p r o f e s s i o n a l l i a b i l i ty d e f e n s e q u

(“FINRA” - www.finra.org – suc-cessor to the National Associa-tion of Securities Dealers). FINRA is the largest regulator of securities firms and operates the largest securities dispute resolu-tion forum in the world. Its mis-sion has been described as fol-lows:

FINRA's mission, among other things, is "[t]o pro-mote through cooperative effort the investment bank-ing and securities business, to standardize its principles and practices, to promote therein high standards of commercial honor, and to encourage and promote among members obser-vance of federal and state securities laws;" "[t]o adopt, administer, and en-force rules of fair practice and rules to prevent fraudu-lent and manipulative acts in practices"; and "[t]o pro-

Professional liability claim alle-gations against investment advi-sors follow a familiar script: duty, breach, causation and damages. The tort-based duty generally alleged is fiduciary duty; infrequently are the terms “malpractice” or “professional negligence” referred to. But the defense response employed is not unlike more traditional E&O causes, so it makes sense for malpractice defense specialists to acquaint themselves with developments in this field to be prepared for claim assignments at the next market crash. Inves-tors lose money purchasing com-mon stocks, preferred stocks, corporate bonds, annuities, uni-versal life insurance policies, auction rate securities, certifi-cates of deposit, limited partner-ships, mutual funds, options, government securities, com-modities futures, REITS, limited partnerships, derivative securi-ties, collateralized debt obliga-

tions, and so on. Claims alleged may arise under the Securities Act of 1933 (e.g., registration statement fraud, control person liability), the Securities Exchange Act of 1934 (e.g., price or market manipulation, fraud, control person liability, suitability), the Investment Company Act of 1940 (e.g., excessive mutual fund fees), state securities or “blue sky” laws, and the com-mon law of fraud and breach of contract. Although such claims may trigger large class actions and other headline-prominent investment suits, many ordinary one or two investor cases are resolved in private, by way of arbitration. This occurs because arbitration clauses are often found in investment account agreements and in other situa-tions involving customers of broker-dealers.

The arbitration program is ad-ministered by the Financial In-dustry Regulatory Authority

A D D F I N R A D E F E N S E A N D C L A I M S E X P E R T I S E T O Y O U R P R O F E S S I O N A L L I A B I L I T Y E X P E R I E N C E P O R T F O L I O

We obsess over two things. Practicing law and BASEBALL! Those two activities may seem dissimilar on the surface. But, in order to do them well, you must have many of the same qualities. You must, of course, be willing to devote a lot of time and en-ergy. More importantly, you must be strategic, aggressive but professional, and patient. And

most lawyers would admit that you have to be just a bit nutty (or obsessive). Through this article, we have brought these two worlds together to outline some best practices in the law in the context of a discussion about baseball.

The associate entered the part-ner’s office just as he was about to walk out.

Associate: “Got a minute?”

Partner: “Well sure, but make this quick. I’m on my way to the Red Sox/Tigers game. Isn’t it great that I can take my client to an ALCS game and get credit for client development?”

Associate: “Well…”

Partner: “That was rhetorical. What do you need?”

Associate: “I have that litigation

F A L L 2 0 1 3

V O L U M E 5 I S S U E 4

P R O F E S S I O N A L L I A B I L I T Y D E F E N S E Q U A R T E R L Y

F I N R A U P D A T E

F I N R A C L A I M P R O C E D U R E

2

L I M I T A T I O N S O N J U D I C I A L R E V I E W

3

F I N R A L I A B I L I T Y S T A N D A R D S

4

A R B I T R A T I O N O F C L A I M S

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D E F E N S E

A R G U M E N T S 5

S P E C I A L P O I N T S O F I N T E R E S T :

Managing Director’s

Report—page 7

PLDF Website Analytics

Report—page 7

2013 Annual Meeting

Photo Highlights—page

8

2014 Annual Meeting

Set: September 17-19,

2014

S W I N G I N G F O R T H E F E N C E S : B E S T P R A C T I C E S F O R K E E P I N G Y O U R E Y E O N T H E B A L L

B Y : D A V I D A N D E R S O N ( T I G E R S ) A N D K E V I N C O L M E Y ( R E D S O X )

Continued on page 5

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http://www.finra.org

mote self-discipline among members, and to in-vestigate and adjust grievances between the pub-lic and members and between members."

