Former Ameriprise Rep Files Lawyer Malpractice Complaint After Losing FINRA Promissory Note Arbitration

August 22, 2022

Today's blog considers a Respondent who contested repayment of a promissory note to a former employer. When that contest went down in flames, the Respondent argued that his former arbitration lawyer was negligent in allegedly failing to tell him that the note-holder's lawyer said that the proposed defense against repayment of the note had a low rate of success. Okay, sure, you could argue that and the losing party did. Read today's blog to see how the legal malpractice claims fared.

2017 Ameriprise FINRA Arbitration Statement of Claim

In a FINRA Arbitration Statement of Claim filed in August 2017, FINRA member firm Ameriprise Financial Services, Inc. asserted breach of promissory note and unjust enrichment against associated person Respondent Silverman. In the Matter of the Arbitration Between Ameriprise Financial Services, Inc., Claimant, v. Jeffrey R. Silverman, Respondent (FINRA Arbitration Award 17-02291 / August 6, 2019)

Respondent Silverman generally denied the allegations, asserted various affirmative defenses, and filed a counter-claim asserting fraud/promissory fraud, fraudulent inducement, negligent misrepresentation, negligence, breach of contract, breach of covenant of good faith and fair dealing, violations of New York Wage Theft Prevention Act, and unjust enrichment. Silverman sought at least $1 million in damages, punitive damages, fees, and costs.

SIDE BAR: The FINRA Arbitration Award discloses under "Representation of Parties":

For Claimant Ameriprise Financial Services, Inc.: Ryan S. Nichols, Esq. and Scott A. LaPorta, Esq., Shumaker, Loop & Kendrick, LLP, Sarasota, Florida. 

For Respondent Jeffrey R. Silverman: James J. Ecceleston, Esq. and Roman B. Sankovych, Esq., Ecceleston Law, LLC, Chicago, Illinois. 

For several decades, James J. Eccleston from the Eccleston Law firm of Chicago has earned a reputation as one of the industry leading practitioners The only two references to "Ecceleston" in the FINRA Arbitration Award misspelled both the lawyer's name and that of his law firm (wrongly adding an "e" after the second "c" and before the "l". Given James Eccleston's prominence and that of his law firm, the double error is pretty sloppy quality control by FINRRA -- oh, sorry, that should be FINRA with only one "R." 

Damages, Interest, Fees, and Costs -- up, up, and away!

In the Statement of Claim, Claimant Ameriprise had requested, in part, compensatory damages in the amount of $275,471.40; attorneys' fees and costs including filing fees, forum fees, and hearing deposits; pre-award interest of 2.05% per annum; and post-award interest commencing 30 days from the date of the award at the maximum rate allowed by law. At the close of the FINRA Arbitration Hearing, Claimant Ameriprise had requested total damages of $631,256.66 inclusive of costs, attorneys' fees and pre-award interest; and post-award interest at the rate of $120.5486 per day, commencing June 24, 2019.

2019: $631,256.66 FINRA Arbitration Award

The FINRA Panel of Arbitrators found Respondent Silverman liable and ordered him to pay to Claimant Ameriprise $358,891.03 in compensatory damages plus interest; and $211,821.30 in attorneys fees; and $60,544.33 in costs.

SIDE BAR: The FINRA Arbitration Award in favor of Claimant Ameriprise adds up to the penny to Claimant's at the close of the hearing request for damages, costs, and fees:

$358,891.03 + $211,821.30 + $60,544.33 = $631,256.66 

If you subtract the $275,471.40 compensatory damages sought in the initial filing of the Statement of Claim from the $631,256.66 Award, contesting the claims and pursuing his own counterclaims cost Respondent Silverman an additional $336,015,73 (exclusive of his own costs/fees). 

