The Neutral Corner - August 2006

The Importance of Avoiding Ex Parte Communications

By John E. Ohashi, Esq.*

 

Ex parte communications occur when an arbitrator and one of the parties have an interaction or conversation, usually without notice to, or argument from, the adverse party. NASD Dispute Resolution stresses the importance of avoiding such communications before, during and after an arbitration hearing.

 

The following is a recap of an actual arbitration hearing. During the proceeding, two incidents occurred that demonstrate real examples of ex parte communications and the effects they have on an arbitration proceeding. This article also provides guidance to arbitrators and parties on how to minimize the possibility of incurring such interactions.

 

Scenario

 

Setting the Tone

 

As is customary, the Chairperson of the arbitration panel began the hearing by reading from NASD's hearing script, which includes the following: 

 

". . . we, as neutral arbitrators, have the duty of conducting these proceedings with fairness and integrity. This duty extends to all parties and to this process. Therefore, on behalf of the panel, I respectfully request that all parties and their counsel or representatives refrain from engaging in any conversations or contact with the members of this panel except while in this room and in the presence of all parties, counsel or representatives. Thank you for your anticipated cooperation . . ."

 

The Chairperson added a personal commentary: "We are not anti-social people. We will exchange limited social pleasantries, such as 'good morning,' but for the sake of the hearing process, please do not engage in ex parte communications with us."

 

Incident at the Hearing

 

Despite the Chairperson's request, two incidents of ex parte communications did in fact occur. The first occurred during a lunch break at an offsite hotel restaurant. As the arbitrators were concluding their lunch, the NASD staff attorney approached them to confirm the start time of the afternoon's hearing session. As they were conferring on the start time, the claimant's counsel approached the arbitrators' table and exclaimed, "Have I got a joke for you?!"

 

As counsel prepared to tell his joke, the NASD staff attorney promptly escorted the claimant's counsel from the arbitrators' table. Across the restaurant, the respondents closely watched the commotion caused by the claimant's counsel and wondered what was going on.

 

As the afternoon session began, the room was tense as the respondents anticipated an explanation of the lunchtime drama. Despite the fact that the ex parte communication was minimal and, for the most part, avoided, the Chairperson began the next portion of the hearing by recounting the incident for the record. He emphasized the limited extent of the ex parte communication and that NASD's staff attorney escorted the claimant's counsel from the table and explained to him that such interactions were not appropriate. The respondents were satisfied with the explanation and agreed to proceed with the hearing.

 

Unfortunately, the second incident had a more damaging effect. After the afternoon session in which the claimant gave compelling and thoughtful testimony, it was clear that the hearing would require several more days to complete. The parties and arbitrators reviewed their calendars for an appropriate date for the next session. Everyone, including the claimant's counsel, had a busy schedule and agreed that the earliest possible date for all participants would be several months in the future.

 

After the hearing day concluded, two of the arbitrators walked towards the elevator with the claimant trailing approximately ten feet behind them. The arbitrators entered the elevator and, as the elevator doors were about to close, the claimant leapt into the elevator and unleashed a tirade of insults and accusations. The claimant questioned the arbitrators' intellect and suggested that the arbitrators conspired with the respondents to delay the hearing. These accusations stunned the arbitrators.

 

Consequences of Ex Parte Communications

 

What now? Could the arbitrators make the elevator incident "go away" by informing the parties of the incident? If so, then how? Should they ask NASD to forward a notice about the incident to the parties, or wait until the hearing reconvenes in several months and put it on the record, as they did with the incident at lunch?

 

The incident triggered another dilemma: The arbitrators were troubled by the claimant's perception of the events leading to the delayed scheduling. Claimant's counsel contributed to the delay in selecting the future hearing dates due to his busy schedule. Even more troubling was the claimant's demeanor in the elevator, which was a stark contrast from his calm and thoughtful testimony given minutes earlier. In the arbitrators' minds, the claimant's credibility became questionable. Taking into account the negative impact that the claimant's outburst had on the arbitrators, including their confusion over the claimant's credibility, they concluded that they could not continue as unbiased neutrals and reluctantly recused themselves.

 

Difficulty in Avoiding Ex Parte Communications

 

The true incident above demonstrates the varying degrees of ex parte communication and the potential it has to drastically affect an arbitration hearing.

