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Federal Register / Vol. 73, No.

55 / Thursday, March 20, 2008 / Notices 15019

the objectives of Section 6(b)(4) of the 100 F Street, NE., Washington, DC SECURITIES AND EXCHANGE
Act 9 in that it is designed to provide for 20549–1090. COMMISSION
the equitable allocation of reasonable All submissions should refer to File
dues, fees, and other charges among [Release No. 34–57497; File No. SR–FINRA–
Number SR–CBOE–2008–27. This file 2007–021]
CBOE members and other persons using number should be included on the
its facilities. Self-Regulatory Organizations;
subject line if e-mail is used. To help the
B. Self-Regulatory Organization’s Commission process and review your Financial Industry Regulatory
Statement on Burden on Competition comments more efficiently, please use Authority, Inc.; Notice of Filing of
only one method. The Commission will Proposed Rule Change and
CBOE does not believe that the
post all comments on the Commission’s Amendment No. 1 Relating to
proposed rule change will impose any
Internet Web site (http://www.sec.gov/ Amendments to the Code of
burden on competition that is not
rules/sro.shtml). Copies of the Arbitration Procedure for Customer
necessary or appropriate in furtherance
submission, all subsequent Disputes and the Code of Arbitration
of purposes of the Act.
amendments, all written statements Procedure for Industry Disputes To
C. Self-Regulatory Organization’s with respect to the proposed rule Address Motions To Dismiss and To
Statement on Comments on the Amend the Eligibility Rule Related to
change that are filed with the
Proposed Rule Change Received From Dismissals
Commission, and all written
Members, Participants or Others
communications relating to the
The Exchange neither solicited nor proposed rule change between the March 14, 2008.
received comments on the proposal. Commission and any person, other than Pursuant to Section 19(b)(1) of the
III. Date of Effectiveness of the those that may be withheld from the Securities Exchange Act of 1934
Proposed Rule Change and Timing for public in accordance with the (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
Commission Action provisions of 5 U.S.C. 552, will be notice is hereby given that Financial
available for inspection and copying in Industry Regulatory Authority, Inc.
Because the foregoing proposed rule (‘‘FINRA’’) (f/k/a National Association
the Commission’s Public Reference
change constitutes a stated policy, of Securities Dealers, Inc. (‘‘NASD’’))
practice, or interpretation with respect Room, 100 F Street, NE., Washington,
DC 20549, on official business days filed with the Securities and Exchange
to the meaning, administration, or Commission (‘‘SEC’’ or ‘‘Commission’’)
enforcement of an existing rule, it has between the hours of 10 a.m. and 3 p.m.
Copies of such filing also will be on November 2, 2007, and amended on
become effective pursuant to Section February 13, 2008 (Amendment No. 1),
19(b)(3)(A)(i) of the Act 10 and Rule available for inspection and copying at
the principal office of CBOE. All the proposed rule change as described
19b 4(f)(1) thereunder.11 At any time in Items I, II, and III below, which Items
within 60 days of the filing of the comments received will be posted
have been substantially prepared by
proposed rule change, the Commission without change; the Commission does
FINRA Dispute Resolution. The
may summarily abrogate such rule not edit personal identifying
Commission is publishing this notice to
change if it appears to the Commission information from submissions. You
solicit comments on the proposed rule
that such action is necessary or should submit only information that change, as amended, from interested
appropriate in the public interest, for you wish to make available publicly. All persons.
the protection of investors, or otherwise submissions should refer to File
in furtherance of the purposes of the Number SR–CBOE–2008–27 and should I. Self-Regulatory Organization’s
Act. be submitted on or before April 10, Statement of the Terms of Substance of
2008. the Proposed Rule Change
IV. Solicitation of Comments
For the Commission, by the Division of FINRA Dispute Resolution is
Interested persons are invited to proposing to amend NASD Rules 12206
submit written data, views, and Trading and Markets, pursuant to delegated
authority.12 and 12504 of the Code of Arbitration
arguments concerning the foregoing, Procedure for Customer Disputes
including whether the proposed rule Florence E. Harmon,
(‘‘Customer Code’’) and NASD Rules
change is consistent with the Act. Deputy Secretary.
13206 and 13504 of the Code of
Comments may be submitted by any of [FR Doc. E8–5590 Filed 3–19–08; 8:45 am] Arbitration Procedure for Industry
the following methods: BILLING CODE 8011–01–P Disputes (‘‘Industry Code’’) by
Electronic Comments providing specific procedures that will
govern motions to dismiss, and
• Use the Commission’s Internet
amending the provision of the eligibility
comment form (http://www.sec.gov/
rule related to dismissals. Below is the
rules/sro.shtml); or
text of the proposed rule change.
• Send an e-mail to rule-
Proposed new language is in italics;
comments@sec.gov. Please include File
proposed deletions are in brackets.
Number SR–CBOE–2008–27 on the
subject line. * * * * *
12206. Time Limits
Paper Comments (a) No change.
• Send paper comments in triplicate (b) Dismissal under Rule
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to Nancy M. Morris, Secretary, Dismissal of a claim under this rule


Securities and Exchange Commission, does not prohibit a party from pursuing
the claim in court. By filing a motion to
9 15 U.S.C. 78f(b)(4).
10 15 U.S.C. 78s(b)(3)(A)(i). 1 15 U.S.C. 78s(b)(1).
11 17 CFR 240.19b–4(f)(1). 12 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4.