UBS Financial Services Inc. v Carilion Clinic, 706 F.3d 319, 325 (4th Cir. 2013). FINRA annually administers between 4,000 and 8,500 arbitrations and numerous mediations. It is regulated by the Securities and Ex-change Commission. The Financial Industry Regulatory Authority’s Dispute Resolution Activities, Securities Arbitration 2012, p. 41 (P.L.I. 2012) (“Sec. Arb. 2012”). Most customer-broker disputes are resolved via FINRA arbitration. Statistics show that overall investors are awarded damages in 50% of cases filed. Claims typi-cally alleged may include margin call disputes, portfo-lio churning, unauthorized trading, failure to supervise, negligence, omission of facts, breach of contract, breach of fiduciary duty, unsuitability, misrepresenta-tion, and online trading disputes. Id., pp. 5, 7.

Summary of FINRA Claim

Procedure in Customer Cases

FINRA arbitration involving investors is governed by the Code of Arbitration Procedure for Customer Dis-putes (“Code”). (Disputes between industry FINRA members may also be arbitrated pursuant to the Code of Arbitration Procedure for Industry Disputes.) Dispu-tants must arbitrate their differences pursuant to FINRA if arbitration is required by agreement or if it is requested by a customer. FINRA R. 12200. The am-biguous scope of the definition of “customer” has triggered judicial commentary that ought to be consid-ered when the arbitration right is arguable. See, e.g., Berthel Fisher & Co. v. Frandino, 2013 WL 2036655 (D. Ariz. 2013). Investors seeking to avoid arbitration of their dispute may contend that they are not custom-ers. E.g., Credit Suisse Securities (USA) LLC v. Sims, 2013 WL 5530827 (S.D. Tex. 2013).

Parties also may elect to arbitrate their dispute under FINRA if they agree in writing to do so. FINRA R. 12201. In the absence of a customer request or writ-ten agreement to arbitrate, FINRA arbitration is disal-lowed. E.g., Raymond James Fin. Servs., Inc. v. Cary, 709 F.3d 382 (4th Cir. 2013); CIG Asset Mgmt. v. Bir-coll, 2013 WL 4084763 (E.D. Mich. 2013) (finding also the investors purchased the private offering without using a FINRA broker-dealer). Class action and share-holder derivative actions may not be arbitrated under the Code. FINRA R. 12204, 12205. Parties may repre-sent themselves in the arbitration proceeding, they may engage counsel, or they may retain non-attorneys subject to certain limitations. FINRA R. 12208. No party may bring a legal action while the arbitration proceeding is pending. FINRA R. 12209. The rules provide for payment of arbitrator fees by FINRA ac-cording to a set schedule. FINRA R. 12214. Mediation may be made available to the parties pursuant to

FINRA’s Code of Mediation Procedure. FINRA R. 14000.

FINRA disputes are heard by one arbitrator if the claim value is $50,000 or less. Claims worth between $50,000 and $100,000 are heard by one arbitrator, unless the parties agree in writing to three arbitrators. Claims worth more than $100,000 are heard by three arbitrators, unless the parties agree to one arbitrator. FINRA R. 12401. Within 30 days of filing the last an-swer, FINRA staff will send to the parties a list of 10 arbitrators generated by the Neutral List Selection System. Parties are also entitled to the employment history of each candidate for the past 10 years. Each party may strike four candidates from the list within 20 days, listing the remaining six in an order of prefer-ence. FINRA’s Director of Dispute Resolution will then select the highest-ranked available arbitrator from the combined lists. FINRA R. 12402. Before finalizing the

appointment the director notifies the arbitrator or panel candidates of the nature of the dispute to deter-mine conflicts of interest. Parties are given access to arbitrator disclosures. FINRA R. 12405. A party may ask the arbitrator to recuse himself or herself; the arbitrator will decide the question. FINRA R. 12406. Removal of the arbitrator for bias may be considered by the director before or after the first hearing ses-sion, subject to limitations. FINRA R. 12407. Judicial motions to vacate awards based upon arbitrator parti-ality face a steep uphill climb. See, e.g., Stone v. Bear Stearns & Co., 2013 WL 5788762 (3d Cir. 2013). Arbi-trator interpretation of the Code is final and binding. FINRA R. 12409.

