In FINRA arbitrations, instead of filing a Complaint, as one would file in Court, the aggrieved customer, now the Claimant, files a "Statement of Claim", which is not required to be a formalistic legal pleading, and can be a narrative, under the FINRA Code of Arbitration Procedure, is nonetheless a very important legal document which needs to set forth the relevant facts and remedies sought by the Claimant Customer.
The Brokerage Firm or the "Respondent" will file an "Answer", or "Response" just as would any defendant in a court proceeding, admitting or denying the allegations in the Statement of Claim, and typically setting forth an alternative statement of the facts, and supporting legal arguments, as to why the customer's claims are legally or factually flawed, why the customer claim ought to be denied, why the customer is not entitled to relief of any kind. Generally, these denials include that the Brokerage Firm or its agent owed no duty, breached no duty, the agent did no wrong, and any losses are attributable to the customer's own conduct, the customer's propensity to speculate, unforseen events, or the acts of third parties.
Unlike court proceedings where a plaintiff may have its case dismissed for failure to state a claim, or the failure to state a claim with the required degree of specificity, including the failure to adequately plead scienter, or dismissed upon summary judgment (based upon the application of the law to uncontroverted facts), where the plaintiff can never get the opportunity to present their case to a jury, in FINRA Securities Arbitrations motions dismiss are disfavored.
In 2009, the FINRA Board of Governors recently approved a proposal to limit significantly the number of dispositive motions filed in its arbitration forum and impose strict sanctions against parties who engage in abusive motions practices. Notice To Parties. The new rule, Rule 12504 of the FINRA Code of Arbitration Procedure, makes it exceedingly difficult for a Respondent to dismiss an action prior to an evidentiary hearing and the submission of Claimant's case-in-chief.
However, under the new Rule, Rule 12504 (b), following the close of Claimant's case-in-chief, the Respondent is allowed to file a motion to dismiss, which often takes the form of lengthy and formalistic memoranda submitted for the first time during the hearing, after the close of Claimant's case, that Claimant has failed to submit sufficient evidence, or that Claimant's claims are somehow legally or factually flawed.
Arbitration is very much a legal proceeding.
In discovery, where the parties seek to obtain important documents from each other that are relevant to their claims or defenses, Respondents will resist the production of relevant and important documents or information based upon formalistic legal objections.
Although the Rules of Evidence are purported not to apply in FINRA arbitrations, Arbitration Panels will often, or at least should be, guided by evidentiary principals in connection with admissibility of evidence, and the determination of privilege, hearsay, or authenticity.
Just like in a court proceeding, at a final securities arbitration hearing, the parties make opening statements as to what evidence and testimony will be presented to the Arbitration Panel.
The direct testimony and cross examination of witnesses is presented to the Arbitration Panel. Documents are authenticated and introduced into evidence as exhibits, and at the end of the arbitration hearing, parties make closing statements or summations of the important evidence and the legal theories supporting their side of the case.
Although one is not required to hire a lawyer, or to even be a lawyer, in connection with the prosecution of customer claims in arbitration, arbitration is litigation.
Respondents will hire experienced counsel to escape liability and to prevent a disfavorable award being entered against them, and anyone contemplating bringing any claim in FINRA securities arbitration as a public customer should also hire experienced counsel to navigate the system and to advance their interests in order to obtain a monetary recovery for the wrongful conduct of their broker or investment fiduciary. |
