Legal Question in Securities Law in New York

Re: Brokerage Firm Countersues Client

If the lawsuit is filed in federal court, there are built in protections under Rule 11 of the Federal Rules of Civil Procedure that can impose monetary sanctions for a truly frivolous claim. Similar protections are built into the statutes of various states. If the claim is filed not as a lawsuit but as an industry arbitration at NASD, it would depend on the nature and degree of frivolity. The issue of recovering attorneys' fees is a bit convoluted, and depends on a variety of factors. Regardless of the nature of the claim, you have an obligation under NASD Rule 3070 to report it, and the broker must reflect it on his U-4. You also must respond to it - you cannot let it slide. You can call me at 718 638 2383. My name is Lawrence R. Gelber. You can find out about me at www.GelberLaw.net

Re: Brokerage Firm Countersues Client

I agree with everything Lawrence has said. In addition, there are a few court decisions which permit the award of attorneys fees in limited circumstances, on the legal theory that if all parties ask for attorneys fees, everyone has agreed that the arbitrators have the authority to grant such fees. However, it is far from clear that they have the power to do so absent a statute or agreement which provides for an award of attorneys fees.

The issue of a counterclaim is a bit different. The firm or broker may, and I repeat, may, have a counterclaim against the customer, depending on the nature of the customer's filing, and the factual detail. There are a limited number of arbitration awards where a firm prevailed on such a counter-claim against a customer, but they are very few and far between. I have been fortunate enough to have represented a broker and a firm in two such cases over the years.

I addressed the issues surrounding the counterclaim by a firm or broker in my column in Research Magazine a few years ago. It is at my web site at http://www.seclaw.com/docs/897.htm

If you have any questions, please feel free to contact me at [email protected]. There is more information regarding securities arbitration at my website - SECLaw.com - at www.seclaw.com and more information regarding my firm at www.beamlaw.com