’s

App. 113

suitability guideline, her suitability analysis

(essentially replicated by Capital Forensics, and

expanded to additional transactions) ignored key costs

and benefits, and assumed current ‘guaranteed’

payments that were only available (if at all) years later.

The ultimate driver of the discharge of Mr. Caputo was

Wells Fargo’s misplaced concern with its own potential

exposure to FINRA sanctions for having permitted and

approved the transactions in question, and for not

having an adequate system to monitor such

transactions.

Analogous Case Law Supports Mr. Caputo’s

Defamation Claims

In analogous circumstances, brokers have been

awarded compensatory and punitive damages for

defamatory statements by broker-dealers such as Wells

Fargo. See, e.g., Galarneau v. Merrill Lynch, 504 F.3d

189, 200-04 (1st Cir. 2007) (affirming award of $775,000

to broker defamed by Form U-5 asserting inappropriate

short-term trading in long-term bonds that was

periodically approved by supervisors and client, thus

establishing broker-dealer’s awareness, or reckless

disregard, that such trading was not contrary to any

clear policy of the firm -- notwithstanding consultant’s

report commissioned by the firm to impugn such

trading); Merrill Lynch v. Savino, 2007 U.S. Dist Lexis

23126, at *20-21, *43-44 (S.D.N.Y.) (a

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