Subject: File No. SR-FINRA-2007-021
From: Seth E Lipner
Affiliation: Professor of Law, Zicklin School of Business, Baruch College, CUNY

March 18, 2008

I submit this comment because I am very concerned that the FINRA proposal on Motions to Dismiss, while well-intentioned, will produce unintended consequences that have a negative effect on arbitration.


I am Professor of Law at the Zicklin School of Business of Baruch College, CUNY. I am also a member of Deutsch Lipner, a Garden City, NY law firm which represents investors in arbitration. I am the co-author Lipner Long, Securities Arbitration Desk Reference (Thomson/West 2007), and numerous articles on securities arbitration, ADR, and other areas. I am a two-time past-president of PIABA, and served for 4 years on the NASDs National Arbitration and Mediation Committee.


I begin by commending FINRAs intent to improve arbitration by curtailing Motions to Dismiss. These Motions, which have become all-too-prevalent defense tactics, do not belong in arbitration. As FINRA recognizes, arbitration and arbitrators are ill-suited for the type of legal determination called for by a Motion to Dismiss.

I am, however, troubled with several aspects of the proposed rule, and am concerned about how the rule will operate.


First, I note that while the rule being proposed creates a procedural hurdle for making a dismissal motion, the proposal offers no guidance whatsoever as to when motions of this kind ought to be granted. In 2003, when the NASD first proposed a rule to address and limit Motions to Dismiss, the rule proposal said, expressly and appropriately, that such motions are discouraged, and that they should only be granted under exceptional circumstances. The 2008 proposal omits this important langauge.

With that language removed, the FINRA proposal seems not only to authorize motions to dismiss - it encourages them.


The Rule essentially instructs Respondents to save their dismissal arguments until the close of Claimants case in chief, and it expressly tells arbitrators that at that point, they must consider and rule on Respondents dismissal arguments. One of my fears is that, if the proposal becomes a Rule, defense lawyers in investor cases will be making the following speech after Claimant presents his proofs:
"The rules prevented us from making this important Motion until now. But the rules provide that now is the time to make this Motion, and the rules require that you deliberate on it and consider it. To assist the panel in deciding this Motion, we have written an extensive brief filled with case-law and argument, and we'd like to distribute it to the panel. You'll need to take some time to read it and deliberate on it, but it contains important legal arguments that you must consider.
We recognize that Claimants counsel has not yet seen the brief. If Claimant's counsel wishes time to read it and respond to our brief, we understand and we'll gladly agree to a few months' adjournment."


The potential that the new rule will create the opportunity for delaying tactics is secondary, however, to the larger problem. If the proposal is adopted, presentation of Respondents technical legal arguments as to why Claimant should lose will necessarily be delayed, and then made, at the end of Claimants evidentiary presentation.

The timing thus created will have several serious consequences. First, Claimants attorney will be unable to conduct legal research at that moment. By definition, the parties are in the middle of the hearing. It is unfair to require Claimant to read a brief and locate cases and law that would refute Respondents arguments while one is the middle of a trial, yet that is what the Rule would require.

Second, Claimant, having rested, may be in a poor position to gather or offer evidence to address or rebut Respondents assertions in a newly-unveiled Motion.

As an attorney who always wants to be prepared and given an opportunity to gather evidence, I fear being confronted with the choice of (a) agreeing to adjourn the hearing so I may adequately respond to the motion or (b) risking my clients case on a seat-of-the-pants response. And, of course, pro se investors will be far worse off in these regards.

Put simply, the middle of an evidentiary hearing is the worst time possible time first to raise and confront the legal issues in a case, yet that is the Rule's unintended paradigm. No court, with an eye toward procedural fairness, would permit it yet that is the procedure FINRAs rule will foist on parties and arbitrators.

After the Panel hears argument on this mid-hearing motion (as it must under the rule), the Panel will have to adjourn to deliberate on the motion. Arbitrators will likewise be faced with a timing dilemma - if they want their deliberations to be meaningful and not rushed, they will need time to read the papers and consider them. A delay is again probable, if not necessary. The middle of a hearing is the worst time for important deliberations to take place.

The proposed rule creates a procedure that is certain to lead to delays, problems and unfairness. The proposal will infect what is supposed to be an "evidentiary hearing" with motions, briefs, and legal argument. It should not be adopted.


Motions to Dismiss (except perhaps in the very limited situation involving a prior release) simply have no place in arbitration. They are unnecessary because arbitration is already sufficiently expeditious that little cost savings is created by a pre-hearing dismissal. They are inappropriate because an arbitration is not a judicial proceeding. Arbitrators are often not lawyers they are ill-equipped to apply technical legal standards such as those that ab pply to dismissal motions, and their decisions, even if explained, are not subject to the appellate review that ensures due process.

FINRAs attempt to create a place in arbitration for Motions to Dismiss is unwise, and its solution as to how to regulate such Motions has the potential for disaster.

For these reasons, I must oppose this proposal.