FINRA arbitration cases are initiated by filing of a Submission Agreement and a statement of claim. FINRA R. 12302. The director then will serve the same upon the other parties. (Thereafter parties may serve each other directly. FINRA R. 12300.) Responding parties may serve within 45 days a signed Submission Agreement and an answer specifying the relevant facts and available defenses. The answer – like the state-ment of claim – need not follow form to answers filed in court. Use your answer to present a strong first impression to the arbitrator, and attach documents that show the claimant is wrong, sophisticated, experi-enced, and a risk-taker. Use the answer also as an opportunity to humanize the respondent. Grannum, Litigating Arbitrations in the FINRA Forum, Securities Arbitration 2011, pp. 155-56 (P.L.I. 2011) (“Sec. Arb. 2011”). Counterclaims, cross claims and third-party claims may also be asserted. FINRA R. 12303. De-fenses may be barred if not articulated in the answer. FINRA R. 12308. Filing fees are itemized in FINRA Rule 12900.

The arbitrator or panel will then schedule an initial prehearing conference, generally via telephone. A

D E F E N S E O F F I N R A C L A I M S , C O N T ’ D

“Statistics show

that overall

investors are

awarded damages

in 50% of cases

filed.”


prehearing schedule will be set, that typically will fol-low form to pretrial schedules litigators are familiar with. For example, other prehearing conferences may be set to resolve discovery disputes and dispositive motions. Again, these motions ordinarily are heard telephonically. FINRA R. 12500, 12501. Motions need not follow any particular form and response timing is short. They must be served at least 20 days before the hearing. Non-moving parties have 10 days to respond. The moving party may reply within five days. FINRA R. 12503(a)-(c). Discovery motions in panel cases are decided by the chairperson; the full panel decides all other motions. FINRA R. 12503(d). Motions to dismiss prior to conclusion of a party’s case in chief are dis-couraged. The usual sanctions risks are present. FINRA R. 12504.

FINRA has established standard form document pro-duction requests (“Lists” that are available on the website) that describe documents presumed to be discoverable in all arbitrations. FINRA R. 12506. Arbi-trators have discretion to order production of docu-ments not provided for by the Lists. Cost/burden, privilege, and confidentiality objections may be consid-ered by the arbitrator. Although parties may make certain “requests for information”, standard interroga-tories are not permitted in arbitration. FINRA R. 12507. Moreover, depositions “are strongly discour-aged in arbitration.” FINRA R. 12510. Limited excep-tions to this rule are specified. Id. Arbitrators may issue subpoenas. FINRA R. 12512. Proof that the cus-tomer engaged in trading with other brokers that may appear inconsistent with the claims being made in arbitration must be a key defense discovery focus. Sec. Arb. 2011, p. 164. Witnesses or documents not identified on a party’s witness and exhibit lists may not be presented. FINRA R. 12514.

The arbitrator or panel will decide what evidence to admit at the hearing. “The panel is not required to follow the state or federal rules of evidence.” FINRA R. 12604; Questar Capital Corp. v. Gorter, 909 F. Supp. 2d 789 (W.D. Ky. 2012). A record of proceedings will be made. FINRA R. 12606. A simplified procedure is available when the amount in controversy is $50,000 or less. FINRA R. 12800. To receive an “explained decision” parties must submit a joint request therefor within 20 days of the hearing. Id.(d).

Investment professionals’ reputations and licensing rights may be affected by the reporting of arbitration proceedings. FINRA, along with commissions from all 50 states, developed the Central Registration Deposi-tory ("CRD") for the purposes of storing "information about regulatory, enforcement and arbitration actions taken against registered representatives and other securities personnel." Bridge v. E*Trade Securities

