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First Michigan vs. JJB Hilliard – 171 hearing sessions, 5 years in arbitration

FIRST OF MICHIGAN CORP. v. J.J.B. HILLIARD, W.L. LYONS, INC., NASD ID #97-05348 (Southfield, MI, 1/14/03). After a five-year battle between two regional firms that are now part of much larger operations, a three-person mixed Panel of Public and Non-Public Arbitrators renders an award of $13.3 million in lost profits, $2.7 million in advance compensation repayments, and a complicated, five-year interest calculation that yields approximately $6 million. Hilliard Lyons is liable for the full amount and eleven individual Respondents are allocated portions that aggregate to $13.3 million of the whole. The Panel dismisses claims against two other individuals. The Panel explains its calculations in detail, but without substantive explanation. The allegations relate to a time when FOMC was being acquired by Fahnestock & Co., Inc., after 64 years of independence, in what Hilliard Lyons calls an “ill-conceived merger” and an “implementation that benefited neither the employees or customers of FOMC.” According to the claims, Hilliard Lyons engaged in “raids of twelve of Claimant’s offices involving approximately 90 employees on November 7, 1997 to May 8, 1998.” FOMC responded, seeking preliminary injunctive relief under the NASD expedited arbitration rules and $28.8 million in damages. An Interim Order was issued in December 1997, but, five years hence, the only question remaining was monetary damages. Two pages of the Award are occupied by a listing of the hearing dates, which ultimately consumed 171 hearing sessions. There were also six pre-hearing sessions with a single Arbitrator and eight with the entire Panel. The case was administered under NASD’s then Large and Complex case procedures and the Panelists, by agreement of the parties, each were compensated with an additional honorarium per session. These additional honorarium fees turned out to constitute the bulk of the total NASD charges and were split between the two members. Hilliard Lyons was assessed the total forum fees of $109,000. (ed: FOMC/Fahnestock was represented in the arbitration proceedings by Michael J. McAllister, Satterlee Stephens, New York, NY, Mark L. Kowalsky, Hertz Schram, Bloomfield Hills, MI, and Eric J. Shames, Fahnestock, New York, NY.) (SAC Ref. No. 03-04-02)   


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