Neutral Corner - October 2004

Keep the Arbitration Moving: Enforcing Discovery Deadlines and Legitimate Information Requests

By Brian N. Smiley and Theodore A. Krebsbach*

Arbitrators may work proactively to enhance the efficiency of arbitration cases without compromising fairness. This article highlights two ways this can be accomplished by better management of the discovery process. The first is to help ensure that discovery deadlines in NASD’s Code of Arbitration Procedure (Code) are honored; the second is to enforce legitimate information requests and reject court-style interrogatories that are outside the scope of discovery permitted under the Code.

The Initial Prehearing Conference (IPHC) usually presents the first opportunity for the panel to “lay down the law” about the seriousness of deadlines. In an all-too-typical scenario, the panel learns that one or more of the parties served a discovery request long before the IPHC, but has not received a timely or proper response.

Rule 10321(b)(2) of the Code requires parties to respond to requests for documents and information within 30 days of the date of service unless a greater time is allowed by the requesting party. However, arbitrators often learn at the IPHC that the deadline for responding has passed with no response. In other cases, a response may improperly contain blanket objections to appropriate requests, or vague promises to produce documents and information at an unspecified time in the future.

In certain situations, an IPHC may be scheduled months after the deadline has passed to respond to a party’s discovery requests. When the aggrieved party addresses during the IPHC that his or her discovery requests have not been dealt with as required by the Code, the arbitrators should not simply ignore the outstanding requests and direct all parties to submit and respond to discovery requests sometime in the future. This practice is unfair to the party whose requests have been ignored, and serves to unnecessarily delay the proceeding.

During the IPHC, a better practice is for arbitrators to place resolution of such outstanding discovery issues as a priority over subsequent discovery requests served by the non-complying party. If a motion to compel production is pending during the IPHC, the arbitrators can issue a scheduling order that will address and resolve the motion on an expedited basis. If a motion has not yet been filed, the arbitrators can order the party who ignored discovery requests to respond by a specific date in the near future, and they can expedite the filing and resolution of a motion to compel production to address deficient responses. The non-complying party should be admonished and, in appropriate cases, sanctions should be considered. Subsequent discovery requests by the non-complying party can be addressed afterward. This practice will encourage the parties to timely serve and respond to discovery requests. Ultimately, it will move the case along faster.

The second way arbitrators can expedite the process is by preventing the parties from confusing the limited “requests for information” permitted under the Code with the type of interrogatories which are often utilized in state and federal court. Rule 10321(b) of the Code provides that parties may serve “requests for information” in addition to requests for the production of documents. The term “requests for information” is not defined in the rule. However, NASD’s Discovery Guide (Notice to Members 99-90), which the SEC approved in 1999 to streamline discovery, offers this helpful guidance:

“Requests for information are generally limited to identification of individuals, entities, and time periods related to the disputes; such requests should be reasonable in number and not require exhaustive answers or fact finding. Standard interrogatories, as utilized in state and federal courts, are generally not permitted in arbitration.”

It is significant that the Discovery Guide contrasts the limited nature of requests for information against interrogatories, which are routinely used in court cases and not generally permitted in arbitration. Court interrogatories can be elaborate, calling for thorough and detailed answers to a wide range of questions about facts and legal contentions. As any litigator knows, answering interrogatories can be a time-consuming and costly ordeal.

In contrast, the types of requests for information allowed in arbitration should generally be limited to questions about relevant matters that can be answered easily and briefly. For example, a Claimant might ask the Respondent to identify: (a) supervisory officials of the firm who reviewed Claimant’s account; (b) sales assistants who dealt with the Claimant; or (c) the titles of the relevant manuals relating to the conduct at issue. Likewise, the Respondent might ask the Claimant to identify: (a) other firms at which she held accounts during relevant periods; (b) the name of Claimant’s accountants; or (c) the trades which the Claimant contends were unauthorized. These requests focus narrowly on discrete items of information that may be needed to prepare for the hearing. They do not require elaborate or detailed fact-finding or narrative answers in which a party lays out his factual or legal theories. Most of the requests can be answered with a name or a few words. Assuming the requests are relevant to the issues in the case, the information requests would be proper.