LLC, 2012 WL 3249508 (N.D. Cal. 2012) (evaluating

circumstances in which arbitration outcomes may be expunged from representatives’ records). FINRA al-lows for expungement rights in the event of settle-ment or in the award (FINRA R. 12805) but the bases for expungement are quite limited. FINRA R. 2080. Respondent’s counsel may assume the client will want to seek expungement relief. This is so because data regarding registered representatives is posted on the CRD that is made available to the public, and to federal and state regulators. The data may include claim, award and settlement information. Form U-4 (Uniform Application for Securities Industry Registra-tion or Transfer) is used by the representative to up-date the CRD databank. (Form U-5 is filed by member firms when representatives are terminated.) Repre-sentatives covet clean U-4 and U-5 records because investors may learn of the data, and therefore defense and settlement of FINRA claims oftentimes is influ-enced by U-4 and U-5 concerns. As well, FINRA may impose sanctions upon members or persons associ-ated with a member for violations of the securities laws or FINRA rules including revocation of the per-son’s registration. FINRA R. 8310. Discipline facts may be disclosed to the public. See generally FINRA R. 8313.

FINRA arbitration claims are time barred “where six years have elapsed from the occurrence or event giv-ing rise to the claim.” FINRA R. 12206(a). This is known as the rule of “eligibility”; the arbitrator or arbitration panel decides eligibility questions. Id.; Quality Air Services LLC v. Dipippo, 2013 WL 693052 (D. Md. 2013). By filing a motion to dismiss arbitration as time barred, the moving party must agree that the non-moving party may pursue the claims in court. FINRA R. 12206(b). (Assuming other limitation periods have not expired.) If the motion is denied the non-moving party must be awarded the cost of forum fees. If the motion is deemed to be frivolous attorneys fees and costs may be awarded against the moving party. Moreover, sanctions may be issued against the moving party if it is determined that the eligibility motion was filed in bad faith. Id., Sanctions may include monetary penalties, evidence preclusion rulings, adverse infer-ence determinations, fees and costs, and potentially a disciplinary referral. FINRA R. 12212. Needless to say, if your client is penalized by the arbitrator or panel serious consideration ought to be given to settlement since your client’s position will not have been started on the right foot with the decision-maker.

Limitations on Judicial Review

Awards must be in writing, they are final, and gener-ally are not subject to judicial review. FINRA R. 12904. Arbitrator bias, manifest disregard of the law, and arbitrator limitation of powers arguments may trigger judicial review. See Sec. Arb. 2011, pp. 225-232. The


“Representatives

covet clean U-4

and U-5 records

because investors

may learn of the

data, and therefore

defense and

settlement of

FINRA claims [can

be so] influenced.”


PLDF and Diversity

The Professional Li-ability Defense Fed-eration supports di-

versity in our member recruitment efforts, in

our committee and association leadership positions, and in the choices of counsel,

expert witnesses, and mediators involved in professional liability

claims.

Federal Arbitration Act provides the only grounds available by which a court can vacate an arbitration award. Hall Street Associates LLC v. Mattel, Inc., 552 U.S. 576, 586-88 (2008). The burden is extremely high. Stolt-Neilsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 671 (2010). Of course, awards may be vacated if procured by fraud. See, e.g., Morgan Keegan & Co. v. Garrett, 2012 WL 5209985 (5th Cir. 2012).

Whether an arbitration award may be vacated on grounds the arbitrators manifestly disregarded the law is uncertain in light of the foregoing Supreme Court precedents. Regardless, it the grounds remain, the award may only be vacated in such circumstances if: (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case. FBR Capital Markets & Co. v. Hans, 2013 WL 5665015 (D.D.C. 2013) (rejecting manifest disregard argument when evidence showed the panel reached its decision only after it heard extensive testimony from both sides as

to the facts and controlling law); Murray v. Citi-

group Global Markets, Inc., 511 Fed. Appx. 453 (6th Cir. 2013) (rejecting manifest disregard challenge to the award when an explained award was not re-quested).

Courts may also consider motions to vacate arbitra-tion awards on grounds of arbitrator partiality but the movant’s burden, again, is high. See, e.g., Fornell v. Morgan Keegan & Co., 2012 WL 3155727 (M.D. Fla. 2012) (finding no grounds by which a reasonable per-son would believe a conflict existed); Charles Schwab & Co. v. Vollstedt, No. CIV 11-0709 (D.N.M. 2012). They may vacate awards if the arbitrators exceeded their powers. See, e.g., Fisher v. Wells Fargo Advisors LLC, 2012 WL 6607025 (D. Kan. 2012). Or if they en-gaged in misconduct. See, e.g., Morgan Keegan & Co. v. Sturdivant, 2012 WL 3685975 (S.D. Miss. 2012).

