Court Reinstates Texas Securities Arbitration Award

Claimant Leonard Claus was awarded $25,000 by a National Association of Securities Dealers’ arbitration panel for his Texas securities arbitration claim. Claus had made a verbal agreement with Jerry Short, who worked for Institutional Capital Management Inc. over the sale and purchase of bonds.

Clause, who bought the bonds, was planning to sell them to Sterling Financial Investment Group Inc. The resale plan didn’t work out, and he sold them to another buyer at cost.

Clause then sued ICM and Sterling for breach of contract, violations of federal and state securities laws, and negligence.

In addition to the $25,000 compensatory damages award, NASD charged Clause $22,000 in arbitration fees. They awarded his lawyer $70,000 in legal fees.

ICM and Sterling asked that the Texas securities fraud award be vacated by the district court. A magistrate judge vacated, claiming that the NASD panel went beyond its authority when it violated Texas law and directly issued an award to Clause’s lawyer.

Clause and IMS appealed, claiming that the judge made a mistake when vacating the entire award on the basis of the awarded attorney’s fee. Meantime, Sterling and ICM contended that the attorney’s fee violated Texas law and that it conflicted with the contingency fee arrangement between clause and his attorney, which the NASD panel is not allowed to override. ICM and Sterling said the legal fee award was unreasonable.

Court of Appeals ruled that even though Texas statute must directly authorize any fee awards, the party that is told to pay the fee cannot challenge the payment’s propriety. The court called the award error harmless and “immaterial to the party” that is ordered to pay it. The court also noted that ICM/Sterling did not challenge the evidence that supported the fee award.

Related Web Resources:
Institutional Capital Management Inc. v. Claus

National Association Of Securities Dealers – NASD

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