April 16, 2008
I am an attorney who has represented customers, registered representatives, and broker-dealers in SRO arbitrations. I first represented a party in a SRO arbitration in 1975. In my more than 30 years experience, I have watched SRO arbitration become more complicated, more legalistic, more time-consuming, more expensive, and less efficient. Motions to dismiss are only one of the contributing factors. If arbitration is to be a quick, inexpensive, simple, and equitable alternative to litigation, steps must be taken to accomplish this.
In my opinion which is based on practicing both before and after McMahon, making arbitration voluntary for the customer would reduce all of the negative aspects which presently infect the process. The customer should decide whether he or she wants to be in court or arbitration.
That being said, the proposed rule is a step in right direction towards making arbitration less complicated, less expensive, less time-consuming, and more efficient. The rule effectively eliminates motion practice which has become far too prevalent and is promoted in defense seminars. Most of the current motion practice would not be tolerated by judges in courts. Much of the current motion practice appears to be designed to take advantage of arbitrators who are not attorneys, are not trained in the law, and are not familiar with the nuances of the tort, contract, or securities laws implicated in disputes.
The proposed rule, however, potentially opens the door for new abuses. By allowing unlimited and unsanctionable motions to dismiss to be made at the the conclusion of claimant's case, the proposed rule allows the respondent to present new theories or arguments to the panel which have not been briefed earlier. Unscrupulous counsel may cite non-dispositive -- or worse, misrepresent -- case law and file a memorandum of points and authorities rife with inaccuracies. Unless the panel then adjourns -- i.e., further delays the dispute resolution process -- the hearing to allow a thorough opposition brief and subsequent argument, the claimant will be left defenseless against the tactics/abuse.
For this reason, I suggest that no motion to dismiss be allowed at the conclusion of claimant's case unless the bases were raised in writing with supporting authorities at least 30 days before the hearing. This will promote a level playing field, provide claimant an opportunity to prepare an opposition brief, and give the arbitrators a two-sided argument which will not delay the proceedings significantly. If a timely brief is not submitted, respondent waives any motion to dismiss. To prevent abuse of the 30-day motion procedure, I suggest the mandatory sanction of respondent paying the reasonable attorneys' fees incurred in preparing an opposition if the arbitrators conclude that (1) the motion substantially misstated the law or (2) respondent did not file the motion in good faith or (3) the motion otherwise was frivolous.
I expect that the defense bar may argue that this suggestion is punitive, may discourage valid motions, and will force respondents to defend "frivolous" cases. The response to those arguments is simple: If a respondent believes that claimant has not proved his or her case, the respondent can rest, move on to closing argument, and let the arbitrators decide the case on the facts and the law as briefed in the prehearing briefs.
Finally, I suggest that the rule be amended to allow the parties to modify the motion to dismiss procedure by agreement. In certain instances, all parties may desire an early resolution of an issue before incurring the expense, stress, and time of a full-blown factual hearing. The proposed rule does not address this possibility.
As stated above, making arbitration voluntary for the customer will go a long way to making arbitration a fast, fair, simple, and equitable. Until that step is taken, returning the process to what it was and what FINRA presently advertises it to be will be accomplished in small steps. The proposed rule is one of those small steps. The amendments suggested above, I submit, are additional small steps and should be considered.
Thank you for allowing me to comment on the proposed rule change.