From: Carl J. Carlson [Carl@CARLSONLAW.COM]
Sent: Sunday, October 05, 2003 8:23 PM
To: 'rule-comments@sec.gov'
Subject: sr-nasd-98-74

To whom it may concern:

This is to comment on the NASD's proposed amendment to Rule 3110[f].  That
amendment would allow the enforcement of a choice of law provision in NASD
arbitration cases.  

I am an attorney in Seattle, and have represented both investors and
stockbrokers/broker-dealers in NASD arbitrations for over 12 years.
Currently investor cases constitute about 50% of my legal practice.  I also
have served as an NASD arbitrator for about 4 years.

Choice of law provisions in brokerage firm account opening agreements are
fundamentally unfair to the investing public.  Those clauses are
unilaterally imposed by brokerage firms on the public.  Individual customers
do not have a clue as to the implications of agreeing to such clauses.  But
it wouldn't make any difference if they did understand.  Customers have
absolutely no choice in the matter.  Virtually all firms include such
clauses in their agreements, so they can't negotiate or threaten to go
elsewhere.

Brokerage firms want to force customers to be subject to choice of law
clauses for a reason:  they know that such clauses will benefit them, and
disadvantage the customer, if the customer has a claim against the firm.
Such clauses amount to a finger on the scale, tipping the scale in favor of
the large brokerage firms from the moment an individual customer attempts to
assert a claim.  Consider:

1.	Enforcing choice of law clauses will add to customers' legal costs,
and give brokerage firms an enormous strategic advantage.  Often firms
choose to defend cases with in-house lawyers.  Those lawyers are
specifically trained in the law of the firm's home jurisdiction, and are
expert in the law of that one jurisdiction.   (While New York is often the
firm's choice of law, this is not always the case by any means.  I recall
that Piper Jaffray, headquartered in Minneapolis, provided that Minnesota
law would govern claims that customers brought against that firm.)  It will
add greatly to the cost for customers, who are located throughout the
country, if their attorneys have to learn, and litigate under, the laws of a
foreign state.  For example, unlike almost every other jurisdiction in the
country, New York State has not adopted the Uniform Securities Act.
Securities law in New York is largely a matter of case law.  Even if the
customer's attorney does incur the cost of researching the law and the cases
of the foreign state, during the hearing he or she will still be at a
serious disadvantage in familiarity and experience with the law of that
jurisdiction, compared to the firm's in house counsel.

2.	Allowing choice of law clauses to control will allow brokerage firms
to forum shop.  Firms now pick the law of the state which is most
advantageous to them.  Often they are content with the law of their home
jurisdiction.  But each individual state is subject to the economic forces
and interest groups within that state.  The economics and politics of Utah,
for example, are likely to often be very different from those of New
Hampshire.  If interest groups in Utah (this is purely "for example"; any
state could be substituted here) should happen to pass very pro-securities
industry legislation, brokerage firms throughout the country could change
their customer agreements to provide that the law of Utah would control.
Investors in Alaska, Maryland, Illinois, and everywhere else in America
would find their legal rights controlled by the political and economic
interests of Utah.  

	Similarly, an appellate court in some State could easily issue an
appellate ruling which critically impacts the claims of investors, and which
is contrary to the law of most other jurisdictions.  If that ruling should
favor the securities industry, brokerage firms could change their customer
agreements to provide that, henceforth, that state's laws would control.   

3.	As an NASD arbitrator who has long lived and practiced in Washington
State, when I sit as an arbitrator I am familiar with the laws that the
attorneys are relying on and referring to.  If, when sitting as an
arbitrator, I had to depend entirely on counsel for the parties to educate
me about the controlling law from a different State, I would be vulnerable
to being overly influenced by the brokerage firm's attorneys.  The local
lawyer would be at a disadvantage in trying to argue what the foreign
jurisdiction's law provides for.  And I am an experienced attorney.  Many
NASD arbitrators are business people untrained in the law.  Such nonlawyer
arbitrators are likely to give a New York lawyer more credence than the
investor's counsel, when the attorneys are arguing some point during a
hearing in Seattle in which New York law controls.

4.	Individual investors of each state should, as a matter of
fundamental fairness, be protected by the laws enacted by their elected
representatives.  Is would be unfair, and contrary to investor's reasonable
expectations, to make the citizens of one state subject to the laws created
by legislators in another state far away, simply because the other state's
laws are more favorable to large brokerage firms.

The proposed rule change would injure the investing public.  I strongly urge
that the rule not be adopted.

Carl J. Carlson
Carlson & Fabish, P.S.
700 Fifth Avenue, Suite 5600
Seattle, WA 98104
(206) 695-9288