 

Ex parte communications seem like an easy thing to avoid, but there are times when arbitrators will unexpectedly run into a party without warning in the restroom, hallway or elevator, or on the street. Therefore, arbitrators must be sensitive to the potential for ex parte communications at all times. If a party even attempts to communicate with an arbitrator in any fashion before, during or after the hearing, such communication constitutes an ex parte communication.

 

Closely related to ex parte communications are communications in which both parties are present but only one party participates. Even though the other party is present, arbitrators should not engage in conversation. The other party may feel left out and believe that an arbitrator is "bonding" with the opponent even if the conversation involves matters outside of the case (e.g., movies, television or sports).

 

Keeping in mind the potential for ex parte communications, NASD's arbitrator training materials emphasize the prohibition on ex parte communications with the following statement:

 

"There are not a lot of ways to say this: you simply cannot talk to one party or party representative without the other party being present."

 

Additionally, the arbitrator training materials promote a proactive approach to preventing ex parte communications, which arbitrators should practice on an ongoing basis.

 

Minimize the Possibility of Ex Parte Communications

 

Here are some proactive steps that arbitrators can take to minimize ex parte communications throughout a hearing:

  • Emphasize Prohibition on Ex Parte Communications
    After some level of familiarity is established among the participants, or whenever appropriate, the Chairperson can reiterate: "As a reminder, it is not appropriate for arbitrators to have any communication with the parties outside of this hearing room."

  • Avoid Proximity
    The panel can set proximity barriers such as asking the parties not to congregate or use cell phones near the hearing room. The arbitrators can designate an area for arbitrator use, which should be considered off limits to the parties, except on an "as needed" basis.

  • Respond Quickly if Ex Parte Communications Occur
    Diffuse the situation early and put the incident on the record.

Conclusion

 

NASD arbitrators are selected from a pool of qualified applicants and undergo comprehensive training. In all likelihood, arbitrators would probably not be swayed by ex parte communications. However, and more importantly, not only must the arbitration hearing process actually be fair, it must also appear fair. A strict adherence to the prohibition on ex parte communications and a proactive approach to avoid such situations helps ensure that an arbitration hearing is free of bias both in fact and appearance.

 

*John E. Ohashi is a practicing attorney and NASD arbitrator. He serves as a co-trainer for the in-person component of NASD's Basic Arbitrator Training Program and member of NASD's Neutral Roster Task Force. Mr. Ohashi is an Adjunct Professor of Law at Western State University College of Law, and a part-time instructor at the University of California, Irvine. Mr. Ohashi is a frequent speaker on alternative dispute resolution and business law topics for continuing legal education seminars and professional conferences. He is also a mediator for NASD, Los Angeles County Superior Court, and the United States Equal Employment Opportunity Commission (EEOC). Mr. Ohashi received his BA from UCLA and his JD from the University of California, Davis.

 


Dispute Resolution News

Case Filings

 

Arbitration case filings from January 1 through July 31, 2006 reflect an 18 percent decrease compared to cases filed during the same seven-month period in 2005 (from 3,619 cases in 2005 to 2,969 cases in 2006).

 

The overall turnaround time to process an arbitration case (hearing and simplified) from January 1 through July 31, 2006 decreased by 4 percent compared to the same period in 2005 (from 14.3 months in 2005 to 13.7 months in 2006).

 

Help Us Stay in Touch

 

If you have not already done so, please provide NASD Dispute Resolution with your email address. This helps us convey important messages and keeps you up-to-date on current events in the forum. If you already have an email address on record, please make sure to notify us of any changes.

 

To add or update your email address, simply send an email with the subject line "My Email Address" to us. Please be sure to include your name and arbitrator identification number in the body of the email. We will update your profile using the address that appears on your email.

 


Question & Answer: Arbitrators Who Participate in Speaking Engagements

Question: As an NASD Dispute Resolution arbitrator, are there restrictions on my ability to engage in public speaking events on securities issues?

 

Answer: NASD arbitrators are not restricted from speaking in public on securities issues. However, arbitrators should make the following clear to the audience:

  • arbitrators are not employees of NASD, and
  • arbitrators are expressing their own views which do not represent those of NASD.

At all times, arbitrators must consider every aspect of an arbitration to be confidential. Therefore, when engaged in a public speaking event, arbitrators must keep all matters relating to any arbitration proceeding or decision in which they are or were involved confidential.

 

Finally, arbitrators should consider disclosing their speaking engagements on their Arbitrator Disclosure Reports. A typical statement might read:

 

"I speak (or have spoken) regularly (or occasionally) in public to groups of investors (or industry professionals) on the subject of securities (or investments, or arbitration, both, other topics, etc.)."

