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FINRA Task Force Ends With a Fizzle

September 1, 2016

By Denis C. Dice, Esq.*

Key Points:

  • FINRA Dispute Resolution Task Force issues final report with multiple recommended actions.
  • FINRA Board of Governors only authorized for filing with the SEC three proposed amendements.

 

FINRA organized the FINRA Dispute Resolution Task Force in July of 2014. The task force consisted of 13 members who were either arbitrators, mediators, counsel representing claimants and respondents, as well as state regulators and consumer advocates. The purpose of the task force was to review FINRA’s arbitration procedures and rules to insure that the forum was meeting the needs of the parties. FINRA asked the task force to coordinate its efforts and ultimately make recommendations with respect to the efficiency, transparency and impartiality of the FINRA Dispute Resolution Form. Thereafter, the task force subdivided into subcommittees, met a total of 57 times over 14 months and solicited comments. In December of 2015, after multiple in-person meetings and multiple meetings by telephone, the task force issued a 70-page report entitled “The Final Report and Recommendations of the FINRA Dispute Resolution Task Force.” The report provided a background of FINRA arbitration, reasons for the task force, a summary of the work of the task force, a summary of key issues, a discussion section and ultimately 51 recommendations.

According to the report, the task force met as a group in person on four separate occasions and had five telephonic meetings. At its fourth in-person meeting, the task force reviewed a draft of its final report and approved the final report at their December 7, 2015, telephone meeting. The task force believed that it was important to address the arbitrators and their below-market-rate compensation. The report recommended an increase in arbitrator honoraria from $300 to $500 per session. The task force also believed it was important to expand the depth and diversity of the arbitrator pool. It recommended ongoing recruitment initiatives to increase diversity.

Additionally, the task force discussed awards and that a major concern among the parties who are dissatisfied with the outcome of an award is the absence of any explanation. The task force recommended that an explained decision would be required unless any party notifies FINRA, prior to the IPHC, that it does not want an explained decision. The task force no longer recommended that the current, brief fact-based summary of the award explanation should be continued. The task force recommended a training program for arbitrators on how to write an explained decision.

The task force also reviewed the rules regarding expungement. Their report regarding their review of expungement encompassed five pages and contained significant detail about the expungement process and prior rule changes. Ultimately, the task force recommended that FINRA create a special arbitration panel to conduct hearings on expungement requests and make determinations as to whether to grant expungement requests.

The task force also reviewed other issues. The scope of its review included, but was not limited to, small claims, large claims, mediation, motions to dismiss, time limits (motion to dismiss based on eligibility), multiple case management/procedural issues, the public availability of information, transparency, forum access and unpaid awards.

On May 6, 2016, the FINRA Board of Governors reported that it had met that week to discuss, among other things, the recommendations of the FINRA Dispute Resolution Task Force. Out of the 51 recommendations, the FINRA Board of Governors only authorized for filing with the SEC three minor changes to the FINRA Code of Arbitration Procedure and its processes. The FINRA Board of Governors did not authorize any rules changes with respect to arbitrator compensation or any of the other recommendations contained within the arbitrator task force report. The FINRA Board of Governors approved only the following changes:

  • Amendments to Rule 12400 and 13400 (neutral list selection system and arbitrator rosters) to revise the arbitration form chairperson eligibility requirements. Specifically, an attorney arbitrator would be eligible for the chairperson roster if he or she completes chairperson training and serves as an arbitrator through award on at least one arbitration, instead of two arbitrations, administered by a self-regulatory organization in which hearings were held.
  • Amendments to Rule 12504 and 13504 (Motions to Dismiss) to provide that arbitrators may act upon a Motion to Dismiss prior to the conclusion of a party’s case-in-chief if the arbitrators determine that the non-moving party previously brought the same dispute against the same party and that the dispute was fully and finally adjudicated on the merits.
  • Amendments to Rule 12403 (cases with three arbitrators) to increase the number of public arbitrators on the list that FINRA sends to parties during the panel’s selection processes in customer cases. Specifically, FINRA would increase the number of public arbitrators on the list from 10 to 15. FINRA would also increase the number of strikes to the public list from 4 to 6 in order to keep the proportion of strikes the same under the amended rule as it is under the current rule (See FINRA update: FINRA Board of Governors Meeting, May 6, 2016 at FINRA website).

 

The FINRA Board of Governors did not release any further explanation as to why it only authorized for filing with the SEC these three proposed amendments out of the multiple recommendations from the FINRA Task Force. The amendments authorized for filing with the SEC are relatively minor and somewhat inconsequential. For example, if the same dispute with the same party was fully and finally adjudicated on the merits, such a motion should obviously be permitted at any stage in the litigation and would not need a specific rule to address such a situation.

However, there does not seem to be any indication that this task force would be providing any additional recommendations in the future. Therefore, FINRA arbitration practitioners cannot expect substantive changes as recommended by the FINRA Task Force, other than those listed above, to be implemented in the future.

*Denis is a shareholder in our Philadelphia, Pennsylvania office. He can be reached at dcdice@mdwcg.com.

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Defense Digest, Vol. 22, No. 3, September 2016. Defense Digest is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2016 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

 

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