Another assault on deferred compensation fails. After going two for three in a unique tug of war involving both the arbitration and court systems, former Smith Barney broker James McCarthy is likely throwing in the towel in his three-year fight for the money left in his deferred-compensation plan.
“We'll consider our options from here,” says McCarthy's lawyer, Bill Jacobson, of Providence, R.I. “But there aren't many options after this.”
The U.S. Court of Appeals ruling, which was issued in late September, reinstates an original arbitration panel decision from 2004 in support of Citigroup's Capital Appreciation Plan (CAP), a frequent target of lawsuits from departing brokers. It also means that McCarthy won't see a penny of the $287,000 in money he contributed to CAP and forfeited — per the plan's rules — when he left.
McCarthy, a 20-year veteran, was among the top 5 percent of producers and a member of the elite Director's Council. He left in 2003, when Citigroup's name became wrapped up in the analyst-research scandal, and formed Seascape Capital Management, an independent RIA in North Hampton, N.H. But he left the $287,000 behind.
The Court of Appeals ruling is the fifth and final ruling in the exchange between the arbitration panels and the district court system. McCarthy lost his first arbitration, appealed to a district court and won the right to a second arbitration, which he lost again. He then won another appeal and the right to a third arbitration. Citigroup appealed to the U.S. Court of Appeals to reinstate the original arbitration ruling and won, putting an end — it seems — to another fight over CAP.
“If the law was that the courts should always second guess the legal analysis of arbitration panels, we wouldn't have arbitration,” said John Skelton of Bingham McCutcheon in Boston, Citigroup's attorney in the proceeding.
Jacobson, McCarthy's attorney, agreed that the Court of Appeals doesn't like lower courts to “look behind arbitration judgments,” but says the outcome is still disappointing. “They [the Court of Appeals] want to be shown that the arbitration panel understood the law and deliberately ignored it,” he says. “No one disputed that we were right under New Hampshire wage law. Unfortunately, just because the arbitration panel was wrong is not enough to overturn the case.”