WealthManagement Magazine

Judge Denies BOM's Appeal in Letter-Opening Case

A federal judge has turned down an appeal of a high-profile arbitration case filed by former Merrill Lynch branch manager Alex Lambros Jr.Federal Judge Susan Bucklew of the U.S. District Court in Tampa, Fla., in March refused Lambros' motion to vacate or modify an NYSE panel's finding. Lambros' claim--that he was wrongfully terminated and discriminated against in early 1995 over an alleged letter-opening

A federal judge has turned down an appeal of a high-profile arbitration case filed by former Merrill Lynch branch manager Alex Lambros Jr.

Federal Judge Susan Bucklew of the U.S. District Court in Tampa, Fla., in March refused Lambros' motion to vacate or modify an NYSE panel's finding. Lambros' claim--that he was wrongfully terminated and discriminated against in early 1995 over an alleged letter-opening incident--was the subject of a front page Wall Street Journal story in February. The arbitration panel a year ago denied Lambros' claims for damages, although it ordered Merrill to pay hearing costs and ordered negative comments removed from his U-5.

Lambros is now at Linsco/Private Ledger in Ft. Myers, Fla. He and his attorney, Thomas Grady of Grady & Associates in Naples, Fla., in April appealed the court's decision and asked the judge for a rehearing to either vacate the award or proceed with a court trial. This latest appeal was pending at press time.

Lambros had argued that one reason the arbitration decision should be dismissed was Merrill's refusal to make available three witnesses on the last day of hearings--including a key witness Merrill claimed saw Lambros rip open a payroll envelope--the transgression for which Merrill said Lambros was fired. The firm claimed the envelope was to be opened only by the office manager; Lambros argued that he was the licensed manager in the Cape Coral, Fla., office, where the dispute occurred.

David McWilliams, the firm's complex manager who fired Lambros, and Christopher Payson, the acting manager in the branch, both testified that an administrative assistant in the office told them she saw Lambros take the payroll envelope and destroy it.

But last January, the assistant, Tracie McHugh, filed an affidavit with the court challenging Merrill's claims.

In the Jan. 10, 1998, affidavit, McHugh said she never saw Lambros open an envelope, and that Merrill attorneys had attempted to get her to change her story. McHugh said she "vividly remembered" what happened at the office and refused to change her story. McHugh also wrote that Payson told her Lambros was fired for an unspecified "different reason" than ripping a pay envelope.

McHugh was never called by Merrill as its one witness to the alleged incident. At the final set of sessions in June 1997, after prior sessions in February and April, panel chairman William Nodines initially could not recall who McHugh was. Grady refreshed Nodines' memory and attempted to obtain her for rebuttal testimony, but at one of the final sessions, Peter Hurtgen, a Merrill outside attorney from Morgan Lewis & Bockius in Miami, maintained that Merrill could not compel McHugh to appear because she suffered from an "internal condition," was heavily medicated and that Hurtgen did not have her unlisted phone number.

McHugh disputed Hurtgen's representation in her affidavit. "Throughout the period of my employment with Merrill Lynch, including 1997 when I was at home on a leave of absence, Merrill Lynch knew my home address and home telephone number," McHugh wrote. "Virginia Flippen [an administrative manager at the firm] has visited my home and called me regularly during the arbitration hearings." McHugh said an asthma medication she took "did not prevent me from performing my normal duties and would not have prevented me from testifying. ... I never told anyone that it would."

McHugh stated that she recalled the final hearings were June 25 and 26, 1997, at which time "I was home and was available to testify in the arbitration. No one from Merrill Lynch [including its attorneys and Ms. Flippen] called me to advise me that I had been requested or ordered. ... Rather, Ms. Flippen called me during that week and told me that my appearance was not necessary."

McHugh noted, too, that in late 1996, after receiving a 1% pay boost, Merrill "changed that to the maximum permissible" 5%.

Judge Bucklew chided Lambros and Grady for not getting the affidavit in a timely manner. But McHugh wrote in the affidavit that she was employed by Merrill until "shortly before executing this declaration."

RR was unable to locate McHugh, whose number apparently has been disconnected.

Merrill spokesperson Bill Halldin says the claim that the firm urged McHugh to change her story is "absolutely false. She admits [in the affidavit] she was told to tell the truth."

