WASHINGTON – A Gaithersburg man will get another chance to prove that he is entitled to recover money he paid to defend himself in a securities dispute, a federal appeals court has ruled.
A three-judge panel of the 4th U.S. Circuit Court of Appeals on Wednesday overturned a district court’s award of $1 in damages to Guang Lu, saying the lower court did not provide the former securities trader with an adequate opportunity to present his claim.
Lu, who said Thursday that he has spent more than $150,000 in lawyer’s fees on his case, said he was relieved to “see some justice” in a case that he described as “a nightmare.”
But David Drake Hudgins, an attorney for Zurich American Insurance Co., said he is confident his client will win when the case is heard again in district court, “particularly on the issue of damages, because they don’t exist.”
The case began in September 2000 when Xuejiao Hu filed a complaint with the Maryland Attorney General’s Office about Lu, who worked at the time for New York Life Insurance Co. According to court documents, Hu said Lu had “conducted unauthorized trading” in her New York Life and Charles Schwab accounts, ultimately costing her about $80,000 in losses.
Lu vehemently denies the charges, but was fired from his job at New York Life. The Securities Division of the Attorney General’s Office started administrative proceedings against him in January 2001, an action that Lu said is still pending.
In March 2001, Zurich and New York Life negotiated an $80,000 settlement with Hu. Court documents said she agreed in return to tell the securities division that she was dropping her complaint against Lu.
But the state proceeded with its case.
Lu claimed that Zurich should have consulted with him about its negotiations with Hu. Had it done so, he said in court filings, he may have been able to head off the state action and the legal fees that have come as a result.
U.S. District Judge Peter Messitte rejected Zurich’s request to dismiss Lu’s claim, saying a court might determine that the company had a responsibility to consult with Lu, even if the company did not have to get his consent for the ultimate settlement. In July 2003, Messitte entered a final judgment of $1 in favor of Lu.
But the appeals court on Wednesday vacated the damages portion of the lower court ruling. The panel said Lu had not been able to present his claim for compensatory damages, although it also said it expressed “no opinion as to whether Lu can ultimately establish a claim for compensatory damages should a jury determine that Zurich acted in bad faith.”
Zurich officials declined comment Thursday since the issue is still being litigated.
John Umana, Lu’s attorney, said Zurich had a duty to act as counsel for Lu but failed to act in “good faith.”
“Zurich is acting as claims counsel, and it has the duties of a lawyer in dealing fairly with a client and being sure that the client receives proper disclosure before a settlement,” Umana said.
Lu agreed.
“I truly believe that Zurich did some things wrong,” he said. “They give me hard time for me and for my wife and my family.”
But Hudgins said Zurich had no responsibility to keep Lu informed of the settlement discussions. He said the case was only remanded on a technicality and he reiterated his confidence in ultimate victory for Zurich.
“Guang Lu is hoping that he has the opportunity to pull a rabbit out of a hat,” Hudgins said. “But from where I sit that’s not what’s going to happen.”
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