Citigroup Inc. won dismissal of a lawsuit by six former brokers who said they shouldn't have to pay back the balance on their signing-bonus loans totaling $1.51 million.
Citigroup Inc. won dismissal of a lawsuit by six former brokers who said they shouldn't have to pay back the balance on their signing-bonus loans totaling $1.51 million.
U.S. District Judge Lewis A. Kaplan in New York granted Citigroup's request in a ruling last week.
“Having left the firm without repaying everything they owed, they brought this baseless lawsuit in what quite plainly was a studied effort to prevent collection of the debts they owed through the arbitration process,” Kaplan wrote.
Thomas Banus sued Citigroup in New York federal court in August. An amended complaint in October added five other former Citigroup brokers, who the bank said received signing bonuses ranging from Banus's $45,675 to as much as $801,546. The plaintiffs sought class-action, or group, status on behalf of at least 500 brokers employed by Citigroup in the previous six years who executed promissory notes.
They asked the court to rule that they don't owe the money. Newly hired brokers are typically given loans, portions of which are forgiven annually for a number of years. If the broker leaves before the loan is completely forgiven, the remaining portion must be paid back with interest.
Banus called that requirement “unconscionable” in his complaint. He said he shouldn't have to pay all at once the $39,000 left on his forgivable signing-bonus loan when he quit in 2006.
“We are extremely disappointed with Judge Kaplan's decision,” the brokers' lawyer, Mark Thierman of Reno, Nevada, said in an e-mail.
The requirement for brokers in such cases to go to arbitration on an individual basis “is a cleaver way to prevent group or collective actions by employees,” Thierman said, calling it the “practical equivalent of a 1930s style ‘yellow dog' contract.”
“Over 50 years ago such yellow dog clauses in employment contracts were declared unconscionable per se by the National Labor Relations Act,” Thierman said.
The New York-based bank contended the brokers can't argue they didn't get anything of value for the loans or that it's an “unconscionable penalty” for them to have to repay the forgivable loans if they leave the company, according to a January court filing.
The signing-bonus loans are intended to ensure employees don't leave the company, according to Banus's complaint. He left after two years because he was unhappy with how Citigroup ran its business, he said in the complaint.
The employment agreement and note Banus signed are “an illusory contract” because the bank can terminate a broker's employment and accelerate the loan with no loss to itself, while the broker must pay the debt with interest, according to the complaint.
The broker's “arguments are at war with the most basic principles of the law of contracts,” Kaplan wrote. “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.”
The case is Banus v. Citigroup Global Markets Inc., 09-cv-07128, U.S. District Court, Southern District of New York (Manhattan). --Bloomberg
