In the high-finance world of Wall Street, ya got yer employment disagreements, yer employment disputes, yer knock-down-drag-outs, and then, yer sagas. This is one of those sagas.
In 2002 and 2003, Daniel Ryan had earned six-figures in salary from his brokerage employer,and was paid a bonus in February for the prior year’s work. Clearly, Ryan was earning a decent living.In early 2003, the fledgling Kellogg Partners Institutional Services, LLC (a subsidiary of Kellogg Group LLC) was being formed to trade stocks for institutional investors, and the firm sought out Ryan. During discussions with Kellogg’s Managing Partner, Ryan put his price tag at about $350,000, and he was told that the dollars “would not be a problem.”
Funny thing about Wall Street. Lots of times, things that folks say aren’t problems sort of turn out to be, well, you know, problems.
In the Beginning
Kellogg proposed to pay Ryan’s requested $350,000 by splitting his contemplated 2003 compensation into:
- $175,000 salary;
- $175,000 bonus to be paid in late 2003/early 2004.
After accepting the offer but before starting employment, on June 21, 2003, Ryan signed a Kellogg employment application which admonished that no offer of employment or even the act of employment with the company, nor any of the company's policies or procedures
carry any guarantee of employment for any length of time and that my employment, compensation and benefits are at will and can be terminated, with or without cause or notice, at any time . . .
SIDE BAR: Another odd thing about life on Wall Street. You got lots of high-powered, Type A personalities. Many of them don't like lawyers -- some of these folks even have a law degree but prefer to trade and work deals rather than patrol the corridors of the courts or sit in a swivel chair in some law firm. You talk to these wheelers, dealers, and traders and they tell you that on the Street, it's all done by a handshake. Your word is your bond. At Goldman Sachs or at Merrill Lynch, JP Morgan, Morgan Stanley Smith Barney, Wells Fargo -- you name it, it's the same confidence in the honor of the biz. Which might explain why sometimes there isn't a contract or written agreement. After some 30 years in the biz, that cavalier attitude still surprises me.
You mean to tell me that you took a job for six or seven figures in annual comp but didn't reduce it to a writing that was executed by you and the firm? Really?? Seriously??? C'mon, you're kidding me, right? No?? Uh oh.
Ummmm, tell you what, how about, before we get started, you write out a nice, large check to me for my legal services and, hold on, here's my written Retainer Agreement. Nah, thanks but no thanks, I don't take on clients on the basis of a handshake. Yeah, I know, that's not how Wall Street rolls but I'm not on Wall Street. I'm just another suit and mouthpiece.
On July 14, 2003, Ryan became Kellogg’s Head Floor Broker. Unfortunately, it wasn’t until October 2003 that the firm's floor operations at the NYSE began. Although Kellogg paid Ryan an extra two week’s pay in late 2003, the promised $175,000 bonus didn’t get paid during 2003.
Another Year
After several conversations between Ryan and Kellogg about when he could expect payment of his 2003 bonus, in February 2004, the Managing Partner asked him to forego the payment until late 2004/early 2005 – further, the bonus would be for 2004 rather than 2003. Ryan said that he "wasn't very happy about it," but would "take one for the team and take the guarantee for the 2004 year instead of 2003."
On February 18 2004, Ryan signed a receipt for the firm’s Handbook, which, among other admonitions, contained this:
I understand that Kellogg Group LLC is an 'at will' employer and as such[,] employment with Kellogg Group LLC is not for a fixed term or definite period and may be terminated at the will of either party, with or without cause, and without any prior notice. No supervisor or other representative of the company (except the President) has the authority to enter into any agreement for employment for any specified period of time, or to make any agreement contrary to the above. In addition, I understand that this Handbook states Kellogg Group LLC's policies and practices in effect on the date of publication. I understand that nothing contained in the Handbook may be construed as creating a promise of future benefits or a binding contract with Kellogg Group LLC for benefits or any other purpose."
