Former executives of failed lender Sprout Mortgage could be off the hook in a long-running lawsuit from laid-off employees seeking millions of dollars in backpay.
The non-qualified mortgage lender abruptly shuttered in July 2022 and allegedly left hundreds of employees without their final two paychecks.
Over 100 fired workers sued the company and its leadership that summer, and the case has taken many twists and turns since, including a short-lived settlement agreement. A federal judge last week recommended three ex-lieutenants be dismissed from the complaint, suggesting plaintiffs have failed to clarify the accusations against those former bosses.
The executives in question are Christopher Wright, former chief financial officer; Shea Pallante, ex-president and chief production officer; and Elliot Salzman, Sprout's former chief credit officer.
"Plaintiffs have had four opportunities over the course of more than two years to plead a viable case against moving defendants," wrote U.S. Magistrate Judge Lee Dunst, in a report to his superior. "Yet the (third amended complaint) continues to rely on vague, conclusory, and undifferentiated allegations while dramatically expanding the factual and legal complexity of this case."
In a 35-page legal analysis, Dunst recommended Pallante, Salzman and Wright be dismissed with prejudice, meaning plaintiffs can't sue them again. The magistrate said the lawsuit had widespread inconsistencies, making it difficult for the executives who were only mentioned in a few paragraphs to understand the accusations and defend themselves.
Neither embattled ex-CEO Michael Strauss nor the company have responded to the employee lawsuit and were not recommended for dismissal, as the class action remains pending. District Judge Joan Azrack, of the U.S. District Court for the Eastern District of New York, still has to rule on the executives' motions.
Salzman, who today is president of Miami-based Foundation Mortgage, is representing himself in the case.
"While I am gratified by the recommended dismissal with prejudice, I remain mindful that many former employees of Sprout Mortgage were affected by the company's abrupt closure," said Salzman in a statement this week. "I sincerely empathize with them and hope that any ongoing proceedings solely against Sprout Mortgage and Michael Strauss will be resolved in a way that provides clarity and closure for all involved. For my part, I look forward to finally putting this matter behind me."
Attorneys for other parties didn't return requests for comment.
What happened to Sprout workers?
The proposed class of Sprout workers sued for wage claims, including Sprout failing to submit a
Plaintiffs filed another amended complaint, adding numerous violations of federal and state labor laws. Over the past year, Pallante, Salzman and Wright filed their defenses, and Salzman wrote his own legal filings.
Ex-Sprout leaders remain employed in the industry. Wright is vice president of finance at advisory firm Stearns Financial, and Pallante is listed on LinkedIn as a senior sales executive at Brokers First Funding.
Ex-Sprout CEO leaves professional, personal mess
Sprout's bankruptcy case remains pending and the company still has over $60 million in liabilities to numerous financial counterparties, according to case filings. The trustee for Sprout has blamed Strauss's financial maneuvering for the company's failure, describing his dealings
Strauss' past includes
Federal and state court filings also reveal Strauss is facing foreclosures for his two multimillion dollar New York homes. A state judge has yet to rule on the foreclosure of his Southampton domicile.
A federal court in March allowed the condominium association for Strauss' Upper East Side penthouse to pursue its lien, after Strauss allegedly filed for bankruptcy minutes before a foreclosure auction in January. Despite his debts, the condo board alleges Strauss was receiving $67,000 monthly rent payments from a subtenant.
An attorney for Strauss in his Manhattan bankruptcy case didn't return requests for comment.
