April 10, 2008
Prior to the Shearson case in the late 1980s, securities arbitration was expedient and inexpensive, many hearings taking only a few hours and often held without lawyers.
Increased sophistication based upon experience has made securities arbitration a legal specialty, and many hearings now take days and days and days, involve increasing complexities regarding discovery and have become anything but inexpensive. Groups such as PIABA have formed with the particular goal of creating pressure to tilt the field in claimants' favor.
Because of the ever-increasing fees imposed by FINRA, irrationally based only upon the dollar amount of the claim, and because of the near-impossiblity of removing an undeserved scar from a broker's record, the need for a process to reduce cost and complexity is dire. This need is set into particluar relief by the fact that the number of "sour grapes" claims - claims brought simply because money was lost - has not diminished. In other words, while brokers are subject to just as many frivolous claims as in the past, their abillity to inexpensively extricate themselves from such matters has been steadily eroded.
In the same way that courtroom dismissal does not run afoul of constitutional rights to be heard at trial, early stage dismissal of a frivolous pleading, commenced only for its in terrorem effects with an eye toward extorting a settlement, will not run afoul of rules permitting valid or even arguable claims to be heard. Only valid claims should be heard.
Courtroom litigation has built in protections - such as sanctions for frivolous pleadings and various types of dispositive motions. Securities arbitration has not one. By banning motions to dismiss, the door will be swung wide open. A claimant will have nothing to lose by filing a claim, because business sense will motivate innocent respondents to pay to settle just to avoid the exorbitant fees charged by FINRA. It goes without saying that if a claim is dismissed, FINRA's receivables will be reduced. Even if not granted, a motion to dismiss offers an opportunity to clarify issues, reduce the length of the hearing, promote settlement and, in the long run, save costs for everyone.
Fairness (sometimes called "justice") is a two way street. Placing a roadblock in one direction with no offsetting balance in the other contradicts the premise of fairness that supposedly resides in the heart of the process of securities arbitration. Preserving or increasing FINRA's receivables should not enter the equation.
Securities arbitration in the 2000s is different from securities arbitration in the 1980s. Not only should motions to dismiss be permitted, they should be encouraged.