2019:  Motion to Confirm and Motion to Vacate (SDNY)

On August 20, 2019, Ameriprise filed a Motion to Confirm the FINRA Arbitration Award; and, on October 16, 2019, Silverman filed a Motion to Vacate same. Ameriprise Financial Services, Inc., Petitioner/Cross-Petitioner, v. Jeffrey R. Silverman, Respondent/Cross-Petitioner (Memorandum and Order, United States District Court for the Southern District of New York ("SDNY"), 19-CV-7812 / December 11, 2019)

In contrast to the FINRA Arbitration Award,  the SDNY Memorandum/Order offers some context to the Ameriprise v. Silverman dispute [Ed: footnote omitted]:

Ameriprise hired Silverman in January 2016. On January 25, 2016, Silverman executed a Transition Promissory Note (the "Note") pursuant to which Ameriprise loaned him $280,190 at an interest rate of 2.05% compounded annually. Declaration of Christopher D. Warren ("Warren Decl."), Ex. B ("TPN")  ¶ 1. The Note provided that "[i]f [Silverman's] employment with Ameriprise terminates for any reason including . . . resignation . . . the unpaid balance of the principal sum, plus accrued interest, shall be due and payable as of the date of [the resignation]." TPN ¶  2. Moreover, "[i]n the event of a default by [Silverman] on this loan, or the obligations described herein, the interest rate on unpaid principle [sic] and interest shall convert to the maximum rate allowable by applicable law for both the post default, pre-judgment period, as well as any period post-judgment as allowable by law." TPN  1. 

The Note also provided that "any dispute arising between [Silverman and Ameriprise] (including but not limited to [Silverman's] default on the loan) shall be subject to arbitration pursuant to the FINRA Code of Arbitration Procedure for Industry Disputes." TPN  6. Additionally, it contained a fee-shifting clause stating that Silverman "agrees to pay all costs of collection, whether or not suit or action is filed hereon, in the event that payment is not made in accordance with the provisions of this Note. The costs of collection shall include but are not limited to reasonable attorney's fees for collection efforts before commencing any legal proceeding, in arbitration, at trial, and on appeal. If . . . arbitration is commenced, the amount of such reasonable attorney's fees shall be fixed by the arbitrator . . " TPN  9. New York law governed the Note. TPN  10. 

Silverman resigned from Ameriprise in August 2017. On August 25, 2017, Ameriprise commenced an arbitration against Silverman by filing a statement of claim for breach of the Note and unjust enrichment with FINRA's Office of Dispute Resolution. Declaration of Scott. A. La Porta ("La Porta Decl."), Ex. 2 at 1. Ameriprise sought, among other things, $275,471.40 in compensatory damages, attorneys' fees and costs, and pre- and post-award interest. La Porta Decl., Ex. 2 at 2. . . .

at Pages 1 - 4 of the SDNY Memo/Order

In his Memo of Law opposing confirmation of the FINRA Award and in support of vacatur, Ameriprise Financial Services, Inc., Petitioner/Cross-Petitioner, v. Jeffrey R. Silverman, Respondent/Cross-Petitioner (Memorandum of Law in Opposition to Motion to Confirm Award and In Support of Cross-Petition to Vacate Award, United States District Court for the Southern District of New York ("SDNY"), 19-CV-7812 / October 16, 2019)
Silverman alleged under the "Preliminary Statement":

As shown below, under both the FAA and New York law, the Award should be vacated because (1) the Arbitrators acted in knowing, willful, and manifest disregard of the law; (2) the Arbitrators exceeded their powers, or so imperfectly executed them, or both, that a mutual, final and definite award upon the subject matter submitted was not made; and (3) the Arbitrators failed to make a full and proper disclosure of their conflicts to the Respondent. 

The Arbitrators knowingly and willingly manifestly disregarded the law in at least three instances. First, the Arbitrators manifestly disregarded the terms of the promissory note ("Note" attached as Exhibit "B") wherein the parties only agreed that Respondent Silverman would "pay all costs of collection . . . of this Note. The costs of collection shall include but are not limited to reasonable attorney's fees for collection efforts." See Exhibit "B" ¶9. Emphasis added. 

