Introduction
“Can I recover attorney’s fees?” This is a question that clients regularly ask Claimant’s attorneys, yet it is not always simple to answer. The purpose of this article is to provide practitioners with a guide to the state statutes providing for the imposition of civil liability to the seller of securities and a reference for the damages available under each state’s securities statutes, specifically whether the state statute provides for recovery of attorney’s fees.
Methods to Recover Attorney’s Fees
The FINRA Arbitrator’s Guide provides that a FINRA arbitration panel:
[M]ay award attorneys’ fees when, for example: 1) the parties’ contract includes a clause that provides for attorneys’ fees; 2) the governing law provides for attorneys’ fees when all of the parties’ request or agree to such fees; 3) the fees are required or permitted as part of a statutory claim; or 4) as otherwise provided by law. FINRA does not provide guidance on whether arbitrators may award attorneys’ fees. The law may vary widely and may require interpretation that FINRA, as a neutral forum, will not provide. In addition, you should not conduct your own legal research.
If a party requests the recovery of attorneys’ fees and you have questions regarding the panel’s authority to award such fees, you should request briefs from the parties that identify the basis for awarding attorneys’ fees.
If the panel determines that a party has a right to recovery, that party must prove the amount to the satisfaction of the panel. The panel may permit testimony or evidence to be submitted during the case-in-chief, or in post-hearing written submissions.[2]
Claimant’s contract with the brokerage firm, if any, is unlikely to include a clause that provides for attorneys’ fees in the event an arbitration is filed with FINRA. That practically limits Claimant’s ability to seek attorney’s fees in a FINRA Arbitration on the basis of governing law or a statutory claim.
State Statutory Attorney’s Fee Entitlement
State statutes providing for the recovery of attorney’s fees vary widely from state to state. For example, some states provide that a “prevailing party” may recover attorney’s fees whereas other states provide that the “purchaser” of a security may recover attorney’s fees. In states that statutorily provide for prevailing party attorney’s fees, Claimants are not immune from risk in asserting a statutory claim for attorney’s fees, because the Respondent may ultimately be the “prevailing” party in a claim.
By way of example, Florida Statute § 517.211, entitled Remedies Available in Cases of Unlawful Sale, provides that “[i]n any action brought under this section, including an appeal, the court shall award reasonable attorneys’ fees to the prevailing party unless the court finds that the award of such fees would be unjust.”[3] The prevailing party may be the Claimant or Respondent, and thus asserting a claim for statutory attorney’s fees under Florida Statute § 517.211 exposes Claimant to potential liability for Respondent’s attorney’s fees as it is a two-way prevailing party attorney’s fees provision.
Alternatively other states, such as North Carolina, have a one-way attorney’s fees provision in the state securities statute which provides that the seller of a security may be liable to the person purchasing the security, who may sue to recover reasonable attorney’s fees.[4] Under the North Carolina attorney’s fees statute, which has a one-way attorney’s fees provision, the seller of securities has no recourse for attorney’s fees against the purchaser, even if the purchaser is not successful on his or her statutory claim.
In analyzing whether or not to make a claim for statutory attorney’s fees in a FINRA arbitration, it is imperative to determine whether the particular state’s statute is a Claimant friendly one-way statute or a prevailing party statute, and then to weigh the risk to benefit of making a statutory attorney’s fees claim. If the specific state statute is a prevailing party statute, Claimants must be made aware of the risk of asserting a statutory claim for fees.
Leave Nothing to Interpretation
States have varying rules on whether the court or the arbitrators determine the amount of the attorney’s fees award after the entitlement to attorney’s fees is determined by the FINRA arbitration panel. In Florida, statutes 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.[5] Florida Statute § 682.11 provides: “[a]n arbitrator may award reasonable attorney fees and other reasonable expenses of arbitration if such an award is authorized by law in a civil action involving the same claim or by the agreement of the parties to the arbitration proceeding.”[6] This Revised Florida Arbitration Code is silent regarding the procedure for consideration of an application for reasonable attorney’s fees. Prior to the revision of Florida Statute § 682.11, in the case of Turnberry Associates v. Service Station Aid, Inc., the court held that arbitrating parties may waive their right to have the circuit court address the issue and agree that the arbitrators may do so.[7] District courts have since consistently addressed this issue in accordance with Turnberry.[8]
The uncertainty concerning the procedure for an award of attorney’s fees in arbitration proceedings is exacerbated when an award fails to set out the basis for the award of attorney’s fees and a trial court must look for “signals” or speculate as to the basis of an award.[9] The Florida Arbitration Code provides little guidance as to the contents of an award but, instead, focuses on the procedural framework within which the parties may seek to confirm, vacate, or modify an award.[10] For example, § 682.09(1) states that “[t]he record must be signed or otherwise authenticated by any arbitrator who concurs with the award.” Section 682.14(1)(c) provides for the modification or correction of an award where “[t]he award is imperfect as a matter of form, not affecting the merits of the controversy.” Last, section 682.13 provides a list of criteria upon which an award may be challenged. However, it is limited to concerns which may taint the process such as fraud, partiality and the like, and says nothing about the essentials of an award.[11]