Counsel involved in NASD Dispute Resolution arbitration cases occasionally file elaborate information requests that are indistinguishable from court-style interrogatories. By way of example, Claimant’s counsel might serve an information request requiring the Respondent to: “[s]tate the basis for each and every recommendation which you made to Claimant regarding the purchase or sale of securities.”Not to be outdone, Respondent’s counsel might request that Claimant: “[i]dentify all misrepresentations allegedly made by the Respondent, stating why the statement was misleading; how the misstatement caused the loss, and how Claimant first became aware the statement was misleading.” In these examples of bad practice, the requests require elaborate answers that, while perhaps acceptable in court, impose a much greater burden than is consistent with the arbitration process. The requests are likely to produce endless quibbling between the parties about the sufficiency of information based on how they have been answered, thereby bogging down the prehearing process with discovery motions and hearings. These are exactly the kind of “[s]tandard interrogatories, as utilized in state and federal courts, [which] are generally not permitted in arbitration.”

Arbitrators, of course, have discretion to allow more elaborate information requests and may choose to do so under special circumstances. However, court-style interrogatories should remain the exception and not the rule.

* This article was written jointly by NASD’s National Arbitration and Mediation Committee (NAMC) members Brian N. Smiley and Theodore A. Krebsbach. Brian N. Smiley is a partner in the Atlanta law firm of Gard Smiley Bishop & Dovin LLP, which represents investors. After graduating from Emory University School of Law in 1978 and working at the U.S. Department of Justice, Mr. Smiley entered the private practice of law. He has been involved in NASD Dispute Resolution arbitration cases as an advocate, arbitrator and commentator for almost 20 years. Mr. Smiley is currently a public representative on the NAMC and chairs its Rules and Procedures Subcommittee. Mr. Krebsbach is a member of the New York City law firm of Krebsbach & Snyder, P.C., founded in 1993, whose attorneys represent the brokerage industry nationwide. Mr. Krebsbach argued the seminal United States Supreme Court cases of Shearson v. McMahon (1987) and Rodriquez v. Shearson (1989) while Director of Litigation at Shearson Lehman Brothers, and testified on behalf of the securities industry at subsequent Congressional hearings on securities arbitration reform. In addition to serving as a NASD Dispute Resolution arbitrator, he has been a Member of the Board of Editors o the Securities Arbitration Commentator since its inception, and is a frequent author and lecturer on securities arbitration issues.

Messages from the Editor


We are delighted to announce that Dorothy Popp has been promoted to Vice President due to her excellence in service and dedication to Dispute Resolution during her career with NASD. Dorothy joined NASD Dispute Resolution in 1995 as the Regional Director of the Northeast Regional Office in New York. In 1996, she was promoted to the national position of Director of Operations for Dispute Resolution. Dorothy came to NASD with substantial experience in management. Her NASD Dispute Resolution responsibilities include: directing and managing the operations and administrative functions of Dispute Resolution, including real estate, finance, human resources, technology and security; providing advice and support on strategic and operational matters to others on the senior management team; and leading other key initiatives and strategic activities. Please join us in extending best wishes to Dorothy.

We are also pleased to announce that Neil McCoy has been appointed as the National Recruitment Supervisor for the Department of Neutral Management. Neil joins NASD with a Master’s Degree in Human Resource Management; Post-Graduate Certificates in Banking, Finance, Business Studies, and Economics; and a Bachelor’s Degree of Science in Psychology. He was formerly a Human Resources consultant and the Senior Sales Agent Recruiter for a company in Manchester, England. Neil’s responsibilities include: recruiting arbitrators nationwide; developing new strategies and systems to facilitate recruitment; and expanding NASD Dispute Resolution’s recruitment presence across the country. If someone you know may be interested in serving as an arbitrator or mediator on our Roster, please contact Neil at (212) 858-4283.

