April 12, 2008
I am a securities arbitration attorney and former securities regulator who have great concern over the proposed rule and the continued injection of Court like procedures into this supposed equity forum.
The proposed rule, if adopted as is, will have the negative effects of at best:
-Significantly delaying the closure of cases,
-Inconsistent and baseless dismissal rulings depending on who is on a given panel and their level of legal acumen, let alone the patience, to actually apply difficult legal precedent and statutes that most judges have difficulty applying
-Render it impossible for anyone to realistically pursue their matter pro-se as FINRA informs and encourages people to do every day,
-Be in conflict with the equitable nature of this forum and the other long standing Statement of Claim rule which, based on its limited nature, was clearly drafted and approved to make it simple for an investor to file a complaint and have that complaint heard without the pleading requirements, etc, that may be applicable to the Courts so as to make it supposedly pro-se friendly.
The new proposed rule, in effect, authorizing for the first time Motions to Dismiss on a limited basis pre-hearing and on an unlimited basis post-Claimant case, would be a disaster from the investors perspective. Due to its limited guidance and the language within its exceptions, it would appear that such rule may provide ammunition for firms to attempt to argue that such rule permits Control People, Supervisory Personnel and/or Clearing firms who are not directly involved in events to attempt to submit Motions to Dismiss pre-hearing and pre-discovery. There is an abundance of case law and statutory authority that under specific circumstances all these classification of Respondents may be held responsible for damages resulting from the events that they may not have had direct involvement in. Obviously often times the evidence for such liability cannot be obtained other than through discovery and through the actual hearing, as depositions are rarely permitted in arbitration unlike in Court. As the investor/plaintiff who has the burden of proof is already at a disadvantage in FINRA arbitration in not having full discovery in arbitration (i.e. depositions, interrogatories etc) it obviously is unfair and unequitable to permit any pre hearing Motions to Dismiss that would possibly permit in any way, shape or form an argument that these type of Respondents, who in effect are named based on such position (Control Person, Supervisory, Clearing Firm etc), should be dismissed because they were not directly involved in the events at issue etc. Unfortunately the combination of the language of the proposed rule, the variety of panelists with limited, if any, judicial experience, and Respondents willingness to twist rule language, we have no doubt will lead to improper early dismissals of Respondents who were properly named and which dismissals would be difficult if not impossible to overturn due to the limited nature of Court review of arbitration awards. The investor by being forced to arbitrate simply because he/she opened a brokerage account has already given up his ability to have full pre-hearing discovery as well as his/her right to a jury without an industry arbitrator and his/her right to appellate review, now this rule will prematurely end many legitimate claims and create much injustice in the process. Further, as a result of what in effect would be new barriers in naming such Respondents Claimants attorneys would be less likely to accept retention on matters involving small or under-funded brokerage firms where such naming of Respondents are typical, thus impacting the filings before they are even filed so regulators would not even know of the actual full impact of such rule. To the extent that FINRA arbitration plays a role in enforcement of securities regulations as the SEC has previously asserted, such would obviously take a huge step backwards creating more reliance upon the limited funding and resources of the SEC to do what individual investors were assisting with.
Besides certain classes of Respondents having the ability to twist the words of the current rule to be able to not only file Motions to Dismiss but now have the appearance of support in a rule, the allowance for any Motion to Dismiss post Claimant case will no doubt open the flood gates to surprise filings of such Motion at the end of the Claimants case requiring the Claimant to request time to adequately respond to Motions which have been prepared over the course of months by the Respondents and their law firms. Such will at best will likely significantly delay and bifurcate all hearings, significantly extending the length of time it takes to obtain closure and finality. This in combination with the other proposed rule allowing for post-hearing motions will make arbitration a never ending very long process which is the exact opposite of its supposed intended purpose. Further, now by authorizing such Motions panelists will be required to accept and consider them and the variety of legal issues raised within them that no pro-se Claimant could hope to deal with. Further, Claimants counsel would be forced to play "catch up" and have to rush to submit a response to such Motions or otherwise continue to delay the conclusion of the hearing. I have been involved in numerous hearings where case law has been cited to and yet when the subject case or statute was reviewed it turned out the case or statute did not stand for the proposition asserted or that the quotation extracted failed to include language which immediately followed which contradicted the Respondents position within their papers. Such can only be determined after careful review of Respondent papers and proper legal research, which is a lengthy process and certainly not something that a lay person can hope to do without counsel again conflicting with FINRAs promotion that arbitration can be pursued pro-se.
In sum this imposition of Court like procedures in this supposed forum of equity would have a disastrous impact on the overall arbitration process and conflict with FINRAs position that the forum is lay-person friendly forum for which people may file a claim and have it fairly and properly heard. It would appear that by proposing the instant Court like rule in a forum where, unlike Court which has judges not arbitrators of limited if any judicial experience to review such Motions, has no right to proper appeal, FINRA is doing a great disservice to the individual investor Claimant making the cure worse than the disease. As a result, we pray that the instant rule in its current form not be approved. In the alternative, such Motions to Dismiss should simply be prohibited, thus recognizing the supposed overall goals of arbitration, the limited judicial experience of FINRA arbitrators and at the same time the benefits Respondents already receive from the limited discovery (burden) imposed in arbitration, which always hurts the party who has the burden of proof, the Claimant, especially in the context of permitting any such Motions pre -hearing.