An award may also be vacated when the panel made an award on a claim that was never submitted to the panel. Meeder Asset Mgmt. Inc. v. Icon Advisors Inc., 2013 WL 1232299 (D. Colo. 2013) (finding the issue of attorneys fees was never submitted to the panel). When a customer’s claim involves arbitrable and non-arbitrable claims, courts may stay the companion suit pending completion of the arbitrable claims even against non-parties to the arbitration. Cook v. John Hancock Life Ins. Co. (USA), 2013 WL 942384 (N.D. Va. 2013).

Parties filing court motions to vacate arbitration awards face Rule 11 sanctions risks. See, e.g., Wave-land Capital Partners LLC v. Tommerup, 928 F. Supp. 2d 1227 (D. Mont. 2013) (denying sanctions although the question was “close”).

FINRA Liability Standards

Absent contractual language in the arbitration agree-ment requiring the application of a particular jurisdic-tion’s law to a dispute, FINRA arbitrators are not nec-essarily required to apply the law, as long as they do not manifestly disregard it.

In addition to the securities acts referred to above, FINRA rules may establish the standard of care of in-vestment professionals. See, e.g., Remington v. New-bridge Securities Corp., 2013 WL 4496504 (S.D. Fla. 2013). FINRA members “shall observe high standards of commercial honor and just and equitable principles of trade.” FINRA R. 2010. “No member shall effect any transaction in, or induce the purchase or sale of, any security by means of any manipulative, deceptive or other fraudulent device or contrivance.” FINRA R. 2020. Members “must have a reasonable basis to believe that a recommended transaction or invest-ment strategy involving a security or securities is suit-able for the customer, based upon the information obtained through the reasonable diligence of the member … to ascertain the customer’s investment profile.” FINRA R. 2111. Suitability is determined by evaluation of the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and other in-formation disclosed by the customer. Sec. Arb. 2012, p. 189; see In re Am. Express Fin. Advisors Securities, 672 F.3d 113, 139 (2d Cir. 2011) (allowing suitability claim to go forward; investors alleged defendant knew it should invest for them in a conservative fashion). Members must also use reasonable diligence in regard to maintaining customer accounts to know the essen-tial facts concerning the customer. FINRA R. 2090. Thus there is an ongoing duty to find out and update customer information. Sec. Arb. 2012 p. 180. Special obligations are imposed with respect to OTC equity securities (FINRA R. 2114) and day-trading accounts. FINRA R. 2130.

Where a customer has a self-directed or non-discretionary account with a broker, the broker ordi-narily has no obligations to the customer except to carry out transactions accurately. E.g., Press v. Chem. Inv. Servs. Corp., 166 F.3d 529, 536 (2d Cir. 1999). In limited circumstances courts will hold that the broker-customer relationship may involve enhanced duties in non-discretionary account situations. Corrie, Invest-ment Advisors and Brokers: When is a Broker Subject to Fiduciary Duties?, 2 Securities Arbitration in the Market Meltdown Era, p. 93 (P.L.I. 2009). Brokers, however, will be held to owe fiduciary duties to discre-tionary account customers. Id., p. 94-95.

Arbitration of Securities Laws Claims

Recent cases have evaluated whether broker-dealers


“FINRA arbitrators

are not necessarily

required to apply

the law, as long as

they do not

manifestly

disregard it.”


PLDF Committees

Professional Liability

Defense Federation’s ten substantive law commit-

tees include:

• Medical

• Other Healthcare

• Legal

• Accounting

• Investment

• Corporate Governance

• Insurance

• Real Estate

• Construction Design

• Miscellaneous

Professional Liability

may be vicariously liable for registered representa-tives’ conduct in the absence of the firm’s knowledge or involvement in the security, whether expert testi-mony is necessary to establish the broker-dealer’s standard of care, whether duties may be owed to non-customers, whether the apparent authority doctrine may trigger vicarious liability, whether the broker-dealer may be liable on a failure to supervise theory, whether control person liability standards are met, whether investments sold were suitable, whether the “know your customer” rule was followed, whether broker-dealers have duties to third persons, and whether contracts were breached or misrepresenta-tions were negligently made. Sec. Arb. 2011, pp. 278-284.

