Firms and advisors facing disputes in arbitration will have a tougher time getting the case dismissed thanks to a new dispute resolution rule, FINRA announced today.
The rule attempts to limit the number of dispositive motions put forth before claimants get a change to state their case. Linda Fienberg, president of FINRA Dispute Resolution, said in a statement, "In recent years, there has been an increase in motions to dismiss by respondents, even before individual claimants presented their cases. 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."
Theodore G. Eppenstein, a New York-based securities attorney says motions to dismiss are an area of great abuse by broker/dealers. “They have slowed down plaintiffs cases,” he says. Eppenstein says he’s been handling one specific arbitration case since 2005 due to four motions to dismiss filed by the responding party. “The whole concept of arbitration is to be able to have a hearing,” he says. But the motions to dismiss were sometimes granted before claimants got a chance to do so, he says.
According to the new rule, a dispositive motion can be granted before a claimant finishes presenting its case only if 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. Any decision to grant a dispositive motion before a claimant presents his case must be unanimous. Further, the arbitration panel must conduct a hearing on its decision, and issue a written explanation.
Jake Zamansky, a New York-based securities lawyer says the rule will even the playing field for investors making claims. “FINRA needs to be commended for this rule,” he says. But not everyone agrees.
Mark J. Astarita, a Verona, N.J.-based securities lawyer, says he’s disappointed about the rule’s approval. “I think it’s a mistake.” One problem, he says, is FINRA’s failure to provide any statistics or studies showing the harm motions to dismiss have on claimants’ cases.
Indeed, FINRA could not provide statistics related to the number of dispositive motions filed over the years. It did, however, point out a study on motions to dismiss customer cases published by the Securities Arbitration Commentator in 2006, which shows “in the universe of arbitration cases that went to award, there were motions to dismiss in 28 percent of the cases in 2006, as compared to 10 percent in 2004.” A FINRA spokesperson says, “Motions to dismiss were happening on an increasing frequency and bogging down the process.”