June 7, 2016
I am an attorney with Schuyler, Roche and Crisham, P.C. in Chicago. I devote a substantial part of my practice to FINRA arbitration.
I am writing to express my strong support for the proposed amendment to the FINRA Code of Arbitration Procedure to provide that monetary awards to opposing parties automatically offset absent specification to the contrary by the arbitrators. Currently, the presumption is the opposite – i.e., there is no offset unless the award specifically provides for offset. This can lead to the bizarre and unfair situation where a party against whom damages are awarded, but who also receives counterclaim damages, can demand payment by the opposing party even though he or she doesnt have the ability or intention to pay. The proposed rule would close this loophole.
I described this problem in an article I wrote last year for the Securities Arbitration Commentator's blog. The fact scenario set forth in the article was loosely based on a case my firm handled where an award was issued awarding damages to both sides in a promissory note case, but failing to specify that the awards offset. The associated person, who had been awarded a small amount on his counterclaim, demanded payment despite the fact he had no intention of paying the much larger damage award entered in favor of the firm on his promissory note. Even though associated person refused to pay, the firm risked being in violation of FINRA rules if it did not pay the counterclaim damages and was thus forced to apply to the court to modify the award. I am attaching a copy of my article.
The proposed rule would close this loophole and thereby promote greater fairness in the arbitration process. It also would promote the finality of arbitration awards by reducing the need for post-award court litigation seeking to modify awards to provide for offset.
I therefore strongly support the proposed rule amendment.
Copyrighted material redacted. Author cites:
Komie, James L. "Hobson's Choice and the FINRA Promissory Note Offset." SAC Blog. Securities Arbitration Commentator, Inc., 06 Apr. 2015. Web. 07 June 2016. Available at http://www.sacarbitration.com/blog/fictional-case-member-firm-v-thomas-hobson-finra-rules-modified-provide-automatic-offset-damage-awards-opposing-parties-prevent-unfair-choices