Arbitration

When deciding where to file your claim, you should determine which self-regulatory organization (SRO) supervises the markets where the transaction occurred or the securities are listed. Some SRO’s include The National Association of Securities Dealers Regulation, New York Stock Exchange and the Municipal Securities Rulemaking Board. The Uniform Code provides that an SRO may, with the consent of the claimant, refer a case to the appropriate forum where the transaction occurred or the securities in question are listed.

A controversy is not eligible for submission to arbitration if six or more years have elapsed from the date of the event giving rise to the dispute. The arbitrators also may dismiss a claim barred by shorter applicable state or federal statutes of limitations. If you have a question about the statute of limitations, you should consult an attorney.

Even after a customer has signed the agreement to arbitrate (which is customary on most, if not all, brokerage account applications today), the customer may request either the sponsoring organization or the arbitrators to permit that customer to proceed with his or her claim in court. The customer should be aware, however, that in most cases the sponsoring organization and the arbitrators would retain jurisdiction and proceed with the arbitration.

A new section of the Uniform Code states that a claim submitted as a class action is not be eligible for arbitration. The rule also sets forth the circumstances where a claim encompassed by a putative or certified class action may or may not be eligible to be filed in arbitration. If you require further information regarding this rule, you should contact the staff of the SRO where you intend to file your claim to discuss its application to your case.

The Director of Arbitration will appoint a panel, usually consisting of one or three arbitrators. Unless a customer elects otherwise, the majority of the members of such panels are individuals referred to as “public arbitrators” who are neither associated with nor employed by a broker/dealer or securities industry organization.

The Director of Arbitration informs the parties of the names and business affiliations of the selected arbitrators, their employment histories for the last 10 years along with any conflict information disclosed pursuant to the Uniform Code. Some parties are interested in previous awards issued by prospective arbitrators. Each sponsoring organization has developed procedures to make information available on public customer awards issued since May 1989.

Any party represented by counsel should notify the Director of Arbitration of the counsel’s name and address either in the Statement of Claim or the Statement of Answer or by a separate written notice. After such notification, communications concerning the case will be addressed to the counsel.

The sponsoring organizations cannot recommend or provide counsel in the arbitration nor can employees of that organization provide legal advice. Parties who do not have counsel and wish to be represented may want to contact the local bar association for a referral.

  1. Statement of Claim – File with the Director of Arbitration a typewritten or printed document stating the claim. This document should set forth the details of the dispute, including all relevant dates and names, in a clear, concise, and chronological fashion and should conclude by indicating what relief (e.g., money damages in a specific amount, performance of a particular agreement, interest, etc.) is requested. The claimant should attach copies of documents and supporting materials as exhibits to the Statement of Claim. The claimant should provide sufficient copies for each party, the arbitrators, and the self-regulatory organization.
  2. Small-Claims Procedures – If the amount of the claim is $10,000 or less, the claim will be processed under the Simplified Arbitration Procedures. In public customer disputes, unless the public customer requests a hearing, the claim will be decided solely on the basis of reading the parties’ submissions. The arbitrator, however, also may request a hearing or require a party to submit additional documentation. Parties may ask to submit additional documents to an arbitrator who is deciding the case without a hearing.
  3. Service of Pleadings – After the initial Statement of Claim is served by the Director of Arbitration, it is each party’s responsibility to provide every other party directly with any further pleadings, motions, or correspondence. In addition, it is each party’s responsibility to simultaneously provide sufficient copies directly to the sponsoring SRO for the arbitrators and its files. Service of the filings and correspondence on the sponsoring SRO and the other parties should be made on the same date and by the same means (i.e., via overnight mail, facsimile, etc.)
  4. Counsel – State whether the claimant will be represented by an attorney and, if so, the attorney’s name, address, and telephone number.
  5. Location – State where the claimant wants the case to be heard and the reasons for that choice. The Director of Arbitration makes the actual decision as to the place of the hearing. Arbitrators can be empaneled in many of the major urban areas throughout the country, but consideration generally will be given to a number of factors, including the convenience of the parties, the availability of necessary records or witnesses, and the availability of qualified arbitrators. Generally, in public customer cases, the hearing location is close to where the customer resided when the dispute arose regardless of a predispute agreement to the contrary.
  6. Complex Cases – In appropriate cases, parties may request special services such as mediation, findings of facts and conclusions of law, expedited hearings, and the appointment of arbitrators with special qualifications. Parties seeking special or additional services should advise the sponsoring SRO at the earliest time possible. Additional fees may be charged for these services. In many complex cases, the parties may desire block scheduling of hearing dates. To the greatest extent possible, such cases will be scheduled in three day blocks.
  7. Arbitrators – The proposed panel will be composed of a majority of persons from outside the securities industry. If a public customer would like a panel consisting of a majority of arbitrators from the securities industry, he or she should indicate that preference in writing when filing the claim.
  8. Submission Agreement – Complete and return three signed and notarized copies of the Submission Agreement provided by the sponsoring organization. By signing the Submission Agreement, the claimant agrees to submit the dispute to arbitration and to abide by the decision (the “award”) of the arbitrators. The claimant also agrees to be bound by the decision of the arbitrators with regard to any counterclaim (a claim against the claimant) permitted under these procedures that may be brought by an opposing party. Once a Submission Agreement has been signed, the procedures and timing set out in the Uniform Code become operative and binding. Generally, parties may not withdraw the Submission Agreement and Claim without the consent of either the other parties or the arbitrators.
  9. Filing Fees and Deposits – Include a check or money order made payable to the sponsoring organization for the appropriate non-refundable filing fee and hearing session deposit. Where multiple hearing sessions are scheduled or conducted the arbitrators are authorized to require additional hearing session deposits by one or more parties. Additional deposits also may be required to be made for prehearing conferences with an arbitrator and for the postponement of a scheduled hearing date after the arbitrators have been selected. The arbitrators will determine in the final award if these deposits will be returned or assessed to another party. See the arbitration rules of the sponsoring SRO for the definition of a hearing session, as well as the appropriate fee and deposit.
  10. Disclosure of Arbitration Award – At some sponsoring organizations, public customers must state in writing whether they either permit or decline to permit the inclusion of their names in the public version of the award.
  11. Incomplete Filing of a Claim – A filing may be returned if it does not comport with the rules. The Statement of Claim, with exhibits, Submission Agreement, and non-refundable filing fee and hearing session deposit should be submitted to the Director of Arbitration of the sponsoring organization at the address listed at the end of this pamphlet. All pleadings, correspondence, and exhibits after the claim is served must be sent to all parties directly with sufficient additional copies sent to the Director of Arbitration for the arbitrators and for the Arbitration Department.