The firm's attorneys never claimed McHugh wasn't available, Halldin says. Merrill did not feel it could compel McHugh to testify given that she was on medical leave at the time and given less than a day's notice, he says, adding that Lambros was free to extend the hearing and subpoena McHugh, a point also made by Judge Bucklew.

Regarding the conflicting statements made by McWilliams and Payson, versus McHugh's version of the incident, Halldin would say only that, "You've got the statements of three people."

Judge Bucklew also noted that McHugh had been available at earlier hearings. Lambros says McHugh attended the first session, but was kept outside the hearing room by Merrill.

Halldin says McHugh was present at earlier hearings until Grady released her, "but I don't know how long she was there."

Judge Bucklew also was not convinced that the testimony of Flippen and McWilliams would have made a difference. McWilliams testified at several earlier hearing sessions, but was unavailable for the final day of hearings. Lambros and Grady argued in their appeal that a replacement arbitrator had not seen McWilliams testify in person, and therefore did not have an opportunity to gauge his credibility. Flippen also was not available for in-person testimony; Merrill attorneys said she was caring for a sick child.

Transcripts of the case show that the panel chairperson was troubled by the three witnesses all being unavailable for the final session. After Hurtgen explained that McWilliams was on his way to Australia and Flippen was homebound, panel chairperson William Nodines asks:

How about Ms. McHugh?

Hurtgen: All I know is that she's on a leave of absence. I don't know what the circumstances are, and I see nothing funny about that, sir.

Nodines: I didn't mean to imply anything funny.

Hurtgen: Well, the smile on your face.

Nodines: I'm sorry. I didn't mean to imply that. I just find it unusual that all three of these [people] happen not to be available.

In earlier sessions, arbitrator Harold May questioned the validity of Merrill's defense in the case when it became apparent that Lambros was the licensed manager at the office during the disputed letter-opening incident, and therefore could have had the authority to open an envelope addressed to the manager. State registration records introduced at the hearings showed that the office didn't have a Series 8 principal present from the time Lambros was fired in early January 1995 until late March of that year when Payson passed his Series 8.

Growing impatient with Payson's testimony, May remarked to the panel chair:

"OK. Mr. Chairman, I think this hearing on this line of defense ought to be stricken from the record. It's so flawed that I'm having trouble believing any of it.

Apparently, Mr. McWilliams has violated the Florida law by appointing this man as branch manager who wasn't licensed [and] unless they've got some other line of defense to this claim, I think we ought to recess this hearing."

Shortly after the exchange, May voluntarily stepped aside after being challenged by Merrill attorney Hurtgen for alleged bias.

Lambros claimed McWilliams wanted him out due to a disability that forced the broker to work half days, and that the complex manager wanted to see a larger turnover from Lambros' $88-million-in-assets book. Lambros was a $500,000 to $600,000 producer, and accounted for the bulk of the branch's production.

"It just appeared that he [McWilliams] wanted control of my assets if I did, in fact, leave" due to disability, Lambros testified.

A former rep at the branch, with whom McWilliams did not let Lambros partner, testified that McWilliams wanted Lambros to team up with Payson. Lambros rejected that idea. After Lambros was fired, Payson took the largest portion of Lambros' clients, the rep claimed. Payson admitted during the hearings that his own book grew from about $30 million in assets at year-end 1994 to about $60 million as of mid-1995--several months after Lambros was fired. Where did that growth come from? Grady asked Payson during the hearings. "Part of it was asset gathering on my behalf and also some of the reassignments from Mr. Lambros," Payson answered.

Merrill's Halldin says the accounts that were left behind were distributed to brokers in proportion to the assets they had under management.

Some time later, the Cape Coral office was closed due to lack of production, Payson testified.

The panel in the case ordered that negative language on Lambros' U-5 be removed within 10 days of Merrill's receipt of the arbitrators' order. More than a year after the arbitration order, Lambros' CRD report still showed he was terminated by Merrill Lynch "after he destroyed internal correspondence directed to the manager. ..."

Halldin says the firm did file an amended U-5 for Lambros on July 15, 1997.

In a separate development, McWilliams was named in a suit that was decided in March involving a similar claim by two former Merrill reps in Michigan where McWilliams had been transferred. The brokers won that case, alleging their books were stolen (see "Merrill Ordered to Pay Two Former Brokers $172,000, Amend U-5s," Page 26). McWilliams is now a district director for Merrill in Sydney, Australia.

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