Yet Another Year
Although Ryan kept pressing for payment of the now deferred bonus, the Managing Partner told him to relax and that, essentially, the check would soon be in the mail. Whether as a show of good faith, a calculated stall, whatever, on February 3, 2005, the Managing Partner offered to pay Ryan a $20,000 bonus for 2004 work. By now, Ryan seemed to be quite a ways into a slow burn and rejected the piecemeal offer. In the employee’s mind, he was promised $175,000 by late 2003 or early 2004, which he graciously postponed to late 2004 or early 2005 – and the day of reckoning had arrived. A deal is a deal is deal. And $20,000 isn’t the $175,000 promised over a year earlier as part of his signing on.
The Old Heave Ho
On February 8, 2005, Kellogg’s Managing Partner fired Ryan, who was handed a separation agreement calling for a $20,000 payment subject to a general release of Kellogg. The Managing Partner and the firm’s Chief Compliance Officer seemed to have urged Ryan to take the deal and sign the agreement in order to avoid a negative Uniform Termination Notice for Securities Industry Registration ("Form U5") -- a suggestion seems to have been made by the the firm that such a relatively amicable resolution could result in Ryan’s Form U-5 being filed as a Voluntary Resignation rather than a Termination For Cause.
Funny thing about subtle hints or disputed conversations: everyone has a different recollection. You said that. No we didn't. You did. Didn't. Hey, whatever; in the the end, it seems that Ryan declined to simply shake hands and move on, and, as some might opt to phrase it, essentially, he told the firm to shove it.
On March 9, 2005, Kellogg filed Form U5 with the National Association of Securities Dealers, Inc. (NASD), stating that the Reason For Termination was “for cause” and prompted by Ryan's insubordination and disparagement of the firm.
Lawsuit
The feisty Ryan filed a Complaint in New York State Court on May 26, 2005. During a jury trial in Supreme Court of New York in 2009 on Ryan’s New York State Labor Law and contract claims, the Managing Partner’s testimony largely contradicted the material points raised by Ryan – on the issue of the disputed bonus, for example, the Managing Partner testified that the subject never came up during recruitment and that all bonuses were discretionary. Ryan had asserted that the bonus was guaranteed and non-discretionary.
Following trial, the jury unanimously found that the parties entered into binding oral agreements whereby Ryan was to leave his then current employment to work for Kellogg and receive a bonus of $175,000 at the end of one year, payment of which was orally extended to the end of the following year. By a 5-1 vote, the jury found that Kellogg had not willfully withheld this payment.
SIDE BAR: Under the New York State Labor Law a prevailing party is entitled to recover the disputed wages and reasonable attorney’s fees but if there is a further finding of the willful failure to pay, additional damages equal to 25% are authorized (raised to 100% in 2010).
Kellogg moved for judgment notwithstanding the verdict or for a new trial on numerous grounds. Ryan cross-moved for various kinds of relief, principally a judgment notwithstanding the verdict on his claim for willful violation and attorney's fees).
Among Kellogg’s challenges to the verdict was its assertion that Ryan's employment application and firm's employee handbook clearly admonished that there were no guaranteed and/or non-discretionary bonuses. Further, the employer asserted that Ryan had failed to prove that the firm agreed to pay to him a non-discretionary bonus. Also, Kellogg argued that an oral agreement to pay the bonus was unenforceable under New York State’s General Obligations Law, which contained a common “Statute of Frauds” provision that rendered unenforceable agreements not in a writing signed by the party seeking enforcement when the terms are not capable of being performed within one year.
Following the court’s consideration of the motions, the judge decided that Kellogg had waived reliance upon the General Obligations Law by failing to plead it as an affirmative defenses in its Answer. Separately, the judge was apparently persuaded by Ryan’s position that the non-discretionary bonus was in consideration for work to be performed during 2003 and to be paid in 2004, and, accordingly, the agreement was capable of performance within one year. Both parties' motions with respect to declaring the jury verdict against the weight of the evidence were denied and Ryan was $379,956.65, consisting of the $175,000 awarded by the jury, statutory interest, attorney's fees in an amount stipulated by the parties and costs.
