| Accepting a Potentially Conflicted Arbitration Panelist Results in Client Victory Principal Attorneys John Monical Paul Weltlich Situation The registered representative (“Broker”) of a national brokerage firm (“Firm”) recommended a law firm to assist a client (“Claimant”) in setting up a special needs trust for the future medical needs of a child. When the trust was funded, the registered representative then recommended that the trust corpus be invested in a variable annuity. The Claimant, on the advice of a new attorney (the “Expert”), changed the purpose and use of the trust funds and moved the funds into a new trust. She then filed a FINRA arbitration alleging that the Broker (along with the attorneys) had incorrectly set up the trust, that the illiquidity of the annuity investment was unsuitable for the objectives of the trust, and that the sale of the annuity to move the funds into a new trust had caused millions of dollars in unnecessary losses. Challenge A few weeks before the arbitration hearing, the panel chairperson (“Chair”) disclosed that the Expert had acted as his personal attorney in setting up a special needs trust for his own child some years before. The Chair’s disclosure revealed not only a prior relationship with the Claimant’s Expert, but also that the Chair had a special needs child, which increased the risk of sympathy toward and personal identification with the Claimant. Solution The knee jerk reaction of any litigator would be to challenge the Chair’s impartiality and demand his recusal from the Panel. Lawrence Kamin realized that to defend the Broker and the Firm, we did not need to discredit the Expert or risk offending the Chair. Instead, we focused on proving that a high level of expertise – like that of the Expert – was so essential in creating a special needs trust that the Broker could not have been expected to know whether the attorney setting up the trust was doing it correctly. After careful consideration, we recommended accepting the Chair notwithstanding his disclosure. Outcome After a full arbitration hearing, the panel found for the Broker and the Firm and dismissed the case with prejudice. Lessons Applied Strategic decisions are not obvious. They require full consideration of available options. |