When FINRA claims are brought against the represen-tative and his or her broker-dealer, and the invest-ment involved was not the latter’s product (“selling away” liability), the broker-dealer may seek to avoid respondeat superior or control person liability by prov-ing the sale was not within the course and scope of employment. Sec. Arb. 2012 pp. 249-254. This will be in addition to the routine defense theory that the in-vestment was suitable and fairly disclosed to the cus-tomer.

Sometimes one party to a multiparty dispute did not sign an arbitration agreement or is not a FINRA mem-ber. Are they required to arbitrate? Generally not, unless an estoppel exists such as when a non-signatory seeks to compel a signatory to arbitrate claims inextri-cably intertwined with an arbitration agreement. Sec. Arb. 2011, p. 223.

Preparation for the arbitration hearing ought to be guided by this rule: “[t]he simpler you have made it for the arbitrators to grasp the substance of your case, the more likely you are to prevail. This will only be possi-ble if you thoroughly know your case and your wit-nesses are comfortable presenting their facts and ex-plaining inconsistencies. In addition, make your clos-ing arguments concise and persuasive.” Sec. Arb. 2011, p. 165.

Defense Arguments

In addition to the limitations period or “eligibility” defense described on page 3, supra, defenses based upon the securities statutes may be asserted in arbi-tration. In terms of common claims, the defense of

due diligence may be raised to 1933 Act registration misrepresentation, and the defense that stock price decline is attributable to market forces may be appli-cable. As for 1934 Act (and S.E.C. Rule 10b-5) fraud claims, defenses of good faith (unawareness of state-ment falsity), immaterial facts, absence of scienter, absence of reliance, absence of loss causation (claimants can have trouble tying improperly inflated share price arguments to later economic loss), and intervening cause may be raised. Timing of re-sales (and price) may have no connection to the alleged misrepresentation, but rather by changing economic conditions, industry news or other events. Also, the alleged fraud may not be integral to the sale of the security. As for 1940 Act (mutual fund) claims of fidu-ciary duty breach based upon unreasonable compen-sation, proof of fee legitimacy must be marshaled. See generally Jonathan C. Dickey, Securities Litigation: A Practitioner’s Guide (P.L.I. 2012).

Defendants should consider Daubert challenges to claimant’s causation and damages experts. As for damages, defendants must prepare arguments both as to the out of pocket loss rule and the benefit of the bargain rule.

Conclusion

Breach of fiduciary duty and allied tort, statutory and contract claims are brought when investors lose money and blame their broker, dealer or representa-tive. Malpractice defense and claims practitioners are well suited to add investment loss professional liability expertise to their experience portfolios. Typical inves-tor claims are brought in the FINRA arbitration system. That system has straightforward rules of procedure that are readily mastered. PLDF members are encour-aged to learn more about FINRA arbitration practice to be prepared for the next market downturn that inevi-tably will occur.


“As for damages,

defendants must

prepare arguments

both as to the out

of pocket loss rule

and the benefit of

the bargain rule.”


plan for your review. I think it’s really good in that it sets forth all of the relevant facts in chronological or-der, identifies all of the pertinent issues, and then thoroughly analyzes our potential liability and dam-ages. And I made it a point to include all kinds of Latin phrases to impress our clients.”

Partner: “Well, it sounds like you covered all of the major points. But go back through and change all the legalese to plain English.”

Associate: “Don’t you think the legalese will impress our clients?”

S W I N G I N G F O R T H E F E N C E S , C O N T ’ D

Thomas D. Jensen is PLDQ Editor and Chair of PLDF’s Investment Profes-sional Claims Committee. A member of Lind, Jensen, Sullivan & Peterson, P.A., in Minneapolis, Tom can be reached at (612) 746-0129 and at

[email protected]

PLDQ’s Winter 2014 Issue

We encourage member submission of articles pertinent to profes-sional liability claims administration, de-

fense trial advocacy, or professional liability substantive law. The

manuscript deadline for the next issue is:

February 1, 2014.

