Neutral Corner - August 2005

NASD Dispute Resolution Launches Voluntary Discovery Arbitrator Pilot Program

By Rachel D. Glasgow
Case Administration Manager, NASD Dispute Resolution, Northeast Region


On August 1, 2005, NASD Dispute Resolution (NASD DR) launched a voluntary discovery arbitrator pilot program to address concerns about the discovery process in arbitration. As part of the program, NASD DR will appoint a single discovery arbitrator to resolve all discovery disputes prior to the hearing. The discovery arbitrators are not part of the panel assigned to hear the merits of the case; they are appointed solely to resolve parties' discovery disputes.

The anticipated benefit of the pilot program is to improve the efficiency of the discovery process. The goal of the discovery arbitrators is to provide order to the discovery process at an earlier stage in the arbitration process, and to produce more predictable and consistent rulings. In addition, by addressing all discovery-related disputes before the hearing, panels will reduce the time spent during hearings to address these issues, allowing them to focus attention on the merits of the cases.

The pilot, which will run for approximately two years but may be extended, will be conducted by NASD DR's Southeast and Western Regional Offices, and will be available in all of the hearing locations overseen by these offices. At the end of the two-year period, NASD DR will evaluate the results of the pilot before deciding whether to continue it and whether to extend it to the other regions.

As a voluntary pilot, only those parties that sign a stipulation agreeing to authorize the use of a discovery arbitratorand who are represented by counselmay participate in the program. Parties who sign the stipulation may not unilaterally withdraw from the pilot; however, all parties may agree in writing to discontinue use of the discovery arbitrator.

Selection of Discovery Arbitrators

Discovery arbitrators are pre-selected public arbitrators currently on NASD DR's roster who are lawyers with experience in resolving discovery-related disputes. After parties sign the stipulation agreeing to participate in this program, the Director of Arbitration will appoint an arbitrator from the roster of discovery arbitrators.

As part of the appointment process, NASD DR staff will pre-screen the roster of discovery arbitrators for current conflicts. Once NASD DR assigns the discovery arbitrator to a particular case, the parties may only challenge the appointment of the discovery arbitrator by filing a causal challenge or a Director's Authority to Remove.

Authority of Discovery Arbitrators

To ensure compliance with rulings and to curb discovery abuse, discovery arbitrators have the authority to issue monetary and evidentiary sanctions against any party for failing to comply with discovery rulings, submitting frivolous discovery motions or responses, or otherwise conducting discovery in an abusive manner. However, discovery arbitrators do not have authority to act under Rule 10305 of NASD's Code of Arbitration Procedurethat is, discovery arbitrators may not dismiss a claim, defense, or proceeding.

Once a hearing commences, the discovery arbitrator's authority ceases, and the panel appointed to hear the merits of the case will decide any new discovery issues. Until a hearing commences, the panel may not review any decision rendered by the discovery arbitrator. Thereafter, the panel may only review the discovery arbitrator's prior rulings on the basis of new facts or circumstances that arise after the commencement of the hearings.


To ensure that discovery issues are addressed efficiently and consistently during arbitrations, NASD DR will continue to look at ways to improve the effectiveness of this key process.

Dispute Resolution News

Case Filings

Arbitration case filings from January 1 through July 31, 2005 reflect a 29 percent decrease compared to cases filed during the same time in 2004. NASD DR experienced a decrease in case filings during this seven-month period from 5,083 in 2004 to 3,602 in 2005.  At the same time, NASD DR staff increased by six percent the number of cases closed from January 1 through July 31, 2005 compared to the same period in 2004.

Call-in Workshop for Arbitrators

On June 28, 2005, Linda Fienberg, president of NASD Dispute Resolution (NASD DR), hosted a call-in arbitrator workshop entitled, "Service as an NASD Arbitrator: What You Need to Know." Topics discussed during the workshop included highlights and accomplishments of NASD DR for 2005, the new eligibility rule, the explained decisions proposal, the updated definition of a public arbitrator and disclosure obligations, and a question-and-answer segment. If you missed the workshop, you may listen to a replay of the program on NASD's Web site.

