Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, November 4, 2007

FINRA Files Dispositive Motion Rule with SEC

Observers of the securities arbitration process are well aware that dispositive motions have increased significantly in recent years and threaten to deprive the customer of his right to a hearing.  Since NASD(n/k/a FINRA) first proposed its Customer Code of Arbitration, it has struggled to win consensus for a rule dealing with dispositive motions.  The original version of the rule that was contained in the proposed Customer Code was taken out of the Customer Code when it appeared that controversy over it would delay adoption of the rest of the Code.  NASD then filed a proposed dispositive motion rule separately, which the majority of commenters opposed, believing that it actually would encourage dispositive motions rather than, as intended, discourage them.  FINRA now has officially withdrawn the 2006 proposal and, as it announced a few weeks ago, it has filed with the SEC a new proposal.  In this proposal it makes clear that motions to dismiss before the conclusion of the party's case in chief are discouraged.  There are only three grounds for granting a motion to dismiss before a party has concluded its case in chief:  prior written release of the claim; the party was not associated with the account, security or conduct at issue; stale claims under the Eligibility Rule.  In addition, the rule sets forth a procedure for deciding the motion -- they must be decided by the full panel, after an in-person or telephonic conference; decisions to grant the motion must be unanimous, and the arbitrators must give a written explanation.  It is expected that the SEC will put the rule out for public comment soon.  Some representatives of the securities industry have already expressed opposition to the proposal, asserting that it will encourage customers to file meritless claims in the hopes of extracting a settlement.

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