Negligence is another catchall term that applies to many, many legal actions. Negligence simply means that someone has done something wrong. Unlike Shakespeare who wrote in Hamlet that, “There is nothing either good or bad, but thinking makes it so,” in law, there are standards that apply to determine if someone has done something wrong. If you slip and fall at the grocery store on a puddle, the store may have been negligent for failing to clean up the puddle if, for example, it had been there for some time and another customer had already complained about it. The grocery store likely had something in writing that stated that if the store is alerted to a spill, that it be cleaned up promptly. That written standard, as well as common sense logic, would dictate that the grocery store should be responsible for your injuries in the fall.

In securities arbitrations, there is a game that the brokerage firms love to play. When we cite in our Statements of Claim all of the FINRA rules that the stockbroker and the brokerage firm violated, the firm’s answer is replete with claims, supported by case law, that there is no private cause of action for a violation of FINRA rules. The reality is that the FINRA rules are all standards that the arbitration panel should apply to determine if the stockbroker and the firm did anything wrong. The FINRA rule violations, in other words, are negligence standards.

I am careful in my Statements of Claim to list all of the FINRA rule violations under my Negligence cause of action, because that is where they belong. The FINRA rule violations are no less viable because they are evidence of negligence, instead of a separate cause of action. It is important to explain to arbitration panels that even though a Statement of Claim may contain multiple causes of action, including negligence, the Claimant need only prove the violation of one cause of action in order to recover.

Another claim that falls under the umbrella of Negligence is a failure to supervise claim. There is no private cause of action for failure to supervise, but there are many FINRA rules that govern the responsibilities of brokerage firms to supervise not only their stockbrokers, but also every brokerage account that they handle. At the time of filing a Statement of Claim, I may not have documentary evidence of a failure to supervise. Rather, the stockbroker’s wrongdoing was so egregious, that there must have been a failure to supervise. I am usually able to obtain the documentary evidence of a failure to supervise through discovery during the arbitration.

Sometimes, I name the stockbroker’s supervisor as a Respondent in the arbitration. Again, the main cause of action against the supervisor is a Negligence claim for failing to supervise. The brokerage firm itself is automatically liable for the wrongdoing committed by the stockbroker, as long as the stockbroker was working in the course and scope of his employment at the firm. In legal vernacular, this is known as Respondeat Superior, which means “let the master answer”. I am careful to explain to arbitration panels that because of the Respondeat Superior doctrine, our failure to supervise claim is icing on the cake; we do not need to prove it to hold the firm liable. I like to prove a failure to supervise claim, when I can, because it makes the arbitration panel more likely to give a good award.

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