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15020 Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices

dismiss a claim under this rule, the attorneys’ fees to any party that opposed A motion to dismiss made after the
moving party agrees that if the panel the motion. conclusion of a party’s case in chief is
dismisses a claim under this rule, the (10) The panel also may issue other not subject to the procedures set forth in
non-moving party may withdraw any sanctions under Rule 12212 if it subparagraph (a).
remaining related claims without determines that a party filed a motion (c) Motions to Dismiss Based on
prejudice and may pursue all of the under this rule in bad faith. Eligibility
claims in court. (c)–(d) No change. A motion to dismiss based on
(1) Motions under this rule must be * * * * * eligibility filed under Rule 12206 will be
made in writing, and must be filed Rule 12504. [Reserved] Motions to governed by that rule.
separately from the answer, and only Dismiss (d) Motions to Dismiss Based on
after the answer is filed. Failure to Comply with Code or Panel
(2) Unless the parties agree or the (a) Motions to Dismiss Prior to
Order
panel determines otherwise, parties Conclusion of Case in Chief
A motion to dismiss based on failure
must serve motions under this rule at (1) Motions to dismiss a claim prior to
to comply with any provision in the
least 90 days before a scheduled the conclusion of a party’s case in chief
Code, or any order of the panel or single
hearing, and parties have 30 days to are discouraged in arbitration.
arbitrator filed under Rule 12212 will be
respond to the motion. (2) Motions under this rule must be
governed by that rule.
(3) Motions under this rule will be made in writing, and must be filed
(e) Motions to Dismiss Based on
decided by the full panel. separately from the answer, and only
Discovery Abuse
(4) The panel may not grant a motion after the answer is filed.
A motion to dismiss based on
under this rule unless an in-person or (3) Unless the parties agree or the
discovery abuse filed under Rule 12511
telephonic prehearing conference on the panel determines otherwise, parties
will be governed by that rule.
motion is held or waived by the parties. must serve motions under this rule at
least 60 days before a scheduled * * * * *
Prehearing conferences to consider 13206. Time Limits
motions under this rule will be recorded hearing, and parties have 45 days to
as set forth in Rule 12606. respond to the motion. (a) No change.
(5) If the panel grants a motion under (4) Motions under this rule will be (b) Dismissal under Rule
this rule (in whole or part), the decision decided by the full panel. Dismissal of a claim under this rule
must be unanimous, and must be (5) The panel may not grant a motion does not prohibit a party from pursuing
accompanied by a written explanation. under this rule unless an in-person or the claim in court. By filing a motion to
(6) If the panel denies a motion under telephonic prehearing conference on the dismiss a claim under this rule, the
this rule, a party may not re-file the motion is held or waived by the parties. moving party agrees that if the panel
denied motion, unless specifically Prehearing conferences to consider dismisses a claim under this rule, the
permitted by panel order. motions under this rule will be recorded non-moving party may withdraw any
(7) If the party moves to dismiss on as set forth in Rule 12606. remaining related claims without
multiple grounds including eligibility, (6) The panel cannot act upon a prejudice and may pursue all of the
the panel must decide eligibility first. motion to dismiss a party or claim claims in court.
• If the panel grants the motion to under paragraph (a) of this rule, unless (1) Motions under this rule must be
dismiss the case on eligibility grounds the panel determines that: made in writing, and must be filed
on all claims, it shall not rule on any (A) the non-moving party previously separately from the answer, and only
other grounds for the motion to dismiss. released the claim(s) in dispute by a after the answer is filed.
• If the panel grants the motion to signed settlement agreement and/or (2) Unless the parties agree or the
dismiss on eligibility grounds on some, written release; or panel determines otherwise, parties
but not all claims, and the party against (B) the moving party was not must serve motions under this rule at
whom the motion was granted elects to associated with the account(s), least 90 days before a scheduled
move the case to court, the panel shall security(ies), or conduct at issue. hearing, and parties have 30 days to
not rule on any other ground for (7) If the panel grants a motion under respond to the motion.
dismissal for 15 days from the date of this rule (in whole or part), the decision (3) Motions under this rule will be
service of the panel’s decision to grant must be unanimous, and must be decided by the full panel.
the motion to dismiss on eligibility accompanied by a written explanation. (4) The panel may not grant a motion
grounds. (8) If the panel denies a motion under under this rule unless an in-person or
• If a panel dismisses any claim on this rule, the moving party may not re- telephonic prehearing conference on the
eligibility grounds, the panel must file the denied motion, unless motion is held or waived by the parties.
record the dismissal on eligibility specifically permitted by panel order. Prehearing conferences to consider
grounds on the face of its order and any (9) If the panel denies a motion under motions under this rule will be recorded
subsequent award the panel may issue. this rule, the panel must assess forum as set forth in Rule 13606.
• If the panel denies the motion to fees associated with hearings on the (5) If the panel grants a motion under
dismiss on eligibility grounds, it shall motion against the moving party. this rule (in whole or part), the decision
rule on the other bases for the motion (10) If the panel deems frivolous a must be unanimous, and must be
to dismiss the remaining claims in motion filed under this rule, the panel accompanied by a written explanation.
accordance with the procedures set must also award reasonable costs and (6) If the panel denies a motion under
forth in Rule 12504(a). attorneys’ fees to any party that opposed this rule, a party may not re-file the
(8) If the panel denies a motion under the motion. denied motion, unless specifically
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this rule, the panel must assess forum (11) The panel also may issue other permitted by panel order.
fees associated with hearings on the sanctions under Rule 12212 if it (7) If the party moves to dismiss on
motion against the moving party. determines that a party filed a motion multiple grounds including eligibility,
(9) If the panel deems frivolous a under this rule in bad faith. the panel must decide eligibility first.
motion filed under this rule, the panel (b) Motions to Dismiss After • If the panel grants the motion to
must also award reasonable costs and Conclusion of Case in Chief dismiss the case on eligibility grounds