The respondent may assert a related counterclaim as part of its answer, or may file a claim against a third party (a claim against another person) who may bear responsibility for any of the alleged damages. Generally, a claim is considered to be related if it pertains to the customer’s account at the broker/dealer. In support of its defense or counterclaim, the respondent should attach copies of documents and supporting materials to its answer.

The respondent also should send to each party an executed Submission Agreement and a copy of the respondent’s answer and any counterclaim. The respondent’s executed Submission Agreement and answer shall also be filed with the Director of Arbitration, with additional copies for the arbitrator(s) along with any deposit required under the Schedule of Fees. Upon receipt of an answer containing a counterclaim, the claimant has 10 calendar days in the case of a small-claim arbitration and 10 business days in all other arbitrations to file a reply to any counterclaim. The claimant also should send to each party a copy of the reply to a counterclaim. The reply will be filed with the Director of Arbitration along with additional copies for the arbitrators.

A party may be “served” by mail or other means of delivery. Filing with the Director of Arbitration should be made on the same date and by the same means as service on a party.

In a small claim, if the arbitrator believes the controversy is such that additional expertise is needed, he or she can direct that an arbitration panel be formed with two additional arbitrators. The majority of this panel will be from the public. The arbitrator also may request that a hearing be held or that additional documentation be provided.

A challenge for cause to a particular arbitrator will be granted where it is reasonable to infer an absence of impartiality, the presence of bias, or, the existence of some interest on the part of the arbitrator in the outcome of the arbitration as it affects one of the parties. The interest or bias should be direct, definite, and capable of reasonable demonstration, rather than remote, or speculative.

The parties shall, at least 10 calendar days prior to the first scheduled hearing date, serve on each other copies of documents (including graphs, charts, and recordings) they intend to present at the hearing and identify witnesses they intend to present at the hearing. Failure to comply with this requirement may result in the arbitrators excluding any document not exchanged or witnesses not identified. Arbitrators will consider such action at the request of a party. If all parties agree, they may submit exhibits in addition to those in the Statement of Claim to the Director of Arbitration for forwarding to the arbitrators prior to the hearing.

Each party is to bring sufficient copies of any documents it intends to introduce as evidence at the hearings for each arbitrator and for the files of the SRO. The parties should cooperate in the voluntary exchange of documents and information to expedite the arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. Document production and information exchange is to be accomplished within the time set forth in the Uniform Code.

On the written request of a party or an arbitrator or at the discretion of the Director of Arbitration, a prehearing conference will be scheduled. The Director of Arbitration will set the time and place of a prehearing conference and appoint either a staff person or an arbitrator to preside. The prehearing conference may be held by telephone, by written submission, or in person. Under the rules, there are timetables for parties either to produce requested information or to object to the production requests. If a prehearing conference without an arbitrator does not resolve the outstanding issues, those information-request disputes or issues will be referred to a single arbitrator prior to the first hearing. Where possible, each party should submit to the SRO in advance of the prehearing conference a concise outline of the outstanding issues to be resolved by the single arbitrator. The single arbitrator has the authority to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compliance, and issue other rulings that would expedite the arbitration proceedings or enable a party to prepare its case.