Dispute Resolution News

Case Filings

Case filings from January 1 through August 31, 2004 reflect a six percent (6%) decrease compared to case filings during the same time last year. Through August, NASD Dispute Resolution has experienced a decrease in case filings from 6,171 in 2003 to 5,807 in 2004. However, NASD Dispute Resolution processed 728 cases in August 2004 compared to 655 in August 2003. Of the 5,807 cases filed through August of this year, 787 were analyst cases.

Arbitrator Disclosure: Memberships

On occasion, arbitrators question the necessity of disclosing their memberships in various organizations.

NASD Dispute Resolution advocates full arbitrator disclosure, and strongly encourages arbitrators to disclose all memberships in trade, professional, and/or social organizations (e.g., American Bar Association, Illinois State Bar Association, American Institute of Certified Public Accountants, Rotary Club International, etc.).

Arbitrators should be particularly diligent to disclose memberships in any securities-related organizations or affiliations of attorneys who periodically represent parties in the NASD forum (e.g., Securities Industry Association, Securities Industry Conference on Arbitration, Public Investors Arbitration Bar Association).

In accordance with the Arbitrator Disqualification Criteria, an arbitrator may be permanently disqualified from the Roster for failure to disclose material information. For this reason, we urge arbitrators to remember to include all memberships when updating their Disclosure Reports.

Voluntary Direct Communication between Parties and Arbitrators

On June 30, 2004, the Securities and Exchange Commission approved new Rule 10334 of NASD’s Code of Arbitration Procedure. The rule permits parties in an arbitration to communicate directly with the arbitrators if all parties and arbitrators agree, and establishes specific guidelines for such direct communication. As announced in Notice to Members 04-62, the rule change will be effective for all arbitration cases on or after September 30, 2004. 


NASD Dispute Resolution’s Midwest Regional Office began a one-year pilot project in June 2001 to determine whether direct communication between parties (through their counsel) and arbitrators would enhance the arbitration process. During the year, parties (all represented by counsel) and arbitrators in 255 cases participated in the pilot project. At the end of the pilot period, staff circulated a survey to the arbitrators and party representatives who participated in the pilot project. Overall, 73 percent of the party representatives and 69 percent of the arbitrators who responded to the survey favored continuing direct communication with the arbitrators. Participants found that direct communication expedited the arbitration process and was a more convenient method of communication.

Rule Overview

In light of the success of the Midwest Regional Office pilot project, NASD has developed a new rule that will permit direct communication with the arbitrators when all parties and arbitrators agree. The rule also establishes specific guidelines for direct communication. 

  • Only parties that are represented by counsel may use the rule.
  • All arbitrators and parties must agree to use the rule during the initial prehearing conference or at a later hearing.
  • Parties may send to arbitrators only those documents that are listed in an initial prehearing conference order, or subsequent arbitration panel order.
  • Parties may send items by regular mail, overnight courier, facsimile, or e-mail. All arbitrators and parties must have facsimile or e-mail capability before either delivery method may be used.
  • Copies of all materials sent to the arbitrators must also be sent at the same time and in the same manner to all parties and NASD, with one exception. Although arbitrators and parties may agree to transmit and/or receive large documents by facsimile and e-mail, documents over 15 pages can only be sent to NASD by regular mail or overnight courier. Arbitrators or parties concerned with tying up facsimile machines and printers may include a similar provision in the direct communication order.
  • NASD staff must be sent copies of any orders and decisions made as a result of direct communications among the parties and the arbitrators.
  • Parties may not communicate orally with the arbitrators outside the presence of all parties.
  • Any party or arbitrator may terminate the direct communication order at any time, after giving written notice to the other arbitrators, parties, and NASD staff.

Latest in Arbitrator Training

Mandatory Expungement Training for Arbitrators

Reminder: Expungement training is mandatory for all active arbitrators on NASD’s Roster. The Expungement online course is available as indicated on our Web site. The Expungement course is being offered at no charge and is available 24 hours a day, seven days a week.

Tip for Arbitrators

If you have not already done so, please provide NASD Dispute Resolution with your e-mail 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 you notify us of any changes.

