My firm and I have been named in an arbitration filed by a former client. The firm agreed to provide me with a lawyer who is representing it, too. The firm is also going to pay for my legal fees. I am concerned that the lawyer chosen by my firm will place the firm's interests above mine. I do not want to “contribute” to any settlement as I did nothing wrong and would go to hearing if necessary. Do I have any reason to be concerned about this joint representation?
This is the classic problem that many brokers face when named as a respondent with their firm in an arbitration.
Typically, firms provide counsel to represent both the individual broker and the firm, but the firm pays the attorney. The broker, understandably, may suspect that the attorney will be solely interested in the firm's position. For example, many firms and their brokers, naturally, have divergent opinions on when to settle, because brokers want vindication (and clean records) for what they view as baseless customer complaints while firms seek to resolve disputes with former customers and minimize losses and legal expenses.
The attorney must disclose to the broker the potential conflict of interest in this relationship. The firm-paid attorney must inform the broker of the possibility that the interests between the firm and the broker may diverge. The attorney provides this information to the broker so he may make an informed decision as to representation. Once advised, the broker may waive this potential conflict of interest and be represented by the firm's attorney. If the broker chooses to waive the conflict, he is stuck to a certain extent with the representation. However, new counsel may appear if another conflict develops later in the proceeding. The firm-paid attorney, generally, may not then represent either party in the action unless the attorney obtains waivers from both the firm and the broker to continue to serve.
Additionally, you always have the option of retaining your own counsel. Before you select new counsel, you should, however, have a frank and professional discussion with the person at your firm directing the arbitration for the firm and/or in charge of hiring or choosing the attorney.
This conversation should result in an action plan for the arbitration: You should express your position that a settlement is not in the cards, because you feel the customer has no case. However, you should also listen to this person because he or she may have a very good argument supporting a settlement. You want to be seen as a “team player.” That perception that you're not — whether valid or not — it may create problems for you later.)
After you express your opinion and hear the firm's position, you may still choose to hire your own counsel. Separate counsel may be your right, but your firm may not be willing to pay. As a result, you will most likely have to pay for your lawyer.
In any event, if you agree to the joint representation, you should not ignore the arbitration proceeding or consider it to be the firm's problem. Continue to involve yourself in the proceedings. Request the firm-paid attorney to copy you on correspondence and apprise you of all the proceedings in the case. Contact the firm-paid attorney at regular intervals to inquire about the status of the case and offer to provide relevant information for the defense of the proceeding.
Finally, if the settlement issue rears its ugly head again and you're unable to move your firm as to your position, you may always discharge the firm-paid attorney and retain new counsel. The firm may then settle and you may proceed alone. Certain arbitration panels may even grant you a brief amount of time to obtain a new lawyer and for that lawyer to prepare.
Be proactive. Speak with your firm before taking any action, stay involved in the proceeding, and don't “burn your bridges” if you must retain your own counsel to defend your interests.
Saiber Schlesinger Satz & Goldstein
As a named party to a customer-initiated arbitration you may find yourself liable to that customer for a monetary award, either jointly with your employer or on your own. In addition to the potential arbitration award, there are fees and costs associated with the administration of an self-regulatory organization arbitration that you might also be responsible for paying.
Finally, and most importantly, an adverse arbitration award could result in a disciplinary referral to the NASD or NYSE Divisions of Enforcement. Given the potential for any or all of the aforementioned outcomes, you need the most effective assistance of counsel — one free from conflicts of interest. If you're aware of the pitfalls to avoid and take necessary precautions, you should receive the legal guidance and representation that you need and to which you are entitled given the possibility of conflicts that can arise in joint representation of clients.
As a former in-house counsel with a major wirehouse, all too often I found myself in the position of representing both the interests of the firm and those of the registered representative. I say “all too often” because, as an attorney, I have an ethical obligation to provide my client with the most effective legal representation that I am capable of offering. It should come as no surprise, particularly in litigation and arbitration, that the interests of two parties do not always coincide. The potential for conflicts may impede an attorney's ability to concurrently represent both the firm's interests and yours. Moreover, should an actual conflict of interest arise — the needs of the firm in defending against the arbitration claims are no longer the same needs as yours — the allegiance of counsel will be to the firm, and you may find yourself without legal representation midway through the process.
What happens when the firm's lawyer tells you that he can no longer represent your interests, because the firm believes that you did something wrong for which they believe they have no liability? Or that the firm has decided that for the sake of economic efficiency it wants to settle, but you want to see it through to the end in hopes of being vindicated? While it is not impossible, it is a fine line for an attorney to walk when they agree to represent parties who may very likely have differing views of a matter and, ultimately, have different stakes in the outcome of that matter.
There are certain precautions that you can take in advance of agreeing to a joint representation situation. While none can prevent conflicts of interest from arising, they will hopefully diminish your concerns.
At the onset, your attorney should have a discussion with you that outlines the potential for a conflict arising, addresses the precautions that will be taken to lessen the potential conflicts and provides you with a framework for how you will proceed should he later conclude he can no longer represent you. This conflicts talk should be followed by a letter that puts in writing those things you and the attorney have discussed. Moreover, the attorney should request your permission to represent both you and the firm (and any other parties to the arbitration that the firm wants under the same umbrella).
It is your responsibility to make certain that you have a straightforward discussion with the attorney about your view of the case, your desired outcome and your ability to participate in your own defense. You may also want to discuss with the firm's representatives the possibility of having them retain separate counsel for you so that conflicts may be avoided.
In the end, there may always be a question of the adequacy of your joint representation. Given the serious consequences of an adverse arbitration award, it may be in your best interests to retain your own counsel, either as a sounding board to discuss the joint representation or as your own legal representation that has only your best interests at heart. My recommendation: Each party should have its own counsel so that these problems never have an opportunity to arise. While this last recommendation is most likely the costliest to you in financial terms, can you really put a price on your reputation and your license to do business?
Nackman & Feinberg
Ethical Rep is a monthly feature in which more than 30 prominent securities attorneys, experts and law school professors help Rep. readers deal with work-related ethical quandaries. Have you encountered a situation at work that makes you uncomfortable? Are you confused about how your responsibilities to clients might change as regulations continue to evolve? Drop a line to Rep.'s contributing editor, Ann Therese Palmer, and our group of experts will help you work through the problem.
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