October 4, 2006
I have been a member of the bar for 33 years, and I have represented public investors in NASD arbitrations for over five years.
I. Motions to Dismiss in NASD arbitration should not be allowed. NASD rules are for the protection of
investors. The NASD Rules are moving towards an adversarial system, much like the judicial system, that requires legal representation on both sides and a judge. However, the arbitrators do not have the education, training, or ability to be judges. If this rule change is enacted, then there should be a further rule change allowing the claimaint the choice of filing in court or arbitrating.
II. However, if a rule change is going to be enacted even though it is not in the best interests of public investors, the rule change should prevent frivilous and abusive motions to dismiss that cause unfair and expensive burdens to public investors. The NASD process should be a prompt and inexpensive forum for investors. It should not be a place where abused investors face multi billion dollar respondents, who attempt to use the NASD system as a quasi judicial system, and whose lawyers use every tool to represent their clients, including abusive motions to dismiss.
Even though respondents file motions to dismiss in a high percentage of NASD cases, and, even though respondents do not win many of these motions to dismiss, the very fact that respondents are allowed to file such motions adds substantial costs and delays to the entire system. In the few cases where the motions to dismiss are granted, most of the rulings are wrong. The truth is not tested under oath--the motion to dismiss is granted on the acceptance of the arbitration panel of respondent's version
of the facts, even though there is no discovery or very limited discovery. The panel should adopt a standard that the allegations in the statement of claim are accepted as true and any standard of review should be based on this standard.
Finally, in summary, motions to dismiss should be entirely banned. However, if motions to dismiss are going to be permitted at all, then the panel should accept as true all factual allegations set forth in the statement of claim and all reasonable inferences from the factual allegations should be construed in the light most favorable to public investor. Motions to dismiss should be considered by the arbitration panel when it appears beyond any doubt that the public investor can prove no set of facts in support of his claim.
Herbert E. Pounds, Jr.
Herbert E. Pounds, Jr., P.C.
17890 Blanco Road, Suite 100
San Antonio, Texas 78232