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Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices 15021

on all claims, it shall not rule on any signed settlement agreement and/or A. Self-Regulatory Organization’s
other grounds for the motion to dismiss. written release; or Statement of the Purpose of, and
• If the panel grants the motion to (B) the moving party was not Statutory Basis for, the Proposed Rule
dismiss on eligibility grounds on some, associated with the account(s), Change
but not all claims, and the party against security(ies), or conduct at issue.
whom the motion was granted elects to 1. Purpose
(7) If the panel grants a motion under
move the case to court, the panel shall this rule (in whole or part), the decision FINRA 3 proposes to provide specific
not rule on any other ground for must be unanimous, and must be procedures to govern motions to
dismissal for 15 days from the date of accompanied by a written explanation. dismiss, and to amend the provision of
service of the panel’s decision to grant (8) If the panel denies a motion under the eligibility rule related to dismissals.
the motion to dismiss on eligibility this rule, the moving party may not re- The proposal is designed to ensure that
grounds. file the denied motion, unless parties would have their claims heard in
• If a panel dismisses any claim on specifically permitted by panel order. arbitration, by significantly limiting the
eligibility grounds, the panel must (9) If the panel denies a motion under grounds for filing motions to dismiss
record the dismissal on eligibility this rule, the panel must assess forum prior to the conclusion of a party’s case
grounds on the face of its order and any fees associated with hearings on the in chief and by imposing stringent
subsequent award the panel may issue. motion against the moving party. sanctions against parties for engaging in
• If the panel denies the motion to abusive practices under the rule.
(10) If the panel deems frivolous a
dismiss on eligibility grounds, it shall
motion filed under this rule, the panel Background
rule on the other bases for the motion
must also award reasonable costs and The Code of Arbitration Procedure
to dismiss the remaining claims in
attorneys’ fees to any party that opposed that was in use prior to April 16, 2007,
accordance with the procedures set
the motion. did not address motion practice.4
forth in Rule 13504(a).
(8) If the panel denies a motion under (11) The panel also may issue other Because motions were becoming
this rule, the panel must assess forum sanctions under Rule 13212 if it increasingly common in arbitration,
fees associated with hearings on the determines that a party filed a motion FINRA proposed to include in its
motion against the moving party. under this rule in bad faith. revision of the entire Code of
(9) If the panel deems frivolous a (b) Motions to Dismiss After Arbitration Procedure (Code Revision)
motion filed under this rule, the panel Conclusion of Case in Chief some guidance for parties and
must also award reasonable costs and A motion to dismiss made after the arbitrators with respect to motions
attorneys’ fees to any party that opposed conclusion of a party’s case in chief is practice.
the motion. not subject to the procedures set forth in The Code Revision, as initially filed
(10) The panel also may issue other subparagraph (a). with the SEC in 2003, contained a rule
sanctions under Rule 13212 if it (c) Motions to Dismiss Based on that would have permitted a panel to
determines that a party filed a motion Eligibility grant a motion to decide claims before
under this rule in bad faith. A motion to dismiss based on a hearing on the merits (a ‘‘dispositive
(c)–(d) No change. eligibility filed under Rule 13206 will be motion’’) only under extraordinary
* * * * * governed by that rule. circumstances. FINRA proposed this
13504. [Reserved] Motions to Dismiss (d) Motions to Dismiss Based on rule in an attempt to address concerns
(a) Motions to Dismiss Prior to Failure to Comply with Code or Panel raised by investors’ counsel, SEC staff
Conclusion of Case in Chief Order and other constituent groups about
(1) Motions to dismiss a claim prior to A motion to dismiss based on failure abusive and duplicative filing of
the conclusion of a party’s case in chief to comply with any provision in the dispositive motions. Specifically,
are discouraged in arbitration. Code, or any order of the panel or single FINRA received complaints that parties
(2) Motions under this rule must be arbitrator filed under Rule 13212 will be (typically respondent 5 firms) were filing
made in writing, and must be filed governed by that rule. dispositive motions routinely and
separately from the answer, and only (e) Motions to Dismiss Based on repetitively in an apparent effort to
after the answer is filed. Discovery Abuse delay scheduled hearing sessions on the
(3) Unless the parties agree or the A motion to dismiss based on merits, increase investors’ costs
panel determines otherwise, parties discovery abuse filed under Rule 13511 (typically claimants 6), and intimidate
must serve motions under this rule at will be governed by that rule. less sophisticated parties.7 In some
least 60 days before a scheduled
hearing, and parties have 45 days to * * * * * 3 Although some of the events referenced in this

