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Any time an investor opens an account with a financial services firm, the broker or financial advisor will draft a contract for both parties to sign. The contract will describe the legal obligations of the investor and the broker as well as the terms of their professional relationship. If a broker acts or fails to act in a way that deviates from the terms of the contract, this is considered a breach. If your broker has breached the terms of your agreement, and as a result you have suffered financial loss, you may be entitled to damages. Epperson & Greenidge, LLP represents investors in breach of contract causes of action and has experience in FINRA forums.
Elements of a Contract and Breach
All contracts, whether they be for sale of goods or for the sale of securities, have four essential elements. Without these four elements, a contract cannot be formed, and thus, an investor cannot file a successful cause of action for breach. These elements are:
- Mutual Assent
An offer is a promise to act or refrain from acting, and it is only binding upon acceptance. Acceptance is the unequivocal agreement to the terms of the offer. When acceptance has commenced, a contract has been formed. Consideration is the bargained-for exchange. Each party provides some sort of value that induces the other person to enter into the contract. In order for a contract to be valid, there must be a meeting of the minds, i.e. mutual assent. Both parties must have had the requisite intent to enter into the contract at the time of formation.
When a broker acts in a way that deviates from the terms of the contract, a breach has occurred. Brokers can breach contracts with investors in a number of ways. An example of this could be if a broker failed to perform the terms outlined in a new customer agreement contract. Other examples could be if a broker failed to exercise due diligence or neglected to follow an investor’s instructions. There are three types of breach of contract actions:
- Broker failed to perform promises contained in the terms of the agreement;
- Broker engaged in conduct that made it impossible for another party to perform; or
- Broker repudiates the contract, i.e. expresses intent not to perform
Remedies for Breach of Contract
The consequences of breach of contract actions are that in many cases, investors can recover damages from brokers. Consulting with a breach of contract lawyer is important for investors to obtain an honest assessment of what types of remedies are available to them based on the specific terms of their contracts. There are several remedies for investors who have suffered financial loss due to brokers who breach the terms of their contracts. Some of these remedies include:
- Compensatory damages
- Liquidation damages
- Punitive damages
Compensatory damages are designed to compensate the investor for the broker’s breach. They include consequential damages and expectation damages. Consequential damages reimburse the investor for indirect costs that are related to the breach. Expectation damages are damages that the investor would have received if the terms of the contract had been followed. Some contracts contain liquidation clauses, which pre-determine an amount of damages to be distributed to the non-breaching party in the event of a breach. These are common in cases where damages are difficult to calculate. Punitive damages are rarely awarded in breach of contract cases. They are designed to punish a defendant’s intentional or malicious behavior.
The Financial Industry Regulatory Authority (“FINRA”) offers dispute resolution services to investors who have been victims of breach of contract. FINRA arbitration is similar to traditional litigation in that parties conduct discovery, present evidence, and are bound to an arbitrator’s final decision. Typically, FINRA arbitration is less expensive and time consuming than litigation. Arbitrators are usually more businesslike and pragmatic than jurors who tend to be less investor-friendly.
In order to file a FINRA claim that is eligible for an arbitration hearing, two documents must be submitted:
- Statement of Claim
- FINRA Submission Agreement
The statement of claim describes the dispute, identifies parties to the dispute, and addresses the type of relief that is requested. The FINRA submission agreement also names the parties to the dispute. It acknowledges that FINRA is the organization that will conduct the proceedings, and if a hearing is held, the final ruling will be binding.
Breach of Contract Lawyer
If your broker has violated the terms of your contract, it is in your best interest to hire an attorney who can walk you through your potential legal options. Epperson & Greenidge, LLP provides high quality legal services and aggressive representation to victims of breach of contract. He provides legal services to the Delaware County, greater Philadelphia areas and also, on a federal level, has appeared before FINRA. To schedule a free and confidential consultation with a skilled breach of contract lawyer, call (877) 445-9261.