 

Including such a statement will alert parties to potential conflicts and prompt them to inquire further, if necessary, as NASD's Code of Arbitration Procedure Rule 10308(b)(6) allows.

 


SEC Rule Filings

Revision of Rule 10322 of NASD's Code of Arbitration Procedure Relating to Subpoenas and the Power to Direct Appearances

 

On July 12, 2006, the Securities and Exchange Commission (SEC) published for comment an amendment to our pending proposal, SR-NASD-2005-079, pertaining to subpoenas and the power to direct appearances. The proposal amends Rule 10322 of the Code of Arbitration Procedure (Code), and sets forth the requirements to request a subpoena and to object to the issuance of one.

 

The amended proposal allows only arbitrators to issue subpoenas. It also requires a party who receives documents in response to a non-party subpoena to notify all other parties within five days of receipt of the documents. Thereafter, any party may request copies of such documents, and the requesting party will be responsible for reasonable costs associated with the production of the copies.

 

Proposed Rule Change to Adopt Rule 12504 of the Proposed Code of Arbitration Procedure for Customer Disputes (Customer Code) and Rule 13504 of the Proposed Code of Arbitration Procedure for Industry Disputes (Industry Code) to Address Motions to Decide Claims Before a Hearing on the Merits.

 

On July 21, 2006, NASD Dispute Resolution filed a sixth amendment to its Code Revision rule filings with the SEC. The sixth amendment seeks SEC permission to remove Rules 12504 and 13504, "Motions to Decide Claims Before a Hearing on the Merits" (dispositive motions rule), and the accompanying descriptive material from the customer and industry Code Revision rule filings. We asked the SEC to approve the Code Revision rule filings at its earliest opportunity.

 

Simultaneously, we filed the dispositive motions rules in a separate rule filing. We took this action to allow our constituents more time to comment on the dispositive motions rule. The SEC received a large number of comments about language in the narrative portion of the rule filing giving examples of "extraordinary circumstances" under which it might be permissible to dismiss a claim after a hearing on the motion. The new rule filing does not contain these examples; the SEC will solicit comment on what the appropriate guidance to arbitrators should be.

 

Except as provided in Rules 10304 and 10305 (Time Limitation Upon Submission and Dismissal of Proceedings), the current Code is silent regarding motions to dismiss. As noted in our online arbitrator training materials, many of these motions may require examination of the facts or briefing on relevant law. If the facts or law are unclear, the panel may defer ruling on any dispositive motion until additional information is provided by the parties.

 

We expect the SEC to solicit public comment on the separate rule filing concerning motions to dismiss. In the interim and pending approval, arbitrators may wish to be judicious in reviewing motions to dismiss.

 


Regional Updates

Northeast Regional Update

 

Participants must successfully complete the online portion of NASD's mandatory Basic Arbitrator Training Program before attending the onsite training. For more information about the online basic arbitrator training, please visit the "Arbitrator Training" page of our Web site at www.nasd.com.

 

During the next three months, the Northeast Regional Office will conduct the in-person component of NASD's Basic Arbitrator Training Program in these locations on the following dates:

 

  • Cincinnati, Ohio - September 19, 2006
  • Columbus, Ohio - September 20, 2006
  • Boston, Massachusetts - October 5, 2006
  • New York, New York - October 18, 2006
  • Buffalo, New York - November 15, 2006

 

If you are interested in attending an onsite classroom training program in any of these locations, please contact Cheree White at (212) 858-4063 or by email.

 

Midwest Regional Update

 

On June 2, 2006, the Midwest Regional Office hosted a reception for members of the Public Investors Arbitration Bar Association (PIABA). The meeting provided a forum for members of PIABA to meet the Midwest Regional Office. Richard Berry, Dispute Resolution's Director of Case Administration, attended and addressed the questions and concerns of the members of PIABA.

 

On June 5, 2006, the Midwest Regional Office represented NASD at the Training Institute for Minority Professionals in Alternative Dispute Resolution (ADR) at Capital University Law School in Columbus, Ohio. Capital University launched the program to increase the presence of minority professionals at all levels in the field of ADR. The meeting provided an opportunity to showcase NASD's arbitration program and provide interested applicants with more information.

 

In an effort to recruit arbitrators, the Midwest Regional Office attended the Texas State Bar Annual Meeting in Austin, Texas, on June 15-16, 2006.

