Sprout exec on mass layoff video call says don't shoot the messenger

A former Sprout Mortgage executive who told hundreds of employees in a video call they were fired is asking aggrieved workers not to shoot the messenger. 

Shea Pallante, the firm's ex-president and chief production officer, is asking a federal judge to dismiss him from a wage lawsuit from laid-off employees. The non-qualified mortgage lender abruptly shuttered in July 2022, and class action plaintiffs say Sprout stiffed hundreds of workers out of their final paychecks and health insurance coverage. 

According to case filings, Pallante revealed the shutdown to over 300 workers in a teleconference on July 6, 2022. Plaintiffs allege the executive during the call didn't inform them they wouldn't receive their ensuing paychecks for two pay periods.

Counsel for Pallante in a motion to dismiss last month argued he didn't have any power over employment, payment nor any say in the shutdown. They point out he was only mentioned sparingly in an amended complaint by former staff. 

"Plaintiffs' allegations, even taken as true, do not show that Pallante was anything more than the 'bearer of bad news,' which does not impute liability to him," his attorneys wrote. 

Former chief financial officer Christopher Wright filed a similar motion to dismiss last month. Attorneys for defendants have placed blame for company decisions on embattled former CEO Michael Strauss. 

An attorney for Pallante declined to comment. David Ehrlich, a partner at Long Island-based Stagg Wabnik Law Group, said his client Wright had no power to make material decisions.

"My client got roped improperly and unjustly into this matter where he shouldn't be," Ehrlich said Thursday.

Counsel for the other parties didn't return requests for comment Wednesday. 

Sprout was one of two high-profile industry closures in mid-2022 as mortgage rates began their rapid ascent from pandemic lows. Texas-based First Guaranty Mortgage Corp. filed for bankruptcy a month earlier, in a case that closed earlier this year. 

The Long Island-based Sprout has endured a rougher post-shutdown experience, with creditors seeking a combined $66 million from the non-QM lender. The Internal Revenue Service is also seeking $15.5 million in payroll taxes from the company Strauss allegedly failed to pay since June 2017.

The trustee for Sprout in its pending bankruptcy case has likened the actions of the former CEO to money laundering, as he purportedly used funds funneled from the lender to cover personal expenses such as homes and horse racing.

The company's bankruptcy case has interfered with the employee lawsuit, axing a $3.5 million settlement agreed to in 2023. At least 120 ex-Sprout employees have signed opt-in consent forms for the Fair Labor Standards Act complaint, and attorneys claim over 540 workers are included in the proposed shutdown class.