Brokerage firm learns a lesson about stubbornness in arbitration.

A client approached us last year. He had retired from an independent-style brokerage firm and sold his book of business to another broker. He had signed a “Continuing commission” agreement with the broker and the firm. He was was supposed to get a percentage of the commissions paid by his former clients over the next 3 years. This is all kosher and approved by FINRA pursuant to IM 2420-2

We looked at the agreement and concluded he was entitled to be paid. We wrote a demand letter to the brokerage firm. They told us, in essence, to go down to the beach and pound sand up [not family-friendly expression completed here]. We had a better idea. We filed a FINRA arbitration on our client’s behalf.

A year later, the client had his result. He was awarded most of what we claimed in the original letter. The brokerage firm was told to honor the continuing commissions agreement going forward. But the kicker was that the client was awarded his entitlement to attorneys’ fees. These fees, because the amount in dispute was relatively small, were more than the compensatory award. Frankly, we would have advised the client that it was too expensive to go forward if the fee provision was not in the contract. But it was and we did.

So, in retrospect, would the brokerage firm had been better off paying the demand when it was made last year? Sure. Do they regret their decision now? Who knows. But one thing is for sure. They now see, from a dollars and cents perspective, that settlement is cheaper than trying a case. Will they learn from this? Doubtful. There is an arbitration award out there that now reinforces the validity of their continuing commission contract and how they administer it.

We were pleased to represent the client, who was a gentlemen and quite the raconteur. We only wish that the brokerage had settled when it was the right and smart thing to do.

That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

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