From: Scott C. Ilgenfritz
July 14, 2005
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Stret, NW
Washington, DC 20549-0609
Dear Mr. Katz,
I write to comment on the proposed reorganization and revision of the NASD Code of Arbitration Procedure, relating to customer disputes. I have represented customers in securities arbitration proceedings since 1992. I am a partner in the firm of Johnson, Pope, Bokor, Ruppel, and Burns, LLP, in Tampa, Florida. I am a member of the Public Investors Arbitration Bar Association(PIABA).
I support the comments on the proposed rule changes made on behalf of PIABA, except I urge the NASD to go further in the protection of customers in a few areas.
First, motions to dismiss and motions for summary judgment have no place in arbitration. The current Code requires that customers specify the relevant facts and their theories of recovey in their statements of claim. That should be all that is required, and such statements of claim should not be subject to dismissal with prejudice based only on papers, without the arbitrators' receipt of testimony and documentary evidence. Respondents in arbitration are increasingly filing motions to dismiss in an effort to deprive claimants to their right to a full and fair hearing of their claims. If customer claims were filed in a state court, they would not be subject to dismissal with prejudice until the customers had been given a number of opportunities to state claims for relief. Additionally, in court, the issue to be determined on a motion to dismiss is has the customer stated claims for relief, taking all of the allegations as true. My experience in arbitration with respect to motions to dismiss is that respondents use them to argue defensive matters, fact-specific determinations, and customer credibility, matters which are totally inappropriate for motions to dismiss in court. The Code should disallow motions to dismiss and motions for summary judgment. At a minimum, the Code should define what is meant by extraordinary circumstances.
Second, the Code should not allow any party to fail to disclose "rebuttal" exhibits in their pre-hearing exchange. With the limited discovery in arbitration, it is particularly inappropriate and onerous for a party to engage in "gotcha" litigation tactics by springing so-called "rebuttal" exhibits on the opposing party at a final hearing. Such practices are not allowed in federal courts or in Florida state courts, where the parties have much more extensive discovery.
Third, the Code revision should preserve for claimants the opportunity to reserve all of their closing argument for rebuttal. A provision allowing this reservation to claimants has been in the Code for a number of years, and in certain situations, such a reservation is strategically advantageous to claimants.
Finally, the requirement that a "non-public" member be appointed to every arbitration panel should be eliminated. This requirement contributes in a very large way to the public perception that SRO arbitration is not a fair dispute resolution process for customers.
I appreciate the opportunity to provide these comments about the proposed Code revision.
Scott C. Ilgenfritz
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