Partner: “No! Look, many of the lessons in baseball apply equally to the practice of law. But, in this case, just the opposite is true. While there’s a lot of Latin in major league baseball, there should be little to no Latin in our reports to our clients. Our goal is to clearly communicate, not to force the reader to consult a law dictionary.”

Associate: “Okay. I will revise it and get it back to you. The other thing I wanted to mention is that I have been asked to defend a friend against a trumped up criminal charge. And before you say anything, he has agreed to pay a retainer up front and has the financial wherewithal to hire our firm.”

Partner: “But you practice in our professional liability department, right? Have you ever handled a criminal case?”

Associate: “No, but this is an opportunity for me to generate fees for the firm which I know is viewed fa-vorably.”

Partner: “This is where you need to be more like Mi-guel Cabrera or David Ortiz. Those are two of the best hitters in the major leagues. They are successful be-cause they don’t swing at every pitch. They pick out the pitch that’s right for them, and then they hit it hard. In other words, don’t dabble. You are a profes-sional liability defense lawyer. And although you are a smart guy, you have no experience handling criminal cases. Don’t swing at that pitch.”

Associate: “Okay, I hear you. I also wanted to men-tion that our client, Ira Tating, keeps calling me. He left me three voice mail messages yesterday. I think he’s pretty upset that the judge denied our summary judgment motion. I’ve responded to him by e-mail, explaining the judge’s reasoning and what we need to do now that we are heading toward trial.”

Partner: “While it’s good that you’ve responded to him, I learned long ago that the best way to handle an obnoxious client like Mr. Tating is to handle them like Justin Verlander or John Lackey would handle any major league batter. They go after them. Even though your first instinct may be to shy away from someone like Mr. Tating, the best practice is to call them back whenever they call you and talk through the issues as long as they need to. Good communication is the key to a successful practice.”

Associate: “But it’s difficult to find the time. You have me handling several of your cases, deadlines keep popping up and I’m struggling to handle it all myself.”

Partner: “I remember a cartoon of Bugs Bunny play-ing baseball - you know, the one where he plays every position himself with nobody else on the field? You are not Bugs Bunny. We have paralegals, administra-tive staff and even an intern here. You should find a way to delegate things appropriately to them. Clients will appreciate it and you’ll have more time for work

that is suited for your billable rate.”

Associate: “Okay. That should free up some time. Perhaps I could join you at the game?”

Partner: “Not so fast. I almost forgot to mention -- we just took on a new client in a legal malpractice case. A lawyer named Rusty Jenkins.”

Associate: “Isn’t that the lawyer who represented Ben Joosin, the big hitter for the Yankees who was sus-pended for having a locker full of syringes filled with HGH?”

Partner: “That’s the guy.”

Associate: “And Joosin is claiming malpractice? That is some chutzpah. No lawyer in the world could have saved Joosin from suspension under the circum-stances.”

Partner: “Well, Joosin says Rusty botched the case because he didn’t know about recent changes to the collective bargaining agreement negotiated by the players’ union. Apparently there is a new rule that requires evidence of performance enhancing drugs to be sent by Federal Express to the lab within 24 hours of discovery.”

Associate: “You have to be kidding. Let me guess, the league waited more than 24 hours to send the sy-ringes for testing?”

Partner: “No, the league sent them right away.”

Associate: “Then what’s the problem?”

Partner: “They were sent by DHL! And Rusty never argued the point because he assumed the rules were the same as when he last read them years ago. Now Joosin says somebody tampered with the syringes and Rusty is to blame for the suspension.”

Associate: “So what’s our defense?”

Partner: “I have no idea, but I know you’ll come up with something. That’s why we are thinking about giving you that raise you’ve been asking for.”

Associate: “Still thinking about it after all these years! At this point, I’d settle for your tickets to tonight’s game.”

Partner: “Keep dreaming! Didn’t you see that grand slam last night? This is an incredible series. Besides, you have a lot of work to do. Have you sent out those engagement letters to new clients yet?”

Associate: “I haven’t gotten to those yet. But I can send those later, right? I mean, we’ve already agreed to take on the cases, and the clients told us they ap-proved our hourly rates. It seems unnecessary to send letters confirming the obvious.”

