Bates Practice Leadership Insights: Julie Johnstone on the Changing Litigation Landscape

As Managing Director for Bates Group's Retail Litigation practice, Julie Johnstone manages and oversees financial litigation and arbitration matters. Her team assists broker-dealer and investment advisers, banks and insurance companies, as well as State and Federal Regulators, throughout the life cycle of their retail litigation matters, from early case assessments, profit and loss reports, damage analyses, and “what if” scenarios, to expert consultation and testimony at hearing, as well as mediation and settlement support. We asked Julie to consider the state of retail litigation in light of the pandemic and to anticipate some of the long-term implications on case management and dispute resolution going forward. Here is a recap of our conversation.


Question: The pandemic has had a significant disruptive effect on retail investors and the financial markets. Do you expect to see a surge of litigation as a consequence?

Given that the recent market decline was one of the steepest and fastest in history, we are expecting an increase in litigation, especially where investors have incurred realized losses. However, the extent of litigation could be dependent on the shape of the market recovery, and, given that the market has recovered fairly quickly, we would possibly expect to see fewer claims filed involving paper or unrealized losses. Our past experience with market volatility, as well as recent news and our discussions with clients, support this expectation.

When do you anticipate an uptick in litigation activity?

There is always a lag after a market decline before claims are filed, and services are requested at many points throughout the lifecycle of a case—that is, from pre-litigation to resolution. Our clients tell us that their pre-litigation teams are busy. We are also currently working our way through pre-pandemic claims involving strategies to enhance yield, private placements, allocation drift, alternative investments, and others.

What types of retail investor claims do you expect to be filed as result of the pandemic? 

We monitor economic trends, market events in sectors (such as oil and gas) and liquidity issues, generally. These are the kinds of indicators that provide insight for our clients and help us better understand the emerging landscape. Right now, we expect future claims related to margin and securities lending accounts, energy- and airline-related investments, and other sectors impacted by various stay-at-home orders and business closures. In addition, we expect to see claims filed with respect to volatility-linked investments, order execution, vulnerable investor issues, business interruption, employment, general suitability, and allocation issues relating to the overall market decline and volatility, just to name a few.

How will litigation practice change as a result of the pandemic?

Time will tell, but many practice details will be altered. For example, expect greater use of video conferencing in conjunction with the traditional in-person arbitrations. Our experiences under current, temporary conditions, such as managing through the delays and postponements of hearings, may offer some indications about future changes. Permanent norms have not yet been established, but in-person FINRA hearings are still being postponed through September. Where both parties agree, counsel will need to navigate whether to move forward with video hearings or continue to postpone.

Further, we’ve noticed that some of our clients are expecting that claimants might be more motivated to settle the cases that were originally scheduled for hearing during the 2020 summer, rather than having to wait for the matter to be heard at a future date. So, the new environment not only impacts procedures, but it also may have tactical and even strategic consequences as well.

In the Retail Litigation practice at Bates, we have been adapting during this period as we support our clients toward a new normal. For example, our team of experts and case managers is training to effectively use various video conferencing platforms; we have been communicating more with our clients to better understand their needs as they consider pandemic-related challenges and an increasing number of claims; and, as mentioned, we have been proactively exploring issues that are likely to result in litigation our clients will face.

Tell us more about how you are working with clients to prepare for potential litigation.

One way we are helping our clients prepare for the potential increase in litigation is through various CLE webinars, a number of which have been completed, and others which are in development. We are also publishing relevant alerts and communications. These communication efforts concern the latest thinking around financial market issues like the trading of complex products. Recent program headlines include: “Senior and Vulnerable Investor Protection;" "Potential Litigation Claims in the COVID-19 World;” “Regulatory and Litigation Issues in a Post COVID-19 World;” “Introduction to Arbitrator Evaluator & ABCs of Financial Schedules;” “Reg BI for Litigators;" and "Best Practices in Defending Margin-Related Cases." Upcoming webinars and recorded programs are listed online. 

The pandemic has increased uncertainty and some stress, but it has also accelerated change throughout the financial sector. What are the positive consequences coming out of this?

Yes, it has. This has been a very challenging time for many businesses and individuals, and Bates is no exception. As our clients have had to do, we have adapted, and I would say we have done so successfully. Bates shifted to a 100% remote workforce mid-March without missing a single client deliverable. Through the transition, and over the last few months, Bates staff have engaged technology to develop new norms for staying connected and managing work effectively.

What will you be grateful for when this pandemic is over?

The pandemic has offered a time to reflect both professionally and personally. I have reflected on the many things to be grateful for over the last few months. I am grateful to the first responders, for the ability to continue working while so many have lost their jobs, and for the ability to spend quality time with my immediate family. I look forward to seeing my friends and clients in person and to visiting my favorite establishments as they reopen. And, I am hopeful for an economic recovery that allows us all to thrive.

The current crisis presents many challenges. Bates practice leaders, consultants, and experts can help. Please contact:

Julie Johnstone, Managing Director, Retail Securities Litigation

Alex Russell, Managing Director, White Collar, Regulatory and Internal Investigations

A. Christine Davis, Managing Director, Forensic Accounting and Financial Crimes

Greg Faucher, Managing Consultant, Insurance and Actuarial Services

Robert Lavigne, Managing Director, Bates Compliance

Edward Longridge, Managing Director, Bates AML and Financial Crimes


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