 

In addition, the Midwest Regional Office will be recruiting arbitrators at the Michigan State Bar Conference in Ypsilanti, Michigan, on September 13-15, 2006; and at the Indiana State Bar Conference on October 4-6, 2006. If you know people who may be interested in joining our roster, please direct them to our Web site at www.nasd.com.

Participants must successfully complete the online portion of NASD's mandatory Basic Arbitrator Training Program before attending the onsite training. For more information about the online basic arbitrator training, please visit the "Arbitrator Training" page of our Web site at www.nasd.com.

 

During the next three months, the Midwest Regional Office will conduct the in-person component of NASD's Basic Arbitrator Training Program in these locations on the following dates:

 

  • Wichita, Kansas - September 13, 2006
  • Des Moines, Iowa - October 4, 2006
  • Kansas City, Kansas - November 8, 2006

 

If you are interested in attending an onsite classroom training program in any of these locations, please contact Deborah Woods at (312) 889-4431 or by email.

 

Mid-Atlantic Regional Update

 

The Mid-Atlantic Regional Office has revised its office closing date to October 6, 2006. Staff members are sending notifications to parties and arbitrators as their cases are being transferred to their respective new regional offices. Any questions concerning the status of a case may be directed to Regional Director Shari Sturm at (202) 728-8828 or by email. Our staff thanks all of the arbitrators, mediators and parties they have worked with over the years. We are handling upcoming training programs as follows:

 

The Mid-Atlantic Regional Office will conduct the following in-person component of NASD's Basic Arbitrator Training Program:

 

  • Philadelphia, Pennsylvania - September 14, 2006

 

Participants must successfully complete the online portion of NASD's mandatory Basic Arbitrator Training Program before attending the onsite training. For more information about the online basic arbitrator training, please visit the "Arbitrator Training" page of our Web site at www.nasd.com.

 

If you are interested in attending the onsite classroom training program in Philadelphia, please contact Karen Carter at (202) 728-8327 or by email. 

 

 

The Southeast Regional Office (Boca Raton) will conduct the following onsite training program: 

  • Columbia, South Carolina - October 6, 2006

Interested participants may contact Lanette Cajigas at (561) 447-4911 or by email.

 

The Midwest Regional Office (Chicago) will conduct the following onsite training program:

  • Charleston, West Virginia - November 9, 2006

Interested participants may contact Deborah Woods at (312) 889-4431 or by email.

 


Southeast Regional Update

 

Participants must successfully complete the online portion of NASD's mandatory Basic Arbitrator Training Program before attending the onsite training. For more information about the online basic arbitrator training, please visit the "Arbitrator Training" page of our Web site at www.nasd.com.

 

During the next three months, the Southeast Regional Office will conduct the in-person component of NASD's Basic Arbitrator Training Program in these locations on the following dates:

 

  • Boca Raton, Florida - September 7, 2006
  • Atlanta, Georgia - October 19, 2006
  • Tampa, Florida - October 26, 2006
  • San Juan, Puerto Rico - November 10, 2006

 

If you are interested in attending an onsite classroom training program in any of these locations, please contact Lanette Cajigas at (561) 447-4911 or by email.

 

West Regional Update

 

The West Regional Office has fully implemented the new business process. In an ongoing effort to provide premier customer service, feedback and comments on the new business process are welcome. Comments should be sent to Judith Hale Norris, Vice President and Regional Director, by email.

 

On June 13, 2006, Ms. Norris participated as a panel member in a continuing legal education (CLE) course offered by the Los Angeles County Bar Association titled, "Securities Arbitration in Los Angeles." Also serving with her as panel members were Michael J. Abbott of Jones, Bell, Abbott, Fleming & Fitzgerald L.L.P.; Philip M. Aidikoff, National Arbitration and Mediation Committee Chairperson, and partner of Aidikoff & Uhl; and Robert C. Rosen of Rosen & Associates P.C. Topics included NASD's proposed changes to the Code, explained awards, NASD's discovery arbitrator pilot and subpoenas.

 

On August 3-8, 2006, Audrey Philips, Case Administrator in the West Regional Office, attended the American Bar Association's Annual Meeting in Honolulu, Hawaii. She met with potential arbitrators and provided them with information on how to join NASD's roster of neutrals.

 

Participants must successfully complete the online portion of NASD's mandatory Basic Arbitrator Training Program before attending the onsite training. For more information about the online basic arbitrator training, please visit the "Arbitrator Training" page of our Web site at www.nasd.com.