How to Conduct a Deliberation

By Jisook Lee
Associate Director of Neutral Management


The final step in every arbitration caseafter all parties have presented their evidence and the hearing has concludedis the arbitrators' deliberation.  During the deliberation, the arbitration panel must review the facts and determine the outcome of the case.  Each arbitrator on the panel is expected to take part in deliberating the facts and issues of the case, and each panel member's observations and opinions should be heard, acknowledged, and considered.

The chairperson generally speaks last during the deliberation to allow all members of the panel to express their views without the influence of the chairperson. Each arbitrator should present his or her views in turn. Once each panel member has provided his or her opening remarks, the arbitrators should then openly discuss their differences. 

Further tips for a successful deliberation follow.

Timing of a Deliberation

Ideally, arbitrators will deliberate immediately after the close of the hearing while the evidence and testimony are still fresh in their minds. If the panel cannot deliberate immediately after the close of the hearing, an in-person or telephonic conference should be held as soon as possible thereafter. The panel must advise NASD Dispute Resolution (NASD DR) staff of the date and time it wishes to schedule the deliberation, and staff will arrange a conference. 

When scheduling time to deliberate, the arbitrators should keep in mind that parties expect to be advised of the final decision as soon as possible after the close of the hearing. Although Rule 10330 of NASD's Code of Arbitration Procedure (Code) requires arbitrators to render a decision within 30 days from the date the record is closed, one of NASD DR's goals is to serve awards in 15 days or less from the date the record is closed.

Determining the Facts of the Case

To begin the deliberation process, the panel should first determine the facts of the case. There are two steps in determining the facts: 1) weighing the credibility of the witnesses, and 2) evaluating the relevance of the documents.

At the outset of the deliberation, the panel should limit its discussions to determining the facts of the case and whether the facts support a finding of liability. The panel should not consider specific damages unless and until liability has been determined.

1) Weighing the Credibility of the Witnesses

It is the panel's responsibility to assess the credibility of each witness to determine what testimony most accurately reflects the facts of the case.

To determine the veracity of a witness, the panel will consider various factors, including: memory, past acts, incentive to misstate the truth, inconsistent statements, other contradictory evidence, and/or inconsistent documents. Other factors that might help determine credibility are the demeanor of the witness and whether his or her testimony is truthful when viewed in the context of the undisputed facts.

2) Evaluating the Relevance of the Documents

Although documentary evidence generally speaks for itself, the panel must still determine the weight or value of the document and whether it supports the testimony presented in the case.

In weighing the documentary evidence, the panel should consider the following factors: who prepared the evidence, whether it was prepared in the normal course of business, when it was prepared, and/or who had custody and control of the document.

Applying the Law to the Facts

Arbitrators are not strictly bound by case precedent or by statutory law. Rather, they are guided in their analysis by the underlying policies of the law and are given wide latitude in their interpretation of legal concepts.

However, if the panel manifestly disregards the law, a court may vacate an award. If the parties provide the panel with the law, the law is clear, and it applies to the facts of the case, then the law should be followed.

Additional Information from the Parties

Some parties may rely on specific statutes in presenting their cases.  Generally, the party who raised a legal issue will offer the panel a brief that sets forth the law or statute, along with an explanation of how it applies to the facts of the case.

Arbitrators should not engage in any outside legal research, nor should they ask NASD DR staff to conduct legal research on their behalf. If the panel feels that it needs additional information in order to make a decision, it must rely on the parties to provide research in support of their respective positions before reaching final determinations.

Reaching a Decision

Rule 10325 of the Code states that all rulings and determinations by a panel shall be by a majority of arbitrators. A decision on liability also requires a majority vote.

A panel should determine if the claimant has proven, generally by a preponderance of the evidence, that the claimant has suffered damages and that the respondent is responsible for these damages. A panel should weigh the evidence and determine which party has presented the stronger case, however slight the margin may be. 


Parties invest a great deal of time and effort in preparing for and presenting their cases to the panel. Therefore, it is incumbent on the arbitrators to recognize the importance of the deliberation process. Skilled and experienced arbitrators know to carefully and thoughtfully determine the facts of each case before rendering a final and binding decision. In this way, arbitrators further NASD DR's pledge to provide impartial arbitrators who are dedicated to delivering fair, effective dispute resolution services.