Furthermore, under the FINRA Code it has been held that an award does not have to reflect the precise reasoning, findings of facts, conclusions of law, or ultimately the basis upon which a decision was arrived at by the arbitrators.[12] The court in Moser found that “[n]otwithstanding our recognition of this underlying policy, we find the practice of arbitrators not disclosing the basis upon which an award is made inadequate and inconsistent with the policy goals of the arbitration process as provided by the Florida Legislature with regard to the award of attorney’s fees.”[13] The court went on the conclude that the “practice of discouraging disclosure of the basis of an award as described in the trial court proceedings also raises concern as to the due process rights of the parties as it relates to a property interest in recovering attorney’s fees incurred in litigating securities violations cases.”[14] Courts have long held that rights to attorney’s fees granted by statute are substantive rather than procedural.[15] As such, the due process standards necessary in safeguarding such a right must provide for a “meaningful, full and fair” hearing to the affected individual.[16]
In the case of Moser v. Barron Chase Securities, Inc., the court held that where a party brings claims in arbitration based upon several theories, one or more of which provide for the recovery of attorney’s fees, the arbitration award must specify the theory under which the claimant prevailed, or otherwise clearly indicate whether the claimant has prevailed on a theory that would permit the trial court to award fees. In the event the award fails to reflect such a finding, the circuit court may remand the matter to the arbitration panel for the purpose of resolving the issue. Thereafter, the circuit court may determine the fee issue in accord with the finding of the arbitrators…[T]he basis of an award is necessary for the subsequent determination of an entitlement to attorney’s fees, an award without a basis is per se inadequate and subject to correction by the trial court.[17]
Therefore, it is of paramount importance that the arbitration panel set forth clearly in its Award the basis under which they are awarding attorney’s fees. For example, an award in Florida may read “pursuant to Florida Statute Chapter 517.211, the Panel makes a prevailing party finding for attorney’s fees in favor of Claimant, the amount of which is to be determined by a court of competent jurisdiction”. Notwithstanding whether Claimant files a petition to confirm the arbitration award with the court and seeks the determination of the amount of reasonable attorney’s fees to be awarded by a court of competent jurisdiction or the parties agree that the FINRA arbitrators may make the determination of the attorney’s fee amount to be awarded, the basis for such attorney’s fees should be set forth in the FINRA Award as a matter of good practice.
Entitlement is a Start
A FINRA arbitration panel may award entitlement to attorney’s fees as part of the FINRA Arbitration Award, but counsel must prove the amount of fees sought to be recovered either to a court of competent jurisdiction or the FINRA Arbitrators. Claimant’s attorneys oftentimes enter into contingency fee agreements with their clients, and therefore may make a claim for a percentage of the recovery awarded to the Claimant as set forth in the contingency fee agreement. However, many contingency fee agreements also provide that in cases where an attorney’s fee is awarded by a court or arbitrator or received from Respondent(s), then the law firm will be entitled to the higher of either the contingency fee or the court or arbitrator awarded attorney’s fees.
If the fee agreement with the client provides for an award of attorney’s fees based on attorney hours, then counsel must prove their request for attorney’s fees based on reasonable hours at a rate supported by evidence of what other practitioners in the surrounding legal community with similar experience, knowledge and ability and similar practices charge as an hourly rate. Furthermore, an argument for a lodestar or multiplier may be appropriate in some circumstances. For example, reasonable attorney’s fees in Florida are determined using the federal lodestar approach (number of hours reasonably expended multiplied by a reasonable hourly rate gives the lodestar figure), with an addition or subtraction from the lodestar amount depending upon a contingency risk factor and the results obtained.[18]
Furthermore, FINRA Rule 10215 Attorneys’ Fees, was implemented on April 16, 2007 and provides that “[t]he arbitrator(s) shall have the authority to provide for reasonable attorneys’ fee reimbursement, in whole or in part, as part of the remedy in accordance with applicable law.” Additionally, FINRA Rule 10214 Awards, provides that:
[t]he arbitrator(s) shall be empowered to award any relief that would be available in court under the law. The arbitrator(s) shall issue an award setting forth a summary of the issues, including the type(s) of dispute(s), the damages or other relief requested and awarded, a statement of any other issues resolved, and a statement regarding the disposition of any statutory claim(s).
Therefore, when seeking a statutory award of attorney’s fees, practitioners must be prepared to plead the statutory basis for the attorney’s fee entitlement and present proof to the decision makers to support the reasonable amount of attorney’s fees sought. Thus, an award of attorney’s fees is a three-step process that requires: (1) filing of proper pleadings; (2) winning the issue of entitlement; and (3) proving, to the court or arbitrators, the reasonable amount of fees to be awarded.
Conclusion
Listed below by state is a summary overview of each of the 50 states’ securities statutes and resulting damages that may be sought as a remedy for violation of the statute for review of the applicable attorney’s fees provision by state. As practitioners often experience, Claimants are not made whole even if all of their investment losses are recovered because the recovered funds are often used in part to pay reasonable attorney’s fees. When representing Claimants in FINRA arbitrations, another method to best assist Claimants may be to seek an award of attorney’s fees from the Respondent, in hopes that doing so will result in an improved economic outcome for the aggrieved investor looking to recover his or her investment losses.
Civil Liability and the Recovery of Attorney’s Fees for Securities Violations | State by State
Acts Creating Liability to Seller
AL ST § 8-6-19 Civil liabilities of sellers, agents, etc.; remedies of purchasers
Sells or offers to sell by means of untrue statements of material fact or omission of material fact.