Second, the Arbitrators knowingly and willingly manifestly disregarded the terms of the Promissory Note Acknowledgement Form ("Acknowledgment" attached as Exhibit "C") wherein the parties agreed that "[i]n the event that [Respondent] is in default with respect to the Note, [Respondent] hereby irrevocably authorizes and empowers FINRA to enter an award against [Respondent] on an expedited basis and in favor of [Petitioner] . . . with collection fees and cost of suit." Emphasis Added 

Finally, the Award must also be vacated because the Arbitrators exceeded their powers, or so imperfectly executed it, or both, that the mutual, final, and definite award upon the subject matter submitted was not made because the Award gives an illogical and irrational award based upon flawed interpretation of contractual provisions agreed to between the parties. The Award in the underlying FINRA matter is wholly irrational because, as further discussed below, the Arbitrators based the Award on an inconsistent construction of the contractual provisions in the Note (Exhibit "B") and the Acknowledgement Form (Exhibit "C"). This inconsistent Award is contradictory to the plain English meaning of the Note and Acknowledgement, as well as clearly drafted language plainly showing the parties intended that Respondent only be responsible for legal fees in relation to the collection of the Note, not legal fees for the entire litigation regarding claims completely unrelated to the Note.

at Pages 4 - 5 of the Silverman Memo

SIDE BAR: Silverman was represented at SDNY by the Galbraith Law Firm (apparently having replaced Eccleston Law). 

2019: SDNY Grants Ameriprise Motion to Confirm

In granting Ameriprise's Motion to Confirm and denying Silverman's Motion to Vacate, SDNY found that Silverman had "failed to demonstrate by any measure, let alone the formidable one required to vacate an arbitral award, that the arbitrators exceeded their authority in issuing the Award.." at Page 10 of the SDNY Memo/Order. Also, SDNY found that when Silverman counterclaimed in the FINRA Arbitration against Ameriprise in order to obtain a declaration that the Note was unenforceable that "Ameriprise therefore had no choice but to defend against Silverman's counterclaims in order to collect payment under the Note."  at Page 12 of the SDNY Memo/Order. Further, SDNY found that Silverman failed to demonstrate that the attorneys' fees granted under the FINRA Arbitration Award "contradict[ed] an express and unambiguous term" of the Note, and has therefore failed to establish that the arbitrators manifestly disregarded it.. . ." at Page 13 of the SDNY Memo/Order.

2022: Supreme Court of the State of New York/Appellate Division

As Silverman's legal trek continues, he sued his former FINRA Arbitration legal counsel for malpractice and breach of contract; however, on October 16, 2020, the New York State Supreme Court/Suffolk County granted Defendant Eccleston Law's motion to dismiss Plaintiff Silverman's Amended Complaint. On appeal, Silverman finds himself before the NYS Supreme Court/Appellate Division. Jeffrey R. Silverman, Appellant, v Eccleston Law, LLC, Respondent. (Decision and Order, Supreme Court of the State of New York, Appellate Division, Second Judicial Department; Index No. 605519/20 / 2020-08074 / August 17, 2022)

SIDE BAR: An interesting bit of information provided in the Appellate Division Decision is that Jeffrey R. Silverman was "an attorney licensed to practice law in New York and a certified financial planner." We're also informed that Silverman represented himself pro se before the New York State Appellate Division. 

In affirming the October 16, 2020, Order of the New York State Supreme Court / Suffolk County dismissing  Silverman's case, the Appellate Division offered, in part, this rationale:

[I]n the third and fourth causes of action, the plaintiff failed to adequately allege a breach of the applicable standard of care. The "selection of one among several reasonable courses of action does not constitute malpractice" (Rosner v Paley, 65 NY2d 736, 738), and an attorney may not be held liable for " 'the exercise of appropriate judgment that leads to an unsuccessful result' " (Bua v Purcell & Ingrao, P.C., 99 AD3d 843, 846-847, quoting Rubinberg v Walker, 252 AD2d 466, 467). 

