Attorney Fee Provision in Note Works Against Brokerage Firm

BELL & STANTON v. PRUDENTIAL SECURITIES, INC., NASD ID #99-04338 (San Diego, 5/21/01):

In California, a provision for attorney fees in a promissory note or agreement is deemed reciprocal, so that both sides can claim such entitlement. In this case, it seems that such a provision worked to the detriment of the lending broker-dealer, which lost its counterclaim for $162,343.44 in compensatory damages for alleged breach of promissory notes.

The loss on the counterclaim led as well to an award of attorney’s fees to the Claimant of $75,689.27, “pursuant to the terms of the promissory notes.” Driving the point further, the Panel assesses all fees against Prudential (including reimbursement to Claimants of the filing fees) — a sum of more than $20,000 — and orders Prudential to Claimants’ expert witness fees of $9,700.

At the same time, the Panel denied the affirmative claims of the former brokers, who had charged Prudential and two individuals with numerous common law claims, including tortious interference, misrepresentation, and defamation. That denial leads to a dismissal with prejudice as to one of the individual Respondents and a recommendation for “expungement of all reference to the above captioned arbitration from [the] registration records [of the CRD].”

Regarding the expungement order, the Panel clarifies that “pursuant to NASD Notice to Members 99-09, Respondent [broker] must obtain confirmation from a court of competent jurisdiction before the CRD will execute the expungement directive.” (SAC Ed: Two points on this Award: 1) Actually, NASD Notice to Members 99-09 only places a moratorium on unconfirmed, arbitrator-ordered expungements in disputes involving public customers. The Notice states clearly that “NASD Regulation will continue to expunge information from the CRD system based on expungement directives in arbitration awards rendered in disputes between firms and current or former associated persons, where arbitrators have awarded such relief based on the defamatory nature of the information.” Since this was an industry dispute, this individual should not have to go to court to get his expungement. 2) The award of attorney fees has some interesting facets. It occurs to us that if the Arbitrators had awarded $162,343.44 on both the claim and counterclaim, the parties would have landed in the same place as they did. One amount would have offset the other, as, in effect, the non-suits did in the Award. On the attorney fee side, though, awarding on both sides might have left the Panel without the authority to award attorney fees to the Claimants (assuming its authority was based upon the provision in the notes); indeed, Prudential as the prevailing party on the notes counterclaim would have been the likely recipient of the fees.) (SAA Ref. No. 2001-23-02)


Copyright 2000-2002 Securities Arbitration Commentator, Inc. P.O. Box 112, Maplewood, NJ 07040; t: 973-761-5880 f: 973-761-1504. Materials denoted with a SAC Reference No. (e.g. SAC Ref. No. 99-01-001) are on hand at SAC and may be obtained by calling the Securities Arbitration Commentator, or by email to help@sacarbitration.com. The Securities Arbitration Commentator is the leading publication for securities arbitration news and information, and maintains the most complete database of arbitration awards availalble anywhere. For more information regarding their services, visit their website at www.sacarbitration.com


Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.


Return to The Securities Law Home Page 

Visit Beam & Astarita, LLC, securities arbitration, regulation and litigation attorneys