respond to the motion. II. Self-Regulatory Organization’s rule filing occurred prior to the formation of FINRA
(4) Motions under this rule will be Statement of the Purpose of, and through consolidation of NASD and the member
regulatory functions of NYSE Regulation, the rule
decided by the full panel. Statutory Basis for, the Proposed Rule filing refers to FINRA throughout for simplicity.
(5) The panel may not grant a motion Change 4 The Customer and Industry Codes became
under this rule unless an in-person or effective on April 16, 2007, for claims filed on or
telephonic prehearing conference on the In its filing with the Commission, after that date; the old Code continues to apply to
motion is held or waived by the parties. FINRA included statements concerning pending cases until their conclusion.
Prehearing conferences to consider the purpose of and basis for the 5 A respondent is a party against whom a

proposed rule change and discussed any statement of claim or third party claim has been
motions under this rule will be recorded filed.
as set forth in Rule 13606. comments it received on the proposed 6 A claimant is a party that files the statement of
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(6) The panel cannot act upon a rule change. The text of these statements claim and other documents that initiate an
motion to dismiss a party or claim may be examined at the places specified arbitration.
under paragraph (a) of this rule, unless in Item IV below. FINRA has prepared 7 For example, the Securities Arbitration

summaries, set forth in Sections A, B, Commentator published a study in Fall 2006 on


the panel determines that: motions to dismiss in customer cases, which
(A) the non-moving party previously and C below, of the most significant concludes that, in the universe of cases that went
released the claim(s) in dispute by a aspects of such statements. Continued

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15022 Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices

cases, if a party did not receive a governing dismissals made on eligibility Filing Deadlines
favorable ruling on a dispositive motion grounds. The proposed rule change would
filed at a particular stage in an require parties to serve motions under
Motions To Dismiss on Other Than
arbitration proceeding, that party would this provision at least 60 days before a
Eligibility Grounds
re-file the same or a similar dispositive scheduled hearing and would provide
motion at a later time, which often FINRA filed the proposed rule change 45 days to respond to a motion unless
served only to increase investors’ costs to provide specific procedures that the parties agree or the panel determines
and delay the hearing and the issuance would govern motions to dismiss. otherwise. FINRA believes that
of any award. Moreover, FINRA learned Generally, FINRA believes that parties requiring a motion to dismiss to be
through various constituent and focus have the right to a hearing in arbitration. served at least 60 days before a
groups that some respondents’ attorneys In certain very limited circumstances, scheduled hearing and providing 45
were being counseled by their law firms however, it would be unfair to require days for a party to respond to such a
that an acceptable and useful tactic was a party to proceed to a hearing. The motion would prevent the moving party
to file multiple dispositive motions at proposal is designed to balance these from filing a motion shortly before a
various stages of an arbitration competing interests. The proposal hearing as a surprise tactic to force a
proceeding. should ensure that parties 12 have their delay in the arbitration process.
When the Code Revision was claims heard in arbitration, by
published for comment in the Federal significantly limiting the grounds for Require the Full Panel To Decide
Register, commenters opposed the filing motions to dismiss prior to Motions To Dismiss
dispositive motion rule for a variety of conclusion of a party’s case in chief and The proposal would require the full
reasons. Therefore, FINRA removed the by imposing stringent sanctions against panel to decide motions to dismiss.
rule from the Code Revision and re-filed parties for engaging in abusive practices Given the ramifications of granting a
it separately.8 The SEC then approved under the rule. The proposal would motion to dismiss, FINRA believes that
the Code Revision without the permit parties to file a motion to dismiss each member of the panel should be
dispositive motion rule.9 at the conclusion of a party’s case in required to hear the parties’ arguments,
Prior Dispositive Motion Proposal chief, based on any theory of law. so that each panel member may make an
The proposed rule change would informed decision when ruling on the
As re-filed with the SEC, the motion.
govern motions to dismiss filed prior to
dispositive motion proposal would have
the conclusion of a party’s case in chief Require an Evidentiary Hearing
permitted a panel to grant a dispositive
(under the Customer Code or Industry Under the proposal, the panel may
motion prior to an evidentiary hearing
Code, as applicable), as discussed in not grant a motion to dismiss prior to
only under extraordinary
further detail below. the conclusion of a party’s case in chief
circumstances. 10 The SEC published
the proposal for public comment on Discourage Motions To Dismiss a Claim unless the panel holds an in-person or
August 31, 2006, and received over 60 Prior to a Party’s Case in Chief telephonic prehearing conference on the
comment letters,11 the majority of motion that is recorded in accordance
which opposed the proposal. The The proposed rule change would with Rule 12606 or Rule 13206, unless
comments and FINRA’s response are clarify that motions to dismiss a claim such conference is waived by the
discussed in Section 5 below. prior to a party’s case in chief are parties. FINRA believes this
Based on the comments, FINRA discouraged in arbitration. FINRA requirement would ensure that the
recognized that the proposal did not believes that parties have the right to a panel holds a hearing on the motion and
provide effective guidance on how hearing in arbitration, and only in that the panel has sufficient information
dispositive motions would be handled certain very limited circumstances to make a ruling.
in the forum. Because the comments should that right be challenged. This
provision would not apply to motions Limited Grounds on Which a Motion
indicated that various issues involving May Be Granted
dispositive motions required more filed on the basis of eligibility grounds,
guidance, FINRA withdrew the as discussed below. FINRA proposes to limit the grounds
dispositive motion proposal, and filed a on which a panel may act upon a
Require That Motions To Dismiss Be motion to dismiss prior to the
new proposed rule change to provide Filed in Writing, Separately From the
specific procedures that would govern conclusion of the party’s case in chief.
Answer, and After the Answer Is Filed The proposal states that a panel may act
motions to dismiss. FINRA also
proposes to amend the separate rule FINRA believes that requiring a party upon a motion to dismiss only after the
to file a motion to dismiss in writing party rests its case in chief unless the
to award, there were motions to dismiss in 28% of separately from the answer and only panel determines that:
the cases in 2006 as compared to 10% in 2004. after the answer is filed would deter • The non-moving party previously
Securities Arbitration Commentator, Nov. 2006 parties from filing these motions released the claim(s) in dispute by a
(Vol. 2006, No. 5), at 3. signed settlement agreement and/or
8 See Securities Exchange Act Release No. 54360 routinely in lieu of an answer, and
would prevent parties from combining a written release; or
(August 24, 2006); 71 FR 51879 (August 31, 2006)
(SR–NASD–2006–088) (notice). motion to dismiss with an answer. This • the moving party was not associated
9 See Securities Exchange Act Release No. 55158
provision should ensure that parties with the account(s), security(ies), or
(January 24, 2007); 72 FR 4574 (January 31, 2007) receive an answer that responds directly conduct at issue.13
(SR–NASD–2003–158 and SR–NASD–2004–011) FINRA believes that limiting the
(approval order). to the statement of claim.
grounds on which a motion to dismiss
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10 See note 8.
11 See Comments on File No. SR–NASD–2006– 12 For purposes of the proposal, a party could be may be granted prior to the conclusion
088, Notice of Filing of Proposed Rule Change an initial claimant, respondent, counterclaimant,
Relating to Motions to Decide Claims Before a cross claimant, or third party claimant and his or 13 A motion to dismiss on eligibility grounds