The fifth cause of action failed to adequately plead that, but for the defendant's alleged negligence, the plaintiff would have obtained a more favorable outcome. The plaintiff merely alleged that had the defendant shared with him information imparted by Ameriprise's attorney concerning the low rate of success of challenges to note collection proceedings, he would have insisted on settlement discussions (see Katsoris v Bodnar & Milone, LLP, 186 AD3d at 1506; Janker v Silver, Forrester &Lesser, P.C., 135 AD3d 908, 909; see also Bauza v Livington, 40 AD3d 791, 793). "Conclusory allegations of damages or injuries predicated on speculation cannot suffice for a malpractice action" . . ..

at Page 2 of the Appellate Division Decision

Bill Singer's Comment

According to the Appellate Division Decision:

The plaintiff merely alleged that had the defendant shared with him information imparted by Ameriprise's attorney concerning the low rate of success of challenges to note collection proceedings, he would have insisted on settlement discussions . . ..

Let's try to put the appellate court's characterization into somewhat more concrete language: 

Silverman alleged that if his lawyer (Eccelston Law) had told him that the Ameriprise's lawyer (Shumaker, Loop & Kendrick) told Eccleston Law that Silverman's defense against repayment of the promissory note balance had a low rate of success, then Silverman would have insisted on settlement discussion. 

As to Silverman's legal theory underpinning his malpractice claim, this is how one might generally frame it:  

Silverman alleged that Eccelston Law was negligent because Eccelston Law allegedly did not tell him that Shumaker, Loop & Kendrick told Eccelston Law that Silverman's defense had a low rate of success; and, but for said negligence, Silverman alleged that he would have insisted on settlement discussion, and, if said settlement discussion had transpired, then Silverman further alleged he would have obtained a more favorable outcome, presumably as a result of settling for less damages than were imposed by the FINRA Arbitration Panel inclusive of interest, costs, and fees.

Silverman was an attorney licensed to practice law (whether he practiced or not) and he was a CFP. Ameriprise sure as hell must have thought that Silverman was a smart guy because they gave him $280,190 in order to attract him to their firm subject to repayment in the event he resigned. Turns out, for whatever reasons, Silverman resigned and purportedly failed to repay whatever Ameriprise thought was owed. Silverman and Ameriprise told their version of events to three FINRA Arbitrators. Those arbitrators believed Ameriprise and rendered an Award in favor of Ameriprise. Based upon the record before us, Silverman had his day in arbitration, and his day in federal court, and his day in state court -- frankly, several days at each venue. Unfortunately, for Silverman, the folks who made the various decisions concerning his case first believed Ameriprise's version of events, and, subsequently, Eccelston's version of events. 

If you are sued for failure to repay a balance on a promissory note, there is almost always a so-called "settlement premium" offer that is made by the creditor. Almost always as in not always -- so, you may be one of the few debtors for whom the full bill is demanded even during settlement discussions. Beyond obtaining some settlement premium, the other advantage of not proceeding to full-fledged litigation replete with opening statements, direct and cross examinations, motions, closing statements, briefs, and expert witness fees, is that you won't incur the charges attached to all those aspects of litigation. Similarly, if you settle before trial, you reduce your own lawyer's billable hours, and, you minimize the billable hours run up by your adversary. Some lawyers can bill 25 or more hours each day.  So, factor into your willingness to go to the mat to clear your name or make a point, the ensuing costs and fees associated with pursuing your rights in arbitration and/or court. In Ameriprise v. Silverman, Silverman found out, there was a hefty cost to filing an Answer in the FINRA Arbitration and his Counterclaim; and then fighting the Arbitration Award in federal court; and then in pursuing malpractice claims in state court.  If you want to stand on principle -- and many folks do, and that's their right -- don't be shocked if you find that the cost of principle these days may include a bill for your adversary's attorneys' fee, costs, and other fees. 

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