Partner: “Do you think John Farrell would have agreed to manage the Red Sox this year without a proper written contract? An engagement letter is every bit as important in an attorney/client relation-ship. In fact, some states have recently modified their ethical rules to require attorneys to send written en-


“An engagement

letter is every bit as

important [as a

baseball team

manager’s

contract] in an

attorney/client

relationship.”


PLDF Amicus Program

Please let us know of

appeals in your

jurisdictions

implicating important

professional liability

issues that might have

national

significance.

gagement letters to all new clients. It is critical that the lawyer and the client are on the same page, be-fore the representation commences, as to the nature and scope of the representation. If a dispute arises years later concerning what the lawyer was hired to do or how much the lawyer would be paid, it’s all right there in black and white.”

Associate: “Okay, you made your point. I’ll get them out ASAP.”

Partner: “Good. I really need to get out of here so I won’t miss the first pitch.”

Associate: “Okay. By the way, who do you like to win tonight, the Tigers or the Red Sox?”

Partner: “Oh, it doesn’t matter to me. I don’t care much for baseball. It’s too slow. I’m a football fan.”

∞


“It is critical that

the lawyer and the

client are on the

same page, before

the representation

commences, as to

the nature and

scope of the

representation.”


David C. Anderson is a partner with Collins Einhorn Farrell in Detroit. His practice emphasizes professional liability defense of lawyers, accountants, insurance producers, and real estate agents and brokers. David can be reached at: (248) 351-5418 and at [email protected]

Kevin M. Colmey is a partner in the Litigation Department of Sulli-van & Worcester’s Boston office. His practice includes professional liability defense and matters be-fore the Board of Bar Overseers. He also does D&O and other cov-erage work. Reach Kevin at (617) 338-2851 or [email protected]

M A N A G I N G D I R E C T O R ’ S

R E P O R T C H R I S T I N E S . J E N S E N

PLDF had 18 new members join in October. Sixteen of those new members are insurance industry profes-sionals. What a great addition to our roster.

Tim Gephart of Minnesota Lawyers Mutual Insurance Company is now a PLDF Board member.

Tony Abeln has been made a partner at the firm of Morrison Mahoney in Boston.

David Hatem’s offices of Donovan Hatem have moved to 53 State Street in Boston, MA 02109.

Our own Jonathan Ziss has been quoted in a Dow Jones News service article dated September 25th.

Anna-Katherine Bowman has joined Johnston Barton Proctor and Rose LLP, 569 Brookwood Village, Suite 901, Birmingham, AL 35209.

Barton L. Ridley of Touchstone Bernays has been named 2013 Texas Super Lawyer.

PLDF Member Dina Cox has been named “Best Law-yers’” 2014 in Indianapolis for Medical Malpractice Law.

Ed Schwartz’s offices of Marshall, Dennehey, Warner, Coleman & Goggin have moved to 100 Corporate Cen-ter Drive, #201 Camp Hill, PA 17011.

I have booked space for PLDF’s 2014 Annual Meeting and CLE/CEU Presentation at The Westin Georgetown in Washington D.C. The Fifth Annual meeting is set for September 17-19, 2014.

Your Board of Directors is meeting at The Westin Kier-land in Scottsdale, Arizona on February 6-7, 2014 to make more plans for the continued growth and suc-cess of your federation!

Let me know of your interest in serving as a PLDF com-mittee Vice Chair for the 2014 term.

Please also keep me advised of your professional suc-cesses so we can update our website homepage with your news.

I can be reached at (612) 481-4169/[email protected]

Analytics

Professional Liability Defense Federation’s Google

Analytics data for October 2013 is as follows:

Visits: 1,181

Page views: 5,499

Time per visit: 4:13

Pages seen/visit: 4.66

New visitors: 47.93%

We urge all members to update your biographical data and upload your photograph in the website database.

Marketing rule number 1:

“All publicity is good publicity.”

www.pldf.org

Follow PLDF on:

Scenes From the 2013 Professional Liability Defense Federation Annual Meeting

Save the Date: September 17-19, 2014!

Professional Liability Defense Federation

Fifth Annual Meeting and CLE/CEU Presentation

The Westin Georgetown, Washington D.C.

p r o f e s s i o n a l l i a b i l i ty d e f e n s e q u

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