|Thursday, January 8, 2009
Brendan Intindola (646) 315-7277
Herb Perone (202) 728-8464
Washington, DC — The Financial Industry Regulatory Authority (FINRA) today announced that the Securities and Exchange Commission (SEC) has approved an important change FINRA requested to its dispute resolution rules that will significantly reduce the frequency of motions to dismiss arbitration cases before investors have a chance to present their case.
The new rule responds to investor concerns regarding abusive and duplicative filing of motions to dismiss, also called dispositive motions. FINRA received complaints that parties - most often respondent firms - were filing dispositive motions routinely and repetitively, causing increased costs for claimants, who are typically retail investors.
"In recent years, there has been an increase in motions to dismiss by respondents, even before individual claimants presented their cases," said Linda Fienberg, President of FINRA Dispute Resolution. "Although arbitrators rarely grant such motions, it is costly and time consuming for parties to defend motions to dismiss. This new rule sharply limits the bases for making motions to dismiss and penalizes those who abuse the dismissal process."
By narrowing significantly the grounds for granting dispositive motions before investors present their case, the new rule will ensure that claimants in arbitration have a full opportunity to argue their case. Under the new rule, a motion to dismiss before a claimant's case is presented can only be granted on three specific grounds, and there are stringent new sanctions against parties for engaging in abusive case-dismissal practices.
If a party in an arbitration case files a dispositive motion before a claimant finishes presenting its case, the arbitration panel can only grant the motion for three reasons: the parties have settled their dispute in writing; there is a "factual impossibility," meaning the party could not have been associated with the conduct at issue; or, the motion could be granted under the eligibility rule that requires parties to bring arbitration claims within six years of the events at issue.
The new rule also requires that the arbitrators conduct a hearing on motions to dismiss, and that a decision to grant the dispositive motion be unanimous. The panel also is required to issue a written explanation of a decision to grant dismissal.
Additionally, a party is prohibited from re-filing a denied motion to dismiss unless specifically permitted by an order of the panel. If the panel determines that a party filed a motion in bad faith, the panel may, under existing rules, issue sanctions that can include fines, initiation of a disciplinary referral, or dismissal of a defense.
As for costs and penalties, the party seeking a dismissal will be assessed all the related fees if the motion is denied. The arbitrators must also award costs and attorneys' fees in favor of the party opposing a motion that is deemed to be frivolous by the panel. When a respondent files a motion to dismiss after the conclusion of the claimant's case, the provisions above would not apply. However, the rule would not prevent the arbitrators from issuing an explanation or awarding costs or fees.
FINRA will announce the effective date of the rule change in a Regulatory Notice to be published shortly.
FINRA Dispute Resolution is the largest securities dispute resolution forum in the world. It facilitates the efficient resolution of monetary, business, and employment disputes between investors, securities firms, and employees of securities firms by offering both arbitration and mediation services through a network of 73 hearing locations across the United States and abroad. It currently maintains a roster of approximately 6,500 arbitrators.
FINRA, the Financial Industry Regulatory Authority, is the largest non-governmental regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business-from registering and educating all industry participants to examining securities firms; writing and enforcing rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. For more information, please visit our Web site at www.finra.org.