SEC Approvals

Rescission of the California Waiver Standards

On June 13, 2005, the Securities and Exchange Commission (SEC) approved the rescission of NASD's waiver program that was in effect for arbitration matters to be heard in California. The rule change, SR-NASD-2005-070, rescinds the pilot rule in Interpretive Material (IM)10100(f) of NASD's Code of Arbitration Procedure relating to the waiver of the California Ethics Standards for Neutral Arbitrators in Contractual Arbitration (Pilot Rule). 

The Pilot Rule allowed arbitration cases to proceed in California while NASD challenged the California Standards in court. Recent holdings in two court cases, Credit Suisse First Boston Corp. v. Grunwald, 400 F.3d 1119 (9th Cir. 2005), and Jevne v. The Superior Court of Los Angeles County, 35 Cal.4th 935 (2005), found that the Securities Exchange Act of 1934 preempts the California Standards for NASD-administered arbitrations. As a result of these findings, the Pilot Rule was no longer necessary.

The courts' decisions and the SEC's rescission of the Pilot Rule have allowed NASD to resume the appointment of arbitrators in California arbitration cases without requiring a waiver of the California Standards. The Western Regional Office of NASD Dispute Resolution began immediately to process those arbitration cases that were filed during the waiver program but were not paneled because the necessary waivers had not been submitted. The Western Regional Office completed the process of sending arbitrator lists to parties for the remaining cases at the end of July.

For additional information on the approval order rescinding the Pilot Rule, please visit our Web site. 

Honorarium for Arbitrators Deciding Discovery-Related Motions

On June 28, 2005, the SEC approved a rule change to provide for the payment of an honorarium to arbitrators for deciding discovery-related motions without a hearing. The rule change, SR-NASD-2005-052, amends IM-10104 to provide for a $200 honorarium for arbitrators who decide a discovery-related motion without a hearing. A Notice to Members about the honorarium will be issued on August 29, 2005. This rule will be become effective on September 26, 2005 and will apply to any discovery order of an arbitrator or panel issued on or after September 26, 2005. 

For additional information on the approval order implementing this honorarium for arbitrators, please visit our Web site. 

SEC Rule Filings

Reorganization and Revision of NASD Rules Relating to Customer Disputes, Industry Disputes, and Mediation

On June 23, 2005, the SEC published for comment in the Federal Register proposed rule changes to NASD's Code of Arbitration Procedure (Code) to reorganize and simplify current dispute resolution rules. NASD is proposing to reorganize its current Code into three separate procedural codes: NASD Code of Arbitration Procedure for Customer Disputes (Customer Code) (SR-NASD-2003-158); NASD Code of Arbitration Procedure for Industry Disputes (Industry Code) (SR-NASD-2004-011); and NASD Code of Mediation Procedure (Mediation Code) (SR-NASD-2004-013). The three new codes would replace the current Code in its entirety. The proposed rule changes would also codify current practices and implement several substantive changes.

You may view the proposals and other explanatory information on our Web site.  

Arbitration Fees Applicable to Certain Statutory Employment Discrimination Claims

On June 30, 2005, the SEC published for comment in the Federal Register a proposed rule change to NASD's Code, SR-NASD-2005-046, to amend the arbitration fees applicable to certain statutory employment discrimination claims. Under the proposed rule change, a current or former associated person who brings a statutory employment discrimination claim that is subject to a predispute arbitration agreement will pay no more than a $200 filing fee at the time that the associated person asserts such a claim.

You may view the proposal on our Web site.

Question and Answer: Respondent's Failure to Appear at a Hearing

Question: Can a panel issue an award against a respondent who fails to appear at a hearing?

Answer: In most cases, the answer is yes. NASD Dispute Resolution (NASD DR) retains jurisdiction over current and terminated members and associated persons, even when the party does not execute a Uniform Submission Agreement. Of course, an arbitrator may not make an award based solely on the non-appearance of a party. The party who appears must present a sufficient factual basis to support an award in that party's favor.

