July 14, 2005
I write in support of the PIABA comment letter previously submitted concerning the NASD Code of Arbitration re-write. In addition to the PIABA statement, I submit the following additional comments:
Proposed Rule 12103:
Regarding the authority of the Director to delegate certain functions as appropriate. It has been our experience that arbitrators sometimes represent that they will seek out the advice of NASD staff on certain issues, including who has the authority to issue subpoenas, discovery matters, and motions. The NASD should be required to set and adhere to a strict policy regarding on what matters the Director and NASD staff may advise arbitrators. Many of these issues are some that could and should be addressed, briefed and argued by the parties, with law on both sides of the issue. The NASD staff should not be given the opportunity to add their opinions into the mix. Parties are forced to submit disputes to NASD arbitration; they should not also be forced to submit to the whims and possibly uninformed opinions of NASD staff, which may or may not be qualified to render an opinion on an issue that should be decided by the arbitrators.
Proposed Rule 12206:
There often arises a question concerning interpretation of what has been called the six-year eligibility rule regarding submission of claims. There are certain common law doctrines that may serve to toll the statute of limitations, including the so-called discovery rule and other equitable doctrines. In the interest of fairness, subsection c of the rule should read: The rule does not extend applicable statutes of limitations. Applicable law concerning the tolling of statutes of limitations may be considered by the panel in ruling on a motion to dismiss an action or claim based upon this rule. However, where permitted by applicable law . . . . Such clarification would make it clear that this rule is not, and should not operate as, a statute of repose.
Proposed Rule 12212:
Subparagraph b should read: The panel should initiate a disciplinary referral at the conclusion of an arbitration if it believes a violation of NASD rules has occurred, either during the arbitration or as a result of conduct addressed as a claim in arbitration. Such a provision, and imposing a stronger obligation on the arbitrators, would serve to add teeth to the sanctions provisions, and encourage panels to make disciplinary referrals. It does not seem to happen often, yet many abuses of the arbitration process occur, and many rule violations are proven during the course of arbitration. In order for the NASD to improve its enforcement practices, it should emphasize to arbitrators the importance of receiving such referrals from arbitration panels.
Proposed Rule 12312:
Subparagraph b concerning separation of multiple claims lacks any standard and gives unfettered discretion to the Director to sever claims, despite the fact that doing so may impose a significant financial hardship upon the parties. Considering the lack of any ability to appeal these decisions, and a complete lack of accountability to the parties of the Director, there should be some sort of standard applied in determining whether to sever claims.
Proposed Rule 12602:
In addition to the comments contained in the PIABA comment letter, we note that the NASD recently revised the script read by arbitrators at the commencement of an arbitration hearing to reflect the statements contained in the Arbitrator Manual regarding expert witnesses. The rules, too, should include this statement for consistency.
Thank you for your courtesy and consideration and feel free to contact me with any questions or if you wish to discuss the above.