Hearing on the Merits, available at http:// her motion to dismiss would be subject to Rules would be governed by Rules 12206 and 13206 of
www.sec.gov/comments/sr–nasd–2006–088/ 12206 and 12504 of the Customer Code or Rules the Customer and Industry Code, respectively; the
nasd2006088.shtml (last visited October 5, 2007). 13206 and 13504 of the Industry Code. amendments to those rules are discussed below.

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Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices 15023

of the party’s case in chief would When a moving party (governed by The first issue FINRA addresses with
minimize the potential for abusive the Customer Code or Industry Code, as the proposal is amending Rules
practices and ensure that most parties’ applicable) files a motion to dismiss at 12206(b) and 13206(b) to establish
claims would be heard in the forum. the conclusion of a party’s case in chief, procedures for motions to dismiss made
the provisions governing motions to on eligibility grounds. In light of the
Require a Unanimous, Explained,
dismiss filed prior to the conclusion of new motions to dismiss proposal,
Written Decision To Grant a Motion To
a party’s case in chief discussed above FINRA believes that similar changes
Dismiss
would not apply. Thus, a moving party should be incorporated into the existing
The proposal would require a could file a motion to dismiss at the eligibility rule to provide procedures
unanimous decision by the panel to conclusion of a party’s case in chief, and guidance for dealing with motions
grant a motion to dismiss as well as a based on any theory of law. The rule, to dismiss made on eligibility grounds.
written explanation of the decision in however, would not preclude the panel The proposed changes to the eligibility
the award. Under the proposal, each under this scenario from issuing an rule contain most of the same provisions
member of the panel must agree to grant explanation of its decision if it grants as those contained in the proposed
a motion to dismiss. FINRA believes the motion, or awarding costs or fees to motions to dismiss rule (discussed
that because these decisions are an the party that opposed the motion if it above), except for those criteria that are
integral part of the arbitration process, denies the motion. not applicable to eligibility motions,
all panel members should agree to FINRA believes that permitting a that is, the two other grounds on which
dismiss a claim; otherwise the case moving party to file a motion to dismiss a panel may grant a motion to dismiss
should continue. Moreover, the at the conclusion of a party’s case in before a party has presented its case in
provision that requires the panel to chief should balance the goal of chief (i.e., signed settlement and written
provide a written explanation of its ensuring that non-moving parties have release and factual impossibility).
decision would help parties understand their claims heard by a panel against the In addition, the filing deadlines
the panel’s rationale for its decision. rights of moving parties to challenge a would be different from those in the
claim they believe lacks merit or has not motions to dismiss proposal. Under the
Require Permission From the Arbitrators
been proved. Moreover, FINRA believes proposed rule, a party may file a motion
To Re-File a Denied Motion To Dismiss
that arbitrators should be permitted to to dismiss on eligibility grounds at any
Under the proposal, a party would be entertain and act upon a motion to stage of the proceeding (after the answer
prohibited from re-filing a denied dismiss at this stage of a hearing to is filed), except that a party may not file
motion to dismiss, unless specifically minimize the moving parties’ incurring this motion any later than 90 days
permitted by a panel order. FINRA unnecessary additional attorneys’ fees before the scheduled hearing on the
believes this limitation would serve to and forum fees. If a claimant has merits. FINRA believes that this
expedite the arbitration process and presented its case in chief and clearly requirement would encourage moving
minimize parties’ costs. failed to present sufficient evidence to parties to determine in the early stages
support a claim, then the moving party of the case whether to pursue their
Require Arbitrators To Award Fees
should not be forced to incur the claims in court or to proceed with the
Associated With Denied Motions To
additional expenses and costs arbitration. Further, FINRA believes that
Dismiss and To Award Fees and Costs
associated with unnecessary hearings. this requirement would prevent the
Associated With Frivolously Filed
Motions To Dismiss The proposal provides that motions to moving party from filing this motion
dismiss based on failure to comply with shortly before a hearing as a surprise
The proposal would also require that code or panel order under Rule 12212 tactic to force a delay in the arbitration
the panel assess forum fees associated or 13212, as applicable, would be process.
with hearings on the motion to dismiss governed by that rule. Further, the
The proposal also would provide
against the party filing the motion to proposal provides that motions to
parties with 30 days to respond to an
dismiss, if the panel denies the motion. dismiss based on discovery abuse filed
eligibility motion. If a panel grants a
Further, if the panel deems frivolous a under Rule 12511 or 13511, as
motion to dismiss a party’s claim based
motion filed under this rule, the panel applicable, would be governed by that
on eligibility grounds, that party must
must award reasonable costs and rule.
re-file the claim in court to pursue its
attorneys’ fees to a party that opposed
Amendments to the Dismissal Provision remedies, which could further delay
the motion. FINRA believes that
of the Eligibility Rule resolution of the dispute. Therefore,
imposing monetary penalties would
FINRA is proposing the 30-day
minimize abusive practices involving FINRA proposes to amend Rules
timeframe to respond to eligibility
motions to dismiss and would deter 12206(b) and 13206(b) of the Customer
motions to expedite the process, so that
parties from filing such motions and Industry Codes, respectively, to
the time between filing a claim and
frivolously. address motions to dismiss made on
resolution of the dispute is shortened.
eligibility grounds. Under this proposal,
Permit Sanctions for Motion To Dismiss The second issue concerns potential
a party may file a motion to dismiss on
Filed in Bad Faith problems in the implementation of the
eligibility grounds at any stage of the
If the panel determines that a party proceeding (after the answer is filed), eligibility rule since it was last amended
filed a motion under this rule in bad except that a party may not file this in 2005. Currently, the eligibility rule
faith, the panel also may issue sanctions motion any later than 90 days before the makes clear that dismissal of a claim on
under Rule 12212 or Rule 13212. FINRA scheduled hearing on the merits. FINRA eligibility grounds in arbitration does
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believes that these stringent sanction is also proposing to amend the rule to not preclude a party from pursuing the
requirements would provide panels address the res judicata defense claim in court; it provides that, by
with additional enforcement claimants could encounter when they requesting dismissal of a claim under
mechanisms to address abusive attempt to pursue in court a claim the rule, the requesting party is agreeing
practices involving motions to dismiss if dismissed in arbitration, when the that the non-moving party may
other deterrents prove ineffective. grounds for the dismissal are unclear. withdraw any remaining related claims

