A lawsuit by Syosset-based brokerage David Lerner Associates seeking to force its insurance company to pay legal costs for fighting 2012 regulatory sanctions has been rejected by a federal appeals court.
Joseph C. Pickard, David Lerner's senior vice president and general counsel, said in a statement Friday that the company is considering its options and "is disappointed and disagrees" with the ruling that Philadelphia Indemnity Insurance Co. did not commit breach of contract.
A spokesman for Philadelphia Indemnity Insurance declined to comment.
The U.S. Court of Appeals for the Second Circuit Thursday upheld a lower-court ruling that found under New York State law David Lerner's brokers are expected to have specialized knowledge and skill and are covered by the policy's "professional services" exclusion.
The Second Circuit ruling cited as precedent one case where the professional services exclusion was applied when the staff of a nursing home allegedly falsified patient records.
A spokesman for David Lerner Associates declined to specify the cost of the legal services the securities firm was seeking to recoup.
The brokerage firm has been facing legal and regulatory headwinds in recent years related to the sale of real estate investment trusts.
In October 2012, the firm reached an agreement with the Financial Industry Regulatory Authority to pay $12 million in restitution to investors for overcharging and misleading investors in a series of REITs named Apple. FINRA fined the firm a separate $2.3 million for improper sales practices for municipal and mortgage bonds over a 30-month period.
The firm's founder, David Lerner, known as Poppy in radio commercials, was fined $250,000, excluded from the securities industry for a year and barred from serving as a securities firm's principal for two years.
In April, however, David Lerner Associates scored a legal victory when a U.S. District Court judge dismissed a multibillion-dollar class-action lawsuit related to its marketing of five Apple REITs.
Daniel Girard, a San Francisco attorney leading the class action, said he expects an appeal of that ruling to go forward in three or four months.