Testimony and documentary evidence should be exchanged voluntarily by the parties without the use of subpoenas. If a subpoena is necessary, the arbitrators and any counsel of record have such power of subpoena as may be provided by the law of the state where the hearing will be held or by the Federal Arbitration Act. All parties must be given a copy of the subpoena on its issuance. If a party has an attorney, the attorney should answer all questions concerning subpoenas. Parties without attorneys may request that the Director of Arbitration ask the arbitrators to issue a subpoena. The request should be in writing, should set forth why the subpoena is necessary and what efforts the requesting party made to obtain the appearance of witnesses and the production of documents without the use of the subpoena, and should include a copy of the subpoena which the arbitrators are requested to issue. If the arbitrators issue a subpoena, the requesting party has the obligation of serving the subpoena on the opposing party and bearing the costs involved as provided by law of the state where the hearing will be held or by federal law. The requesting party may need to employ the services of a professional process server to actually serve the subpoena.

The procedures for the issuance and service of subpoenas vary. Parties may, therefore, wish to consult with an attorney to insure that legal requirements in the applicable jurisdiction are satisfied.

In addition to the subpoena process, in some instances the arbitrators have the power to direct the appearance of persons employed in the securities industry and the production of records in the possession or control of such persons. If the parties request the arbitrators to use this power, they may be required to bear all reasonable expenses in connection with such appearance or production. All such requests should be made in advance of the hearing. One final thought should be kept in mind when preparing for a hearing. The arbitrators are experienced and knowledgeable individuals. They appreciate a clear presentation of the case, free from repetition and irrelevancies.

At the hearing, the parties must present their respective cases by testimony and documentary evidence to the arbitrators. Claimants should document carefully the issues involved and their proof of damages, and explain to the arbitrators how much in money damages is being claimed and how they arrived at that figure. All hearings will be conducted by the arbitrators in the manner they determine will most expeditiously permit full presentation of the evidence and arguments of the parties.

Generally, the following procedures will be observed:
The arbitrators and the witnesses will be sworn.
Each party will be given an opportunity to make a brief opening statement, that is, a brief outline of the issues involved and what facts that party intends to prove. A party may waive the opening statement.
The claimant will present facts to the arbitrators including relevant documents and testimony to establish and prove his or her claim.
The respondent will present his or her case in the same manner as the claimant. Witnesses and parties who testify will be sworn and are subject to cross examination by the opposing side and questioning by the arbitrators. The opposing party may object to any evidence prior to its receipt by the arbitrators.
Parties should bring sufficient copies of documents for each of the arbitrators, other parties, and the representative of the sponsoring organization. It is inappropriate to “testify” when questioning a witness, and a party may object if another party does that. A party may offer an affidavit in lieu of the live testimony of a witness. This may or may not be allowed by the arbitrators. Parties should be prepared to explain why a witness cannot come to the hearing and to explain whether the other party had an opportunity to examine the witness. A party should be prepared to bring the witness if the affidavit is not allowed.

  • Any counterclaim or other matter may be presented in the same way.
  • Parties may present rebuttal evidence if appropriate.
  • Closing statements may be presented and consist generally of final arguments by the parties and brief summations of the testimony and other evidence introduced at the hearing. A party should refer only to evidence already in the record and not use the closing statement as an opportunity to present new evidence.
  • A party may waive a closing statement.
  • The parties are to leave together at the end of the hearing.
  • The arbitrators may proceed with a case even if a party does not appear and/or answer.

The award will contain the names of the parties, the names of counsel, if any, the dates the claim was filed and the award was rendered, the number and dates of the hearing sessions, the location of the hearings, a summary of the issues including the type(s) of any security or product in controversy, the damages and other relief requested, the damages and other relief awarded, a statement of any other issues resolved, the names of the arbitrators, and the signatures of the arbitrators concurring in the award. In addition, all awards must be paid within 30 days of receipt unless a motion to vacate has been filed in court. Awards will also bear interest if they are not paid within thirty days of receipt, if the award is the subject of a motion to vacate that is denied or as specified by the arbitrators.

The awards will be made publicly available. Arbitrators are not required to write opinions or provide reasons for the award. A party, however, may request an opinion. This request should be made no later than the hearing date. Some sponsoring organizations delete from the public version of awards information that identifies either the arbitrators or the parties. The decision of the arbitrators is final; that is, the decision is subject to review by a court only on a very limited basis.

Important: It should be kept in mind that the arbitrators’ decision will be based solely and exclusively on the documents and related material provided by the parties to a dispute. In the case of a hearing, the decision will be based on both the documents and testimony presented at the hearing. It is therefore important that a party’s case be carefully and thoroughly prepared. As noted, this may be done either with or without the assistance of counsel. Such preparation will ensure that all relevant facts and evidence will be presented by the parties and, thus, considered by the arbitrators. Arbitrators are not allowed to reconsider a decision because new evidence has been found after the award was rendered.

In addition, it is the responsibility of the parties to submit briefs for any novel theories of recovery and/or requests for special damages. In some cases, arbitrators may require even parties without lawyers to support their claims by reference to the relevant law.

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