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When “Winning” Is Not the Same as “Prevailing” in Arbitration: Lehner v. LPL Financial, LLC
Posted on Categories Court Decisions, Securities ArbitrationTags , ,

An arbitration panel does not violate a contract provision that entitles the “prevailing party” to an award of attorney fees by failing to make such an award to a successful claimant who recovers only a fraction of his compensatory damage request.

Lehner vs. LPL Financial, LLC, No. 1:15-cv-01178 (N.D. Ohio, 8/7/15).

A Disappointed Winner

Plaintiff Brian Lehner sold securities through LPL Financial, pursuant to a Representative Agreement that applied California law and contained the following provision: “If any legal action is necessary to enforce any of the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees in addition to any other relief to which he/she may be entitled.” Lehner filed an arbitration in which he alleged that LPL violated the Agreement and FINRA rules by repeatedly paying his commissions into the wrong accounts. The Panel awarded him $188,000 of the $750,000 in compensatory damages that he initially requested, but refused to award attorney fees (FINRA ID #13-02062 (Cleveland, 3/10/15)). Lehner seeks to vacate the Award on the grounds that the Panel exceeded its powers and manifestly disregarded the law by refusing to award him attorney fees.

Nothing Is Reasonable

The Court refuses the requested relief, stressing the limited scope of its review. First, it surmises, the Arbitrators might have concluded that “reasonable attorney’s fees” might have been none at all, since they dismissed two of Lehner’s claims and awarded only a quarter of his original compensatory damage request, and might therefore have concluded that he lost most of his case. Following the California Supreme Court’s guidance that "'arbitrators’ own assessment of their contractual authority’ should be given ‘substantial deference,'’” the Court declines to find that the Panel exceeded its powers.

Winning, But Not Prevailing

Secondly, Lehner’s argument that, under California law, he is entitled to attorney fees as the prevailing party under a contract claim, likewise fails. However, a panel only acts in manifest disregard of the law when it refuses to follow a legal principle that is clear and well-settled. Under the relevant statute, §1717 of the California Civil Code, “[t]he court may also determine that there is no party prevailing on the contract,” and “the Panel was within the limits of California law in deciding that despite recovering some damages, Lehner was not a prevailing party, and was thus not entitled to attorney’s fees as a matter of right.” The Court admits that Lehner would be entitled to attorney fees as a matter of right if he obtained “a ‘simple, unqualified win by completely prevailing on” his contract claim, but he cannot show that he meets this requirement. Lehner has not met his burden, the Court concludes.

(ed: Herein lies one more cautionary tale on why claimants should take care not to overstate their damage claims.)

(SLC Ref. No. 2015-32-01)

NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA)from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.

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