March 22, 2008
Please accept this comment as support for the proposed rule change given the current practices in arbitration.
First Circuit Judge Bruce M. Selya wrote "Arbitration Unbound?:The Legacy of McMahon" in 62 Brooklyn Law Review 1433. At page 1455 he argues "Along the way, the securities industry must break out of the mold of the Hotelling Paradox. While the industry must strive to make securities arbitration fair and efficient, it must not dissipate the advantages inherent in the arbitral forum. In this market, product differentiation is critical: the purpose of securities arbitration is not to provide a cheaper imitation of adjudication but, rather, to permit investors and brokerage houses to resolve their disputes swiftly and inexpensively. This is precisely why Congress and the courts sanctioned securities arbitration in the first place."
He concludes, at page 1456, "In the end, the best alternative is to have alternatives. A healthy judicial system and a vibrant private arbitration mechanism, coexisting in parallel, constitute an effective guarantee that parties will be able to take their disputes to that forum which can best resolve them. We must remember Shakespeare's admonition that "the world is broad and wide," and our society has both the space and the need for distinctive methods of dispute resolution, not merely a forthright method of court run adjudication and a pale pastiche of it. Preserving healthy adjudicatory and arbitral options is the objective toward which we, as judges, academics, industry leaders and lawyers, should strive."
This rule is exactly the pastiche that Judge Selya warned against. Neither in the FAA (federal arbitration act) nor UAA (state model arbitration acts) is there complex and expensive litigation processes, including "motions to dismiss". Among the reasons these are not included is the fact that arbitration has very limited processes for appeals.
I would encourge the SEC to return arbitration to its designed purpose/function and do away with the litigation processes which are antithetical to arbitration.