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15024 Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices

without prejudice and may pursue all of will close a loophole that has resulted
the claims in court.14 from implementing the rule by Gross, Director, Pace University School of Law,
In certain situations, when a claim is dated September 21, 2006 (‘‘Black and Gross
eliminating the res judicata defense that Letter’’); Robert S. Banks, Jr., President, Public
dismissed under the eligibility rule, claimants could face when they attempt Investors Arbitration Bar Association, dated
FINRA understands that claimants have to pursue claims in court that were September 21, 2006 (‘‘PIABA Letter’’); Tim
had difficulty proceeding with their dismissed in arbitration on eligibility Canning, Esq., Law Offices of Timothy A. Canning,
claims in court, because respondents grounds. dated September 21, 2006 (‘‘Canning Letter’’); Gary
Pieples, Director, Syracuse University Securities
have asserted a res judicata defense
when the panel’s grounds for dismissing 2. Statutory Basis Arbitration and Consumer Clinic, dated September
22, 2006 (‘‘Pieples Letter’’); Scot D. Bernstein, Esq.,
the arbitration claim were unclear. For FINRA believes that the proposed rule dated September 24, 2006; Robert C. Port, Esq.,
example, if a respondent files a motion change is consistent with the provisions Cohen Goldstein Port & Gottlieb, LLP, dated
to dismiss based on several grounds, of Section 15A(b)(6) of the Act, which September 25, 2006 (‘‘Port Letter’’); William P.
Torngren, Esq., dated September 25, 2006
including eligibility, and the panel requires, among other things, that (‘‘Torngren Letter’’); Laurence S. Schultz, Esq.,
issues an order dismissing a claim, but FINRA rules must be designed to Driggers Schultz and Herbst; dated September 25,
without citing reasons, the claimants prevent fraudulent and manipulative 2006 (‘‘Schultz Letter’’); Al Van Kampen, Esq.,
would not know whether or not they are acts and practices, to promote just and Rohde & Van Kampen PLLC, dated September 25,
equitable principles of trade, and, in 2006 (‘‘Van Kampen Letter’’); Allan J. Fedor, Esq.,
afforded the right to pursue the claim in dated September 26, 2006 (‘‘Fedor Letter’’); A.
court, as provided by the rule. If the general, to protect investors and the Daniel Woska, Esq., Woska & Hayes, LLP, dated
claimants proceed to file the dismissed public interest. FINRA believes that the September 25, 2006 (‘‘Woska Letter’’); Cliff
claim in court, the respondents may proposed rule change would enhance Palefsky, Co-Chair ADR Committee, National
argue that the panel’s decision on the investor confidence in the fairness and Employment Lawyers Association, dated September
26, 2006 (‘‘Palefsky Letter’’); Steven B. Caruso, Esq.,
claim is the final decision, and that neutrality of FINRA’s arbitration forum Maddox Hargett Caruso, P.C., dated September 27,
claimants are barred from having the by ensuring that non-moving parties 2006 (‘‘Caruso Letter’’); Dale Ledbetter, Esq.,
court decide the same claim again. In have their claims heard in arbitration, Adorno & Yoss, dated September 27, 2006
such a case, claimants would be while preserving the moving parties’ (‘‘Ledbetter Letter’’); Noah H. Simpson, Esq., dated
September 28, 2006 (‘‘Simpson Letter I’’); Stephen
required to prove that the dismissal was rights to challenge the necessity of a P. Meyer, Esq., PIABA, dated September 29, 2006
based on eligibility, not the other hearing in certain limited (‘‘Meyer Letter’’); Edward G. Turan, Chair,
grounds for dismissal that the circumstances. Further, the proposed Arbitration and Litigation Committee, Securities
respondents raised. This would be changes to the eligibility rule would Industry Association, dated September 29, 2006
difficult or impossible if the arbitrator or (‘‘SIA Letter’’); Joseph Fogel, Esq., Fogel &
help prevent manipulative practices by Associates, dated September 30, 2006 (‘‘Fogel
panel did not explain the reasons for the closing a loophole in the rule, so that Letter’’); Henry Simpson, III, Simpson Woolley
dismissal. parties may pursue their claims in court McConachie, L.L.P, dated October 2, 2006