 

During the next three months, the West Regional Office will conduct the in-person component of NASD's Basic Arbitrator Training Program in these locations on the following dates:

 

  • Seattle, Washington - September 12, 2006
  • Denver, Colorado - October 17, 2006
  • Los Angeles, California - November 14, 2006

 

If you are interested in attending an onsite classroom training program in any these locations, please contact Tiffany Hansmann at (213) 613-2684 or by email.

 



Arbitrator Tip: Temporary Injunctive Orders and Arbitration Panels

 

In an intra-industry case where a party files a request for a permanent injunction and obtains a temporary injunctive order from a court of competent jurisdiction, arbitrators often ask whether they can modify or dissolve the temporary injunctive order.

 

Under Rule 10335 of the Code of Arbitration Procedure (Code), which governs claims involving requests for injunctive relief, arbitration panels cannot dissolve or modify a court's temporary injunctive order. The Code authorizes arbitrators to rule on requests for permanent injunctive relief, but arbitrators are not authorized to rule on claims for temporary injunctive relief. Such claims must be resolved in a court of competent jurisdiction.

 

After hearing all the evidence on the request for permanent injunctive relief, however, arbitrators may prohibit parties from seeking an extension of any court-issued temporary injunctive order, or order the parties to jointly move to modify or dissolve any such order. In the event that a panel's order conflicts with a pending court order, the panel's order will become effective when the court's order expires. In some instances, a court's temporary injunctive order will authorize arbitrators to modify or terminate the injunctive order. In these cases only, arbitrators may modify or dissolve the court's temporary injunctive order.

 


Message from the Editor

In addition to comments, feedback, and questions regarding the material presented in this publication, or other arbitration and mediation issues, The Neutral Corner invites readers to submit articles on important issues of law and procedure relating to mediation, arbitration, or other alternative dispute resolution processes. We reserve the right to determine which articles to publish.

 

Please email your articles to Jisook Lee at Jisook.Lee@nasd.com, or send them to:

 

Jisook Lee, Editor
The Neutral Corner
NASD Dispute Resolution
One Liberty Plaza
165 Broadway, 27th Floor
New York, New York 10006

 



Directory


Linda D. Fienberg
President
NASD Dispute Resolution

 

George H. Friedman
Executive Vice President &
Director of Arbitration
NASD Dispute Resolution

 

Kenneth L. Andrichik
Senior Vice President &
Director of Mediation & Business
Strategies

 

Jean I. Feeney
Vice President & Chief Counsel

 

Dorothy Popp
Vice President &
Director of Operations

 

Richard W. Berry
Vice President &
Director of Case Administration

 

Barbara L. Brady
Vice President &
Director of Neutral Management

 

Elizabeth R. Clancy
Vice President & Regional Director
Northeast Region

Judith Hale Norris
Vice President & Regional Director
West Region

 

Rose Schindler
Vice President &
Regional Director, Southeast Region

 

Shari Sturm
Associate Vice President &

Regional Director, Mid-Atlantic Region

 

Scott Carfello
Regional Director
Midwest Region

 

James Schroder

Associate Vice President

MATRICS DR Business

 

Jisook Lee

Associate Director of Neutral

Management and Editor of
The Neutral Corner


Editorial Board

Lisa Angelson - Neutral Management

Patricia Coulson- Dispute Resolution

Nicole Haynes - Northeast Region 

Lisa Lasher - Southeast Region
Mignon McLemore - Office of Chief Counsel

Rina Spiewak - West Region
Patrick Walsh - Midwest Region



 

NASD Dispute Resolution Offices

 

Northeast Region
One Liberty Plaza
165 Broadway
27th Floor
New York, NY 10006
Tele: (212) 858-4200
Fax: (212) 858-4429

Mid-Atlantic Region
1735 K Street, NW

Washington, DC 20006
Tele: (202) 728-8958
Fax: (202) 728-6952

Southeast Region
Boca Center Tower 1

5200 Town Center Circle

Suite 200

Boca Raton, FL 33486

Tele: (561) 416-0277
Fax: (301) 527-4868

West Region
300 S. Grand Avenue
Suite 900
Los Angeles, CA 90071
Tele: (213) 613-2680
Fax: (213) 613-2677

Midwest Region
55 West Monroe Street

Suite 2600

Chicago, IL 60603

Tele: (312) 899-4440
Fax: (312) 236-9239