April 10, 2008
Motions to dismiss have no place in arbitration. The NYSE held arbitrations using the same code as NASD/Finra and did not permit motions to dismiss. They are unnecessary and costly to the victims of securities fraud who are forced into arbitration by the firms who insist its fair.
Eliminating some motions to dismiss is a good start but is not a final solution. Finra is seeking to institutionalize permitting motions to dismiss on three grounds. This establishes procedural unfairness which is prejudicial to securities fraud victims.
Under the proposal, arbitrators, without reviewing any evidence, are asked to dismiss a victim's claim. Recently a Panel refused to consider a victim's submission of affidavits in response to a motion to dismiss.
Eligibility is one of the approved grounds for a motion to dismiss. That rule requires that a victim must file a claim within 6 years of the "occurrence or event" giving rise to the claim. The occurrence giving rise to the claim could be the purchase date or date of discovery. The former Director of Arbitration at NASD, Debra Masucci, wrote that the occurrence or event could be the date of discovery and was not necessarily the date of purchase.
As such, a factual hearing is necessary to determine what was the occurrence or event. Finra proposes to have the arbitrators make this factual determination without a hearing or considering any evidence. Finra's proposed procedure violates fundamental due process and is highly prejudicial to securities fraud victims.
Under the proposed rule, what is the occurance or event will be interpreted according to the bias of the specific arbitrator considering the question. Whether a claim is heard or dismissed depends on who is assigned to the Panel. Two Claimants with the same facts can have opposite results. This promotes distrust and makes arbitration arbitrary and unreliable.
The Code of Arbitration Procedure requires a hearing in all customer cases, unless waived. Substituting an arbitrator's guess for a hearing on the merits will not convince a skeptical public that arbitration is fair. Arbitration, in its current form, is not fair and this proposal seeks to make the unfairness permanent.
Motions to dismiss, in court, address the sufficiency of the pleadings. The Code of Arbitration Procedure only requires that the victim state the relevant facts and the remedies sought. Logic dictates that motions to dismiss serve no useful purpose in Finra arbitration, which makes the NYSE interpretation not to accept motions to dismiss the best practice.