FINRA proposes to amend the without facing an unintended legal (‘‘Simpson Letter II’’); Michael J. Willner, Esq.,
eligibility rule to address this issue. The impediment, in the event their claims Miller Faucher and Cafferty LLP, dated October 3,
rule would be amended to provide that, 2006 (‘‘Willner Letter’’); T. Michael Kennedy, P.C.,
are dismissed in arbitration on dated October 3, 2006 (‘‘Kennedy Letter’’); Richard
when a party files a motion to dismiss eligibility grounds. A. Lewins, Burg Simpson Eldredge Hersh & Jardine
on multiple grounds, including P.C., dated October 3, 2006 (‘‘Lewins Letter’’); Val
eligibility, the panel must consider the B. Self-Regulatory Organization’s Hornstein, Esq., Hornstein Law Offices, dated
threshold issue of eligibility first. First, Statement on Burden on Competition October 3, 2006 (‘‘Hornstein Letter’’); Steve
Buchwalter, Esq., Law Offices of Steve A.
the rule would be amended to require FINRA does not believe that the Buchwalter, P.C., dated October 3, 2006
that if the panel grants the motion to proposed rule change would result in (‘‘Buchwalter Letter’’); W. Scott Greco, Esq., Greco
dismiss on eligibility grounds on all any burden on competition that is not & Greco, P.C., dated October 3, 2006 (‘‘Greco
claims, it shall not rule on any other necessary or appropriate in furtherance Letter’’); Jeffrey B. Kaplan, Esq., dated October 3,
2006 (‘‘Kaplan Letter’’); Jan Graham, Esq., Graham
grounds for the motion to dismiss. of the purposes of the Act, as amended. Law Offices, dated October 3, 2006 (‘‘Graham
Second, the rule would be amended to Letter’’); Thomas C. Wagner, Esq., Van Deusen &
C. Self-Regulatory Organization’s
require that if the panel grants the Wagner, LLC, dated October 3, 2006 (‘‘Wagner
Statement on Comments on the
motion to dismiss on eligibility grounds, Letter’’); Scott R. Shewan, Esq., Born, Pape &
Proposed Rule Change Received From Shewan LLP, dated October 3, 2006 (‘‘Shewan
on some, but not all claims, and the
Members, Participants, or Others Letter’’); Jeffrey S. Kruske, Esq., dated October 3,
non-moving party elects to move the 2006 (‘‘Kruske Letter’’); Gail E. Boliver, Esq., Boliver
case to court, the panel shall not rule on Written comments were neither Law Firm, dated October 3, 2006 (‘‘Boliver Letter’’);
any other ground for dismissal for 15 solicited nor received by FINRA. The Sarah G. Anderson, dated October 3, 2006
days from the date of service of the SEC received 63 comments on the prior (‘‘Anderson Letter’’); Rob Bleecher, Esq., Pecht &
dispositive motion proposal that was Associates, PC, dated October 4, 2006 (‘‘Bleecher
panel’s decision to grant the motion to Letter’’); Robert Goehring, Esq., dated October 4,
dismiss on eligibility grounds. Third, published for comment on August 31, 2006 (‘‘Goehring Letter’’); Herbert E. Pounds, Jr.,
the rule would be amended to require 2006.15 In general, most commenters Esq., dated October 4, 2006 (‘‘Pounds Letter’’);
that, when arbitrators dismiss any claim Leonard Steiner, Esq., Steiner & Libo, Professional
15 Comment letters were submitted by Paul R. Corporation, dated October 4, 2006 (‘‘Steiner
on eligibility grounds, that fact must be Letter’’); Harry S. Miller, Esq., Burns & Levenson
Meyer, Esq., dated July 26, 2006 (‘‘Meyer Letter’’);
stated on the face of their order and any Seth E. Lipner, Professor of Law, Zicklin School of LLP, dated October 4, 2006 (‘‘Miller Letter’’);
subsequent award the panel may issue. Business, dated August 29, 2006 (‘‘Lipner Letter’’); Jonathan W. Evans, Esq., Jonathan W. Evans &
And fourth, if the panel denies the Kevin Thomas Hoffman, Esq., dated September 8, Associates, dated October 4, 2006 (‘‘Evans Letter’’);
motion to dismiss on the basis of 2006 (‘‘Hoffman Letter’’); Randall R. Heiner, Esq., Henry Simpson, Esq., Simpson Woolley
dated September 12, 2006 (‘‘Heiner Letter’’); Joseph McConachie, LLP, dated October 4, 2006 (‘‘Simpson
eligibility, it shall rule on the other C. Korsak, Esq., dated September 13, 2006 (‘‘Korsak Letter III’’); Eliot Goldstein, Esq., Law Offices of
bases for the motion to dismiss the Letter’’); Philip M. Aidikoff, Esq., Aidikoff, Uhl Eliot Goldstein LLP, dated October 4, 2006
mstockstill on PROD1PC66 with NOTICES

