Friday Q&A: Should I used my firm's attorney?

Question: My firm and I have both been sued in arbitration by a customer. The firm is offering to have its attorney represent me, as well as the firm in the arbitration. Should I use the firm's attorney, or hire my own?

Answer: This is a recurring question from brokers who are named in an arbitration proceeding by a customer, and whose firm offers to provide the attorney to represent both the broker, and the firm.

Unfortunately, the answer is not simple. In the 18 or so years that I have been handling securities arbitration matters I have been on both sides of the issue – representing a broker with another attorney representing the firm, representing the firm without representing the broker. However, far more common is the situation where I represent both the broker and the firm.

Sometimes there is a conflict between the broker and the firm, and joint representation is simply not possible. However, such conflicts are rare, and in the overwhelming majority of cases, it is possible to use one attorney.

For the broker, the remaining question is whether the attorney will zealously represent the broker’s individual interest, as well as the firm’s interest. In the largest sense, the broker and the firm both have the same interest – to defend the claim. The facts and legal principles which work in the broker’s favor also work in the firm’s favor. Additionally, in the usual case, the firm is only liable if the broker is liable, as the firm itself is not accused of committing a wrong, it is the broker who is so accused. In that instance, the firm is only liable if the broker is liable, and there is truly a united interest.

In more complicated cases, the interest of the firm and the broker may be different. For example, in a case where there are the usual sales practice allegations mixed with a market manipulation case, the broker may feel that the case will focus on the market manipulation theories, for which he has no responsibility, and impact his defense of the sales practice case. Separate representation may be desirable in that instance.

In other situations, such as where the broker has left the firm, even if a dispute does not exist, joint representation may be precluded by a simple lack of trust between the firm and the broker. Another cause for concern is where the broker, by his contract with the firm, is responsible for the loss, and, regardless of the outcome of the arbitration proceeding, he will be forced to pay the award, as well as the attorneys’ fees.

In this instance, the broker is sometimes concerned that the firm will force him to settle the matter when he wants to defend himself, and that the attorney, selected by the firm, will take the firm’s “side” in a settlement dispute. Other times, the broker simply feels that having an attorney who was responsible for his aspect of the case would give him better legal advice.

There are compelling reasons not to use separate attorneys. In cases where the broker is still employed by the firm, the usual practice is for both to use the same attorney. Deviating from this norm may send the wrong signals to the customer and his attorney, inadvertently telling them that there is a dispute between the respondents. If the customer believes that such a dispute exists, he may press his claim with more zeal, he may not be willing to discuss settlement, or he may simply make unreasonable settlement demands because he thinks he has discovered a weakness in the defense.

Cost is also a factor. While using two attorneys does not necessarily mean that the costs are doubled, there is an obvious increase in the defense legal bill, and in the costs. While defense counsel will decide which attorney is going to take the lead, and will divide the work, there is an obvious overlap in effort.

The reality is that in most cases, one attorney can, and does, represent the firm and the broker, and usually the other respondents in the arbitration who are employed by the same firm, and there is no reason to do otherwise.

The most important factor in making the decision is to be represented by an attorney who you trust and who you have confidence in. You also need an attorney who knows the securities laws, who understands the regulations and practices at issue, and who understands the arbitration process. Typically, that will be the firm’s attorney, whether he is in-house, or outside counsel. However, if the firm’s attorney does not meet this description, I suggest a frank and honest conversation with the attorney, to iron out any issues or concerns. If that does not work, brokers should not hesitate to retain their own attorney, and deal with the costs and appearance issues later.

After all, the money spent on a second attorney pales in comparison to the money that can be lost in an arbitration.

The full article on this topic is available at SECLaw.com - The Firm's Lawyer or Your Own.