Arbitrators are obligated to ensure every party's right to a fair hearing. In the case where a party fails to appear, the arbitrators should confirm that the party was properly served with the statement of claim and received proper notice of the scheduled hearings before reaching a decision to render an award against the party.

Arbitrators should be aware of the potential non-appearance of a party from the time they receive the pleadings in the case. If a statement of answer is missing, they should contact NASD DR staff to determine whether the party received the claim.

Rule 10314(a) of NASD's Code of Arbitration Procedure requires that NASD DR endeavor to serve the initial statement of claim by mail on all respondents. Active members and associated persons and customer respondents are served by regular mail, while terminated members and associated persons are served by certified mail. If certified mail is returned as "unclaimed," NASD DR need not take further action. If the initial statement of claim is returned because of a bad address, NASD DR will take additional steps to obtain an updated address and attempt to serve that party. If NASD DR is unable to obtain a current address, it will notify the claimant of its inability to serve that party. 

Although NASD DR takes a proactive role to ensure that service issues are redressed, arbitrators should not assume that, because a case proceeds to hearing, service was perfected. NASD DR continues to process a case even though an updated address cannot be found for one or more of the parties, unless the claimant requests that NASD DR make the case inactive. Therefore, if satisfied, the arbitrators should make a specific finding of proper service of a non-appearing party during the hearing. The arbitrators should also make a finding that the non-appearing party received notice of the hearing. Arbitrators may refer to letters sent by NASD DR staff and ask the claimant for further information in this regard.

A specific finding of proper service and sufficient notice of the hearing should also be included in any award rendered against a non-appearing party. This finding is especially critical if the same party later seeks to vacate or set aside the award.

Regional Updates

Northeast Regional Update

The Northeast Regional Office recruited arbitrators at the New Hampshire Bar Association's Annual Meeting in Dixville Notch, New Hampshire held June 24-25, 2005.

During the next three months, the Northeast Regional Office will conduct in-person Basic Panel Member Training programs in these cities on the following dates:

  • Boston, Massachusetts  September 23, 2005
  • Hartford, Connecticut  October 27, 2005
  • New York, New York  November 2, 2005
  • Montpelier, Vermont  November 16, 2005

If you are interested in attending a Basic Panel Member Training program, please contact Chereé White at (212) 858-4063 or by email.

Mid-Atlantic Regional Update

On June 16, 2005, the Mid-Atlantic Regional Office attended the Maryland State Bar Association's Annual Meeting in Ocean City, Maryland to discuss the benefits of NASD's Mediation program with local litigators. In addition, NASD staff had the opportunity to discuss NASD's Arbitration program at The Center for Alternative Dispute Resolution's Annual Conference held June 23, 2005 in Greenbelt, Maryland.

The Mid-Atlantic Regional Office will participate in a continuing legal education course entitled, "An Introduction to Securities Arbitration," on October 21, 2005 in Charlotte, North Carolina. Additionally, in conjunction with NASD's Department of Education & Training, NASD staff will present a seminar this fall in several cities entitled, "What You Should Know about Securities Arbitration."  This course is part of NASD's Continuing Education Program and has been designed for registered representatives, branch managers, compliance personnel, and in-house counsel. If you are interested in learning more about these upcoming programs, please contact Marya Santor at (202) 728-8177.

During the next three months, the Mid-Atlantic Regional Office will conduct in-person Basic Panel Member Training programs in these cities on the following dates: 

  • Columbia, South Carolina  October 7, 2005
  • Charleston, West Virginia  October 14, 2005
  • Washington, DC  November 30, 2005

If you are interested in attending a Basic Panel Member Training program, please contact Karen Carter at (202) 728-8327 or by email.

Western Regional Update

During the next three months, the Western Regional Office will conduct in-person Basic Panel Member Training programs in these cities on the following dates:

  • Portland, Oregon  September 13, 2005
  • San Francisco, California  October 11, 2005
  • Denver, Colorado  October 20, 2005
  • Salt Lake City, Utah  November 15, 2005
  • Seattle, Washington  November 17, 2005

If you are interested in attending a Basic Panel Member Training program, please contact Tiffany Hansmann at (213) 613-2684 or by email.

