May 27, 2010
I write in partial support and partial opposition to SR-FINRA-2010-22, which seeks to increase each of the arbitrator selection lists from eight to ten arbitrators. While I support the rule in cases where there is only one respondent or multiple respondents being represented by only one attorney, I vigorously oppose the rule in cases where there are two or more separately represented respondents.
For the past 22 years I have been representing public customer in NASD and FINRA arbitration proceedings, and for the past nineteen years I have been a member of the Public Investors Arbitration Bar Association ("PIABA"), a national organization of lawyers dedicated to the representation of public investors in FINRA arbitration proceedings against brokers and broker-dealers. For these 22 years I have had the distinct pleasure of beating my head against the wall arbitrating cases before a self-regulatory organization whose rules and procedures are designed to benefit its members, the brokerage industry, at the expense of the public customers. A glaring example is FINRA Arbitration Rule 12404, which provides that each separately represented party is entitled to a separate set of strikes on each list.
According to the rule, if a public claimant were to file a claim against, for instance, two separate brokerage firms or a brokerage firm and a broker, and should those two separate respondents decide to retain two separate attorneys (even if only for the period of time through the selection of arbitrators), the respondents will then be able to entirely control the arbitrator selection process. Amazingly enough, FINRA interprets this rule to permit even respondents who have not answered the statement of claim and are in default to participate in the arbitrator selection process.
Under both the current rule and the proposed rule, while a claimant would get a total of four strikes per list the two separately represented respondents would get a total of eight strikes per list. The obvious result is that the respondents are able to compel the appointment of a panel consisting entirely of cram down arbitrators or even worse, their own hand picked panel. It hardly needs mentioning that there is no court in the land in which, in jury selection, the defendants are given a greater number of total peremptory juror challenges than is given to the plaintiff, as that disparity obviously would lead to the selection of juries that are biased in favor of the defendants. It also does not need mentioning that FINRA has little interest in preventing the selection of arbitration panels that are biased in favor of their members, i.e., respondents.
As can be seen, although in the context of a single respondent case the increase to ten arbitrators on each list will help to prevent the number of cram down arbitrators appointed, in multiple respondent cases it will only make the situation worse for claimants because respondents will have a greater opportunity to hand pick the arbitrators that will remain on the lists.
It is interesting to note that this proposed rule change came about because of PIABA's complaints to FINRA. Specifically, PIABA sought three changes to the FINRA arbitration rules: (1) an increase to ten arbitrators per list;
(2) a provision that instead of the appointment of a cram down arbitrator that a new selection list be sent to the parties; and (3) the elimination of the portion of Rule 12404 which gives each separately represented party a separate set of strikes to be replaced with a provision that each side (as opposed to each separately represented party) be given a total of four strikes per list. Faced with these three requests, FINRA elected to propose only the one change to increase the number of arbitrators per list. An uninformed observer might wonder why all three changes were not part of the FINRA proposed rule change. To those of us in the trenches, however, the reason for FINRA's action is clear: FINRA, being a membership organization run by and working for the benefit of respondents, has little interest in seeing that arbitrators are fairly selected.
Based on the foregoing, I request as follows: (1) that the increase of each list to ten arbitrators be effectuated immediately for all arbitrations in which there is only one represented respondent or multiple respondents represented by only one attorney; (2) that FINRA be ordered to effectuate immediately additional modifications to eliminate the portions of Rule 12404 that give each separately represented respondent a separate set of strikes, and to replace those portions with provisions that the amount of strikes that may be exercised by respondents in total cannot exceed the amount of strikes that can be exercised in total by the claimant; (3) that FINRA be ordered immediately to rescind its interpretation of Rule 12404 that permits even non appearing respondents from participating in the arbitrator selection process; and (4) that FINRA be ordered to immediately propose a rule change providing that instead of appointing a cram down arbitrator that a new selection list be sent to the parties.
STEINER & LIBO,