Malpractice Claim Survives In FINRA Settlement Dispute

The New York Appellate Division for the First Judicial Department affirmed a trial court denial of summary judgment to a defendant in a legal malpractice case

Plaintiff brings this legal malpractice action against the attorney and law firm who represented him in connection with a Financial Industry Regulatory Authority (FINRA) investigation following the termination of his employment for charging $3,708.66 of personal travel expenses to his corporate credit card. Plaintiff challenges defendants’ advice to accept a prediscovery settlement that included a lifetime bar prohibiting him from associating with FINRA members, as well as defendants’ alleged failure to consider his future employment plans.

Disputed contentions

Although defendants’ advice would have been reasonable if the circumstances were as they described — that plaintiff admitted to fraudulently submitting personal expenses and altered receipts for reimbursement, that he was unwilling to take even a small risk of criminal prosecution, and that a FINRA bar was likely inevitable whether or not plaintiff cooperated with the investigation — plaintiff has offered conflicting evidence that calls the circumstances into question. The record shows that plaintiff was informed of and agreed to defendants’ strategy and presumably knew the truth of his own underlying conduct and his own preferences with respect to various courses of action, even if defendants misunderstood them. However, if defendants misstated the likelihood of a bar being imposed after cooperating with the FINRA investigation, then plaintiff would have been unable to appropriately assess his options, rendering his approval of defendants’ strategy meaningless.

Further

We reject defendants’ argument that advice on the effect of a FINRA bar on plaintiff’s future employment was outside the scope of the representation. The retainer agreement broadly defined the representation as one “in connection with a FINRA investigation relating to [plaintiff’s] past employment at Goldman Sachs & Co.” Defendants could not effectively immunize themselves for failing to provide appropriate advice on a subject within the scope of the representation by referring plaintiff to another attorney with whom plaintiff never connected, especially when a draft agreement with FINRA had already been circulated and the decision whether to accept it was time-sensitive.

Causation and damages were also in dispute. (Mike Frisch)