Midwest Regional Update

During the next three months, the Midwest Regional Office will conduct in-person Basic Panel Member Training programs in these cities on the following dates: 

  • Wichita, Kansas  October 5, 2005
  • Detroit, Michigan  October 26, 2005
  • Dallas, Texas  November 16, 2005

If you are interested in attending a Basic Panel Member Training program, please contact Deborah Woods at (312) 899-4431 or by email.

Southeast Regional Update

The Southeast Regional Office recruited arbitrators at the MetLife Investigators' Conference in Miami, Florida held July 15, 2005; the Alabama State Bar Annual Meeting in Birmingham, Alabama held July 20-23, 2005; and the Mississippi State Bar Annual Meeting held July 13-16, 2005.

During the next three months, the Southeast Regional Office will be conducting in-person Basic Panel Member Training programs in these cities on the following dates: 

  • Memphis, Tennessee  September 29, 2005
  • Atlanta, Georgia  October 19, 2005
  • Tampa, Florida  October 26, 2005
  • San Juan, Puerto Rico  November 11, 2005

If you are interested in attending a Basic Panel Member Training program, please contact Lanette Cajigas at (561) 447-4911 or by email.

Message from the Editor

New Editor-in-Chief

I would like to take this opportunity to introduce myself as the new Editor-in-Chief of The Neutral Corner. I began my career with NASD Dispute Resolution as a Staff Attorney in the New York Regional Office in May 2000, before being promoted to my current position of Associate Director of Neutral Management. I am a graduate of the University of Colorado and Tulane Law School.

As the new Editor of The Neutral Corner, I look forward to contributing to the continued success of this newsletter. One of our goals at NASD DR is to enhance your role as a neutral in our forum by providing you with the latest developments in the field of dispute resolution through programs and publications like this one.

Because this publication is designed for arbitrators and mediators, we welcome your suggestions for articles and topics for discussion. Please send your suggestions to Jisook Lee, Editor, The Neutral Corner, NASD Dispute Resolution, One Liberty Plaza, 165 Broadway, 27th Floor, New York, New York 10006. You may also contact me at (212) 858-5121.

New Deputy Director of Neutral Management

We are delighted to report that former Editor of The Neutral Corner, Lisa Angelson, has been promoted to Deputy Director of Neutral Management. Ms. Angelson joined NASD DR in December 1997 as a Staff Attorney, and was promoted to Senior Attorney in 2001. In May 2004, Ms. Angelson was promoted to Associate Director of Neutral Management. In addition to editing this newsletter, Ms. Angelson was also responsible for developing new and innovative methods to deliver basic, advanced, and continuing training for NASD DR's Roster of Arbitrators. We look forward to the continued success that Ms. Angelson will bring to the Department of Neutral Management in her new position.


Linda D. Fienberg
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

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
Associate Vice President &
Director of Neutral Management

Elizabeth R. Clancy
Vice President & Regional Director,
Northeast Region

Judith Hale Norris
Vice President & Regional Director,
Western Region

Rose Schindler
Associate Vice President &
Regional Director, Southeast Region

Shari Sturm
Regional Director,
Mid-Atlantic Region

Scott Carfello
Regional Director,
Midwest Region

Jisook Lee
Associate Director of Neutral
Management and Editor of
The Neutral Corner

Editorial Board

Nicole Haynes - Northeast Region
Heather Herbert - Mid-Atlantic Region
Elaine Kohn - Western Region

Lisa Lasher - Southeast Region
Mignon McLemore - Office of Chief Counsel
Patrick Walsh - Midwest Region

NASD Dispute Resolution Offices

Northeast Region
One Liberty Plaza
165 Broadway
27th Floor
New York, NY 10006
Tele: (212) 858-4400
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
Second Floor
Boca Raton, FL 33486
Tele: (561) 416-0277
Fax: (561) 416-2267
Western Region
300 S. Grand Avenue
Suite 900
Los Angeles, CA 90071
Tele: (213) 613-2680
Fax: (213) 613-2677

Midwest Region
10 S. LaSalle Street
Suite 1110
Chicago, IL 60603-1002
Tele: (312) 899-4440
Fax: (312) 236-9239