Prehearing Conference

The Uniform Code provides that the parties shall cooperate in the voluntary exchange of documents and information to expedite the arbitration. The staff will monitor compliance with the rule and will schedule a prehearing conference to resolve remaining issues. Once a prehearing conference has been scheduled, an SRO staff member or an arbitrator or arbitrators will be appointed to help resolve the discovery issues as well as any remaining questions.

 

An arbitrator appointed to preside at a prehearing conference is authorized by the Uniform Code to act at that time on behalf of the entire panel in issuing subpoenas, directing appearances, ordering the production of documents and information, setting deadlines, and issuing any other order that may serve to expedite the process and permit any party to develop its case fully. This includes the ability to issue orders for the production of witnesses for depositions. An order to depose a witness should normally be limited to preserving the testimony of ill or dying witnesses, or persons who are unable to travel long distances for a hearing and cannot otherwise be required to attend the hearing, as well as to expedite large or complex cases. Balanced against this ability, however, is a traditional reservation about the use of depositions in arbitration. Parties can agree to depose a witness without asking for permission from the arbitrator(s).

 

The effective use of discovery tools such as depositions rests in the careful exercise of judgment by the arbitrators. Care should be taken to avoid unnecessary expense or burdens to the parties and to avoid unnecessary delay. It is appropriate for arbitrators to consider whether the witness will be able to appear at the arbitration hearing, the necessity of preserving the witness's testimony, and other factors that bear on the efficiency and fairness of the proceeding. Once a deposition is ordered by the arbitrator(s) or agreed to by the parties, the deposition or excerpts therefrom may be offered into evidence by any party. If the offered portion of the deposition includes an objection to testimony by a party, the arbitrator(s) must rule on the objection.

 

Prehearing conferences to resolve discovery disputes are becoming more numerous and time consuming. The same issues repeatedly arise. The following documents frequently have been produced by parties or ordered produced by arbitrators, where relevant, in other cases. This list is neither exhaustive nor are all of the documents necessary to every case. Consideration should be given to the type of controversy and the issues involved in a particular case. Before ordering that a party produce a particular document, the arbitrator(s) should weigh a party's ability to fully develop his/her case against the reasonableness of the burden to produce the document. The arbitrator(s) may limit, as appropriate, the time periods of the documents covered by the order to the relevant time periods in the case. The arbitrator(s) may request that the full panel be convened to decide prehearing issues. Some arbitrators desire to make these decisions with the benefit of the expertise of their colleagues who will be rendering the final decision.

 

A. Customer Cases

 

From the Firm

 

1. Forms RE-3, U-4, and U-5 of registered representatives (RRs).
2. Relevant parts of Compliance Manual.
3. Client agreements and opening account documents.
4. RR's holding pages for customer and/or product.
5. Commission run of RRs.
6. Correspondence with regulators.
7. Exception reports (i.e., activity concentration printouts).
8. Order tickets.
9. Marketing materials.
10. Other customer complaints of a similar nature.
11. Redacted copy of holding pages of other customers in the same product.
12. Any analysis or account reconciliation prepared by the firm.
13. Notes or recordings made by the firm.
    
    

From Customers

 

1. Income tax returns (can be limited to Form 1040 pages 1 and 2 and Schedules D and E).
2. Customer copy of account statements.
3. Statements for accounts at other brokers.
4. Any analysis or account reconciliations prepared by the customer.
5. Notes or recordings made by the customer.
6. Correspondence by claimant with the brokerage firm or financial consultant.
   
   

In October 1999, FINRA made available a Discovery Guide (Guide) for use in customer cases. The Guide was the result of a consensus reached by a multi-partisan task force convened by FINRA. Although the Guide is not incorporated into the Code, it does provide expanded guidance to the parties and the arbitrators, and is aimed at expediting the arbitration process.

 

The Discovery Guide, which includes Document Production Lists, provides to parties in FINRA arbitrations guidance on which documents they should exchange without arbitrator or staff intervention, and guidance to arbitrators in determining which documents customers and member firms or associated persons are presumptively required to produce in customer arbitrations. The Discovery Guide also discusses additional discovery requests, information requests, depositions, admissibility of evidence, and the use of sanctions.

