WealthManagement Magazine

Punitive Damage Cap for Broker Claims Floated

Now that the NASD proposal to cap punitive damages in customer cases is pending before the SEC (see "Punitive Damages Proposal is Hot Issue," Page), a trial balloon proposing that the same sort of cap be imposed in employment cases also has been floated.The issue arose in the context of a meeting of an NASDR "working group" that had been established to look at a list of suggested improvements that

Now that the NASD proposal to cap punitive damages in customer cases is pending before the SEC (see "Punitive Damages Proposal is Hot Issue," Page), a trial balloon proposing that the same sort of cap be imposed in employment cases also has been floated.

The issue arose in the context of a meeting of an NASDR "working group" that had been established to look at a list of suggested improvements that would make the NASD's arbitration panels conform more closely to the American Bar Association's "due process protocols"--or at least that was the stated agenda last October.

But at the group's Dec. 15 meeting, according to several reports, Ted Levine, PaineWebber's general counsel, raised the issue of capping punitive damages in employment cases.

"That was the first time that I and, to the best of my knowledge, some of the other members of the working group realized this was going to be a point of contention at all," says Wayne Outten, a New York City plaintiffs' attorney and a member of the working group.

Linda Fienberg, the NASDR's executive vice president for dispute resolution and the head of the working group, refused to be interviewed for this story. Instead, a statement was issued by NASDR spokesperson Michael Robinson:

"We continue working with the working group, and our work is ongoing, and we have no comment beyond that," Robinson said.

Meanwhile, writing to NASDR President Mary Schapiro, Congressman Edward Markey (D-Mass.) said he was "shocked that the NASDR would consider trying to limit the sole recourse investors and employees have to punish wrongful behavior by securities firms." The letter addressed several issues involving arbitration of employment claims.

Levine says only that the working group's "deliberations are confidential" and "therefore, I won't comment about anything we discussed there. ... The discussions are ongoing and proceeding in a constructive manner, with all issues open from all sides--no judgments have been made yet."

The expectation is that the working group, which held another meeting in January, will continue on for at least a few more months before presenting its recommendations. When the NASDR filed its proposal with the SEC to eliminate its mandatory arbitration requirement last October, it promised that a working group would look at "enhancements" such as "additional due process standards, standard discovery lists, arbitrator list selection [changes] and other related issues." In the past, Fienberg has said another issue under consideration would be whether arbitrators should be required to issue written explanations of their decisions.

Attorney sources confirm that the working group committee also includes George Saks, special counsel at Smith Barney; George A. Shieren, senior vice president and general counsel at Merrill Lynch; Michael Stone, senior vice president and general counsel at Dean Witter; Robert Clemente, the director of arbitration at the NYSE; and James Buck, the NYSE's senior vice president and secretary. There are also a Harvard professor and an independent mediator on the committee.

There are no employees of securities firms on the panel, even though under terms of the NASD's 1996 settlement with the SEC, all interested constituencies are supposed to have equal input in rule-making, beginning with early stages of the process.

The NASDR would not release names of the committee members, nor comment on whether employees are represented.

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