Part 6: FINRA Dispute Resolution Task Force: Enhancing Securities Dispute Resolution One Recommendation At A Time. Motions to Dismiss and Case Management.

By: Alexandra Hughes, Spring 2016 Graduate Research Assistant

alexhughesMotions to Dismiss

FINRA Rule 12504(a) governs motions to dismiss prior to the conclusion of a party’s case in chief. Such motions are highly discouraged because of the nature of arbitration—claimants are not required to state legal claims and arbitrators can broadly apply the law, which depends on a hearing on the merits. Therefore, Rule 12504(a) allow an arbitrator to grant such a motion in only two instances: (1) “the non-moving party previously released the claim(s) in dispute by a signed settlement agreement and/or written release” or (2) “the moving party was not associated with the account(s), security(ies), or conduct at issue.” The first exception concerns cases already settled between the parties and no longer in need of resolution. The second exception concerns cases involving issues of misidentification.

The task force recommended amending Rule 12504(a) to include a third exception: “situations where the dispute has been previously concluded through adjudication or arbitration and memorialized in an order, judgment, award or decision.” This third exception would allow respondents to obtain early dismissal of a case that had been previously resolved. It is similar to the policy reasons behind the first exception—the case has already been resolved and there is no need to resolve the same case again. However, the task force noted that if an arbitration award without an explained decision previously concluded the case, the arbitrator would still need to decide whether the claims were actually resolved in the prior instance.

The task force declined to amend section (b) of Rule 15204, governing motions to dismiss after conclusion of a party’s case in chief. Although specifying a briefing schedule in Rule 15204(b) would provide guidance to practitioners, this benefit was outweighed by the risk of encouraging filings of boilerplate briefs.

Case Management

The task force discussed the procedural issues facing case management in FINRA arbitration and made the following recommendations:

  • Scheduling delays:
    • For all cases, FINRA should review its procedures to better ensure expedited scheduling
    • For expedited cases (usually selected because a party is a senior or seriously ill), FINRA should implement procedures ensuring an expedited process and hearing
    • FINRA Rules 12402 and 12403 provide that the Director will send out arbitrator lists to the parties within approximately 30 days after the last answer is due. FINRA should amend these rules to use the first answer due date rather than the last answer due date to speed up the arbitration process
  • Last-Minute Recusals
    • Because there is a problem with arbitrators double-booking hearings and then recusing themselves from one hearing at the last minute because of the scheduling conflict, FINRA should:
      • Emphasize to arbitrators through training, appointment letters, and other communications that late-recusals and double-booking are to be avoided
      • Send reminders to the panel, approximately 75 days before a hearing, of the hearing date
      • Develop a formal disciplinary process for arbitrators who continue to double book and engage in late recusals
    • Discovery

FINRA should amend the document production list to provide that all insurance policies applicable to a customer’s claim are presumptively discoverable

  • Use of Technology
    • FINRA should make clear to the parties that they can agree to modify initial prehearing conference procedures, which may include use of technology
  • DR Portal
    • FINRA should create a feature for its online portal allowing the parties to see their costs on an on-going basis
  • Phantom Retention of Experts
    • FINRA should strongly discourage the parties from the practice of using phantom experts (experts which a party lists on their expert list without the consent, knowledge, or retention of the expert) at the initial prehearing conference

The full task force report is available online.