 

The Discovery Guide is not intended for use in simplified arbitration proceedings. However, the arbitrator may, in his or her discretion, choose to use relevant portions of the Discovery Guide in a manner consistent with the expedited nature of simplified proceedings.

 

B. Employment Cases

From Employer

 

1. Personnel records.
2. Employee manual.
3. Commission runs.
4. Branch profit and loss (raiding cases).
5. Employment contracts.
6. Forms RE-3, U-4, and U-5.
7. Bonus paid to registered representative in same title/group.

 
From Employee

 

1. Tax returns.
2. Employment contracts/arrangements with new firm.
3. Appointment calendars/notebooks, etc.
   
   

Arbitrators presiding at prehearing conferences, or when called on to decide discovery disputes, should always give consideration to the arguments put forth by both sides, as well as the relevancy of the documents or information. They should not simply grant a request for the production of a document because it is listed above nor deny the request because it is not listed.

If a party objects to document production on grounds of privacy or confidentiality, the arbitrator(s) may suggest a stipulation between the parties that the document(s) in question will not be disclosed and/or not used in any manner outside of the arbitration of the particular case or issue a confidentiality order.

 

Ideally, the parties will agree on the form and content of any confidentiality order. In some instances, however, the parties will not agree what is or is not confidential. When deliberating contested requests for confidentiality orders, the arbitrator(s) should bear in mind that the party asserting/requesting confidentiality has the burden of establishing that the documents or information in question are entitled to confidential treatment. Arbitrators should not automatically designate all discovery as confidential. When the party requesting confidentiality has met the burden of establishing the need for confidentiality of certain documents or information, the arbitrator(s) should strive to accomplish the confidentiality sought in the least restrictive manner possible.

 

In considering questions about confidentiality, the arbitrator may consider such factors as:

 

1. Is the information so personal that disclosure would constitute an unwarranted invasion of personal privacy (e.g., an individual's social security number, tax return, or medical information)?
2. Is there a real threat of injury attendant to disclosure of the information?
3. Is the information proprietary containing confidential business plans and procedures or a trade secret?
4. Are there essential competing interests at stake that require confidential treatment of certain portions of the proceedings?
5. Is the information already public (e.g., has it previously been published or produced without confidentiality) or is it already in the public domain?
6. Would a confidentiality order be against the public interest in disclosure?
7. Are there first amendment or other issues which might be raised by restrictions on the ability of parties to comment freely upon matters in which they are involved?
8. Would a confidentiality order impair the ability of counsel to represent other clients?
   
   

In addition, the arbitrator should, to the fullest extent possible, encourage the parties to:

1. mutually exchange documents and information,
2. enter into stipulations,
3. agree to the joint submission of premarked exhibits,
4. narrow the issues in dispute,
5. identify witnesses and the subject of their testimony, and
6. identify documents to be used at the hearing.
   
   

The arbitrator should consider whether briefs or legal memoranda on an issue are desirable and, if so, establish a schedule for their submission. In addition, the parties may ask the arbitrator if telephone or affidavit testimony will be allowed at the hearing.

 

The arbitrator may also consider other issues raised by the parties, such as consolidation, severance, or the location of the hearing. The arbitrator may refer these or any other issues raised to the full panel for resolution.

 

If the prehearing conference is based on written submissions, the arbitrator may request additional information from the parties. The arbitrator should communicate his or her request to the staff, which will notify the parties. If the prehearing conference is to be conducted by telephone, the arbitrator will be advised by the staff of the date and specific time scheduled for the conference. Prior to the conference, the staff will provide the arbitrator with any written submissions pertaining to the preliminary issues/disputes to be resolved. The arbitrator should be fully familiar with all submissions before the prehearing conference begins.

 

On completion of the prehearing conference, the arbitrator should advise the staff of his or her decision on the preliminary issues, the stipulations, and any other matters. The staff will record the results of the prehearing conference and submit it for signature to the arbitrator and/or the parties where appropriate.