remaining claims in accordance with Bakhtiari, dated September 13, 2006 (‘‘Aidikoff (‘‘Goldstein Letter’’); Kyle M. Kulzer, Esq., Alan L.
the motions to dismiss rule. FINRA Letter’’); Barry D. Estell, Esq., dated September 13, Frank Law Associates, P.C., dated October 4, 2006
2006 (‘‘Estell Letter’’); Daniel A. Ball, Esq., Ball (‘‘Kulzer Letter’’); Adam S. Doner, Esq., dated
believes that the proposed amendments Associates, dated September 14, 2006 (‘‘Ball October 4, 2006 (‘‘Doner Letter’’); Brian N. Smiley,
Letter’’); Stuart E. Finer, Esq., dated September 21, Esq., Gard Smiley Bishop & Porter LLP, dated
14 Rule 12206(b) of the Customer Code and Rule 2006 (‘‘Finer Letter’’); Barbara Black, Director, October 4, 2006 (‘‘Smiley Letter’’); Frederick W.
13206(b) of the Industry Code. University of Cincinnati College of Law and Jill I. Rosenberg JD, dated October 4, 2006 (‘‘Rosenberg
Letter’’); Theodore M. Davis, Esq., dated October 5,

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Federal Register / Vol. 73, No. 55 / Thursday, March 20, 2008 / Notices 15025

opposed the prior proposal and argued III. Date of Effectiveness of the between the hours of 10 a.m. and 3 p.m.
that it would, among other things, Proposed Rule Change and Timing for Copies of such filing also will be
encourage, rather than discourage, the Commission Action available for inspection and copying at
making of dispositive motions; have a Within 35 days of the date of the principal office of FINRA.
chilling effect on the ability of investors All comments received will be posted
publication of this notice in the Federal
to have all evidence judged and the without change; the Commission does
Register or within such longer period:
credibility and veracity of witnesses not edit personal identifying
(i) As the Commission may designate up
weighed; and result in a loss of the information from submissions. You
to 90 days of such date if it finds such
major benefits of the arbitration should submit only information that
longer period to be appropriate and
process—cost effectiveness and you wish to make available publicly. All
publishes its reasons for so finding or submissions should refer to the File
expediency.
Some commenters who opposed the (ii) as to which the self-regulatory Number SR–INRA–2007–021 and
prior proposal argued that FINRA organization consents, the Commission should be submitted on or before April
should adopt a rule that would prohibit will: 10, 2008.
all dispositive motions in arbitration. (A) By order approve such proposed
rule change, or For the Commission, by the Division of
These commenters contended that the Trading and Markets, pursuant to delegated
prior proposal would establish a (B) institute proceedings to determine
authority.18
procedure that would deprive investors whether the proposed rule change
Florence E. Harmon.
of their fundamental right to a hearing should be disapproved.
Deputy Secretary.
in arbitration—a policy, they believe, is IV. Solicitation of Comments [FR Doc. E8–5571 Filed 3–19–08; 8:45 am]
antithetical to the goals of arbitration.16
Interested persons are invited to BILLING CODE 8011–01–P
Another group of commenters indicated
submit written data, views, and
that they would support a modified
arguments concerning the foregoing,
version of the prior proposal if it SECURITIES AND EXCHANGE
including whether the proposed rule
included some safeguards. Some of the COMMISSION
safeguards suggested by these change is consistent with the Act.
commenters included prohibiting a Comments may be submitted by any of [Release No. 34–57492; File No. SR–NASD–
panel from deciding a claim before a the following methods: 2007–021]
hearing until all documents have been Electronic Comments Self-Regulatory Organizations;
produced by the parties; requiring a
• Use the Commission’s Internet National Association of Securities
panel to deny a dispositive motion if Dealers, Inc. (n/k/a Financial Industry
comment form (http://www.sec.gov/
there are disputed facts; requiring a Regulatory Authority, Inc.); Order
rules/sro.shtml); or
panel to award costs and attorneys’ fees
• Send an e-mail to rule- Approