Raymond James Wins Attorneys' Fees In Florida FINRA Arbitration To Recover On Employee Promissory Notes

November 11, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in December 2010, Claimant Raymond James & Associates, Inc. sought $157,668.97 in compensatory damages plus interest, forum fees, and attorneys' fees in connection with its attempt to recover three unpaid loans from former employee Respondent McGrath.  In the Matter of the FINRA Arbitration Between Raymond James & Associates, Inc., Claimant, vs. Matthew McGrath, Respondent (FINRA Arbitration 10-05607, November 7, 2011).

Respondent McGrath generally denied the allegations, asserted various affirmative defenses, and filed a Counterclaim asserting misrepresentation in connection with Claimant's alleged failure to fulfill promises and responsibilities. Respondent's Counterclaim sought $71,941.11 in compensatory damages and, at the conclusion of the hearing, Respondent sought an offset for the amount of the loan debt, if any, to be determined by the sole FINRA Arbitrator hearing the case.  

SIDE BAR: Respondent McGrath appeared pro se until October 4, 2011, at which time he was represent by represented by Seth Huberman, Esq., Huberman & Associates, Boca Raton, FL.  Apparently, McGrath's self-representation didn't go all that smoothly because the FINRA Arbitration Decision states that the sole FINRA Arbitrator:

urged him from the outset to get counsel, but he did not until a few weeks before the final hearing. Along the way. Respondent appeared to delay and frustrate the discovery process. Respondent was sanctioned with the costs of a motion to compel. Respondent sought an untimely delay in the hearing for a patently frivolous reason. At one point. Respondent asserted that a named attorney would appear for him; but when inquiries were made so that attorney could get up to speed; the attorney wrote declaring that he held no authority from Respondent.

The attorney who did finally appear for the evidentiary hearing was thoroughly professional and made every reasonable effort to elicit testimony and cross examine; but there is only so much those talents can do to overcome the facts . . .

Attorneys' Fees

The FINRA Arbitration was conducted in Boca Raton, FL and during closing arguments on October 20,2011, Respondent raised the jurisdictional question of whether Florida law permitted an arbitrator to award attorneys' fees - Respondent argued that such an award was barred under the state's law and, therefore, regardless of the case's merits, the FINRA Arbitrator lacked authority to render same.

SIDE BAR:  Oh boy, this is really a mess.  Two states that drive FINRA arbitration lawyers nuts are Florida and California - and it doesn't matter whether you're representing the Claimant or the Respondent, or a public customer or the industry. 

As we all know, in life there are the rules, and then there are the exceptions to the rules.  It's those exceptions that turn the concept of uniformity on its head, notwithstanding that there's a Federal Arbitration Act or supposedly sacrosanct rules at the American Arbitration Association or FINRA.

Under the  Florida Statutes, Title XXXIX, Chapter 682: Arbitration Code, we have this outlier of an exception:

682.11 Fees and expenses of arbitration.
Unless otherwise provided in the agreement or provision for arbitration, the arbitrators' and umpire's expenses and fees, together with other expenses, not including counsel fees, incurred in the conduct of the arbitration, shall be paid as provided in the award.

Note that excluded from the fees and expenses that arbitrators in Florida may award - absent an agreement to the contrary - are "counsel fees," which have been interpreted as including the more commonly named "attorneys' fees." In interpreting this statute, Florida courts typically require that arbitration decisions set forth the basis upon which an arbitration award was rendered so as to provide the courts with an adequate basis upon which to determine if there is an entitlement of attorneys fees.

As such, absent an express agreement between the parties to the contrary, Florida courts claim the right to determine whether a party is entitled to an award of attorneys' fees and the proper amount of any such award, in contradistinction to placing that right with an arbitration panel. 

All of which sets us up for more headaches.  What happens if a FINRA Arbitration Decision adjudicating a Florida-based arbitration finds in favor of a party who is seeking attorneys fees?  Trust me, it's not a pretty sight.  In Kathryn B. Moser, Petitioner, Vs. Barron Chase Securities,Inc., Respondent (Supreme Court Of Florida 783 So. 2d 231; 2001 Fla. LEXIS 628 April 5, 2001), the Florida Supreme Court addressed the issue of whether a Florida trial court lacked authority to grant attorney's fees to Moser for successfully prosecuting her claim in an NASD arbitration (NASD was the predecessor in interest to FINRA), because the NASD award did not explicitly specify that Moser had prevailed on her statutory claim. The Court conceded that:

Florida statutory and case law authorize and endorse the resolution of disputes through arbitration. However, there has been substantial confusion as to the procedure and appropriate forum for recovering attorney's fees incident to arbitration proceedings.

Noting that there was " a great deal of uncertainty concerning the procedure for the award of attorney's fees in arbitration proceedings," the Court added that this "confusion is only exacerbated when an award fails to set out the basis for the award and a trial court must look for "signals" or speculate as to the basis of an award in exercising its statutory authority to determine and award fees."

Florida's position on attorneys' fees remains controversial. Many practitioners argue that there should be a presumption in favor of arbitrators having the right to fully resolve the disputes before them. Unfortunately, the Florida rule imposes additional costs and time upon a prevailing arbitration party, who has the added burden of seeking the award of attorneys' fees in the court system. 

In the FINRA Dispute Resolution Arbitrator's Guide provided to all arbitrators, there is a section titled: Attorneys' Fees:

The authority for granting attorneys' fees must be included in the award. If the arbitrators have doubts regarding their authority to award such fees, they should request the parties to brief the issue. There are three situations when parties may pursue attorneys' fees:
a contract includes a clause that provides for the fees;
the fees are allowed as part of a statutory claim; or
all of the parties request or agree to such fees.

Arbitrators must award reasonable attorneys' fees to claimants who prevail under certain statutes, including Title VII actions for discrimination based on race, color, religion, sex or national origin. If the panel determines that a party has a right to reimbursement for attorneys' fees, that party must prove the amount to the satisfaction of the panel.

This Case In Point

So - you recover from that crash course in arbitration law?  Okay, now back to the FINRA arbitration at hand.

The FINRA Arbitration Decision in Raymond James v. McGrath informs us that the promissory notes' agreement on which the dispute is premised calls for an award of attorneys' fee if the borrower defaults, which clearly seems to be the thrust of Claimant's case.  Pointedly, the Decision states:

The claim for reimbursement is supported by an affidavit from Claimant's counsel.
Paralegals $ 3,891.50
Attorneys $7,712.00
Costs $ 7,558.00

The Arbitration Decision states that Respondent conceded that the parties may voluntarily agree to place the issue of attorneys' fees before a FINRA arbitrator. Further, the Decision notes that Respondent had signed the the underlying contracts, which admonished that in the event of any covered dispute, the laws of the State of Michigan were to govern.  Finally, in addition to the issues of obligations imposed by private contract and agreement, we are reminded that the Respondent was bound to resolve his dispute before the National Association of Securities Dealers (the predecessor in interest to FINRA) and according to its rules.

The Arbitrator concluded that the claimed legal fees were charged by "in-house" professionals, the time records documented the charges, and the fees charged were "fair and reasonable, indeed are modest for a case of this size and duration. "  Moreover, the Arbitrator noted that the Respondent did not challenge the recovery of other costs, "which consist of minor charges for printing, etc, and significant charges for FINRA forum fees to administer the arbitration program."

On the Merits

The sole FINRA Arbitrator unequivocally determined that:

On the merits. Claimant is totally entitled to recover the balances due on the loans which Respondent received and upon which Respondent defaulted. Respondent signed three such loans and agreed to repay them in full in the event of default such as would be triggered by leaving employment for any reason. Respondent resigned freely and quickly moved on to another brokerage employer. In the loan contracts Respondent promised to pay interest at 10% per annum, and any costs of collection including reasonable internal and external attorneys' fees. . .

One thing that struck me with this Decision is that it was clearly, bluntly, and candidly written.  The Arbitrator's frustration is apparent but so is his professional grasp of the legal issues and his acceptance of his obligation to explain his rationale - which he does quite admirably.  He leaves little doubt when he says:

Respondent really had no defense in law or fact on the merits of the Statement of Claim. Respondent was a veteran of this industry, knowing its conventions. Respondent had borrowed under similar terms from a prior brokerage house. Respondent took the money from Claimant; he did not repay it; by the terms of the loans, default was triggered by Respondent's resignation. The record shows Respondent moved shortly to another brokerage from whom he borrowed another large sum, but he did not repay Claimant.

In conclusion, the sole FINRA Arbitrator found that Respondent fully and freely submitted all issues and facts in this dispute to the FINRA arbitration process and to the arbitrator, and had waived his objections to the awarding of attorneys' fee. Further, the parties chose Michigan law and that law authorizes and supports granting of promised attorneys' fees.

Adding Up the Dollars

Accordingly, the FINRA Arbitrator found Respondent McGrath liable for the unpaid balances on loans contracted on October 5, 2006; December 14, 2007; and December 12, 2008; and ordered Respondent to pay to Claimant Raymond James

  • $95,189.68;
  • $12,285.77; and
  • $50,193.52,  respectively.

The gross award was $157,668.97 plus pre-judgment interest of 10% per annum and post-judgment interest as provided for under the Code of Arbitration.

Additionally, Respondent was found liable and ordered to reimburse Claimant for $11,603.50 in attorneys' fees pursuant to the parties' contract, and $7,558.00 for costs, inclusive of reimbursement to Claimant by Respondent for Claimant's non-refundable FINRA filing fee.

Respondent's Counterclaim was denied with prejudice.