To add or update your e-mail address, simply send an e-mail with the subject line “My E-mail Address,” and add your name and arbitrator ID number. We will update your profile using the address that appears on your e-mail.

2004 NASD Arbitrator Training Programs and Schedules

View information on arbitrator training programs and schedules remaining in 2004.

Our training schedule for 2005 will be posted in the December issue of this newsletter.

Sanctions and the NASD Arbitration Process

Todd Saltzman—Associate Director of Case Administration

NASD recognizes the authority of arbitrators to impose monetary sanctions on parties in egregious situations. NASD believes that sanctions are inherently part of arbitrators’ broad power to control the proceedings and to enforce compliance with their orders. Rule 10324 of NASD’s Code of Arbitration Procedure (Code) expressly states that the arbitrators shall be empowered to interpret and determine the applicability of all provisions under the Code and to take appropriate action to obtain compliance with any ruling by the arbitrators.

Under the sanctions provision of the Discovery Guide, other possible sanctions, aside from monetary sanctions, may include: precluding a party from presenting evidence; making an adverse inference against a party; assessing postponement and/or forum fees; assessing attorneys’ fees, costs, and expenses; and dismissal of a claim, defense, or proceeding. Members and associated persons also may be referred to NASD Regulatory Policy and Oversight for possible disciplinary action, which can include suspension or termination of NASD membership or registration.

Most sanctions relate to the failure of a party to comply with an order to produce documents issued by the arbitration panel. The Discovery Guide states that the arbitration panel should issue sanctions if any party fails to produce documents or information required by a written order, unless the panel finds that there is “substantial justification” for the failure to produce the documents or information. NASD also published Notice to Members 03-70 and a Notice to Parties to remind all parties that failure to comply with NASD discovery rules and procedures can result in sanctions. Other sanctions may arise out of misconduct by a party that results in the abuse of the arbitration process.

The vast majority of NASD arbitration cases conclude without the need for sanctions. Arbitrators should consider sanctions as a last resort to address non-compliance by a party, and exercise this authority judiciously. The arbitration panel’s desire to sanction a party for perceived misconduct should be weighed against the party’s right to have a full and fair opportunity to be heard. In addition, consideration should be given to the fact that an arbitration award is final and binding, and subject to review by a court only on a very limited basis.

In rare cases, arbitration panels have issued awards that contain monetary sanctions payable to NASD. The forum believes awards containing monetary sanctions payable to NASD are inappropriate, and may result in a court vacating an arbitration award.

Question & Answer on an Arbitrator’s Duty to Disclose

Question: While I was sitting as a panelist on a recent case, a party suddenly called a rebuttal expert witness with whom I graduated from law school more than 23 years ago. Since I never had any social, business, professional, or any other type of relationship with this expert witness, I was uncertain whether I had a duty to disclose this information. Just to be safe, I decided that I should make the disclosure anyway. Was this necessary?

Answer: Yes. Although your disclosure may appear to be insignificant, your failure to disclose it, and to affirm your impartiality, could have created an appearance of bias since the parties may have later learned of this information and been forced to consider whether your non-disclosure involved something more serious. An arbitrator’s disclosure of a minor or old relationship does not necessarily result in disqualification from the case.

View more information about the disclosure process. be sure to visit our Web site at, click on the icon titled “View Information about NASD Dispute Resolution Online Arbitrator Training,” and sign up for the arbitrator online training on “Duty to Disclose.”

Comments and Feedback

The Neutral Corner welcomes your comments, feedback, or questions on the material presented in this publication or on other arbitration and mediation issues. The Neutral Corner also invites readers to submit articles on important issues of law and procedure relating to mediation, arbitration, or other alternative dispute resolution processes.

Please send your article to Lisa Angelson, Editor, The Neutral Corner, Department of Neutral Management, NASD Dispute Resolution, One Liberty Plaza, 165 Broadway, 27th Floor, New York, New York 10006.


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
Associate 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

Lisa Angelson
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
Mignon McLemore - Office of Chief Counsel
Kelly Sheehan - Southeast Region
Patrick Walsh - Midwest Region

NASD Dispute Resolution Offices

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