Appeal: Round One
On appeal, the New York State Appellate Division affirmed, with two Justices dissenting (Appellate Division, First Department, 79 AD3d 447 , December 7, 2010 and corrected February 16, 2011). The Appellate Division essentially found that Ryan's breach-of-contract claim was not barred by the handbook or employment application because those documents did not clearly indicate that Ryan's bonus was discretionary, which the jury found was not the case.
Following the loss of its appeal, Kellogg appealed to the New York State Court of Appeals, largely basing its position on the issues raised in the dissent of the two Appellate Division justices:
Friedman and McGuire, JJ., dissent in a memorandum by McGuire, J., as follows: I would reverse and dismiss the complaint on the ground that plaintiff's breach of contract claim is barred by the employment application he signed and the employee handbook. With respect to the former, plaintiff acknowledged his understanding that none of appellant-employer Kellogg Partners' "policies or procedures . . . carry any guarantee of employment for any length of time and that my employment, compensation and benefits are at will and can be terminated, with or without cause or notice, at any time, at the option of [employer] or myself." The majority upholds plaintiff's claim of entitlement to a bonus on the ground that the language just quoted does not "clearly indicate that bonuses are discretionary." Even assuming that the application or handbook must "clearly indicate" that bonuses are discretionary, that requirement was easily satisfied. Although the [*3]majority is not clear on the point, it may be of the view that the word "bonus" must appear in either the application or the handbook. If so, suffice it to say that none of the cases the majority cites so holds and that, at least in this context, it makes no sense to insist that an employer use a specific rather than a more encompassing word (cf. Bazak Intl. Corp. v Mast Indus., 73 NY2d 113, 125 [1989] [rejecting significance in commercial case of failure of merchant to use "magic words"]). I need not determine whether appellant also is entitled to reversal on the other grounds it raises.
Appeal: Round Tw0
The focus of the Court of Appeals was whether Kellogg’s job offer included an inducement in the form of a guaranteed, non-discretionary $175,000 bonus in late 2003 or early 2004; and, subsequently, whether the managing partner in early 2004 asked for and received Ryan's consent to delay this bonus payment for a year until late 2004 or early 2005. Daniel Ryan v Kellogg Partners Institutional Services (NY Court of Appeals, 2012 NY Slip Op 02248, March 27, 2012).
The Court of Appeals framed Kellogg’s appeal as two-pronged:
[F]irst, that there was insufficient evidence to support the jury's verdict because statements in the employment application and employee handbook negate Ryan's alleged expectation of or entitlement to a guaranteed or non-discretionary bonus; second, that the oral agreements respecting the bonus, if, in fact, entered into by the parties (which Kellogg strenuously denies), are unenforceable because the General Obligations Law mandates that any such agreements would have to have been reduced to a writing by an agent of Kellogg in order to be valid. Kellogg also disputes Ryan's right to attorney's fees pursuant to Labor Law § 198 (1-a).
Following consideration of the parties' arguments, the Court of Appeals affirmed Ryan’s award by finding that
- Ryan's bonus had been earned and was vested before he left his job at Kellogg;
- its payment was guaranteed and non-discretionary as a term and condition of his employment, and
- Kellogg’s neglect to pay him what is deemed to be “wages” under the state’s Labor Law entitled the former employee to an award of attorney’s fees.
Why In Court And Not Arbitration
How come this intra—industry dispute didn’t wind up in a mandatory FINRA arbitration proceeding? Great question and one that puzzled me too.
According to Ryan v. Kellogg Partners Institutional Service (Appellate Division, First Department, 58 A.D.3d 481, 871 N.Y.S.2d 108, January 13, 2009), Kellogg was found to have waived any right to arbitration by
failing to raise it as a defense in its Answer, asserting counterclaims, making a dispositive motion, and otherwise actively participating in this litigation for almost three years through the completion of extensive disclosure proceedings and the filing of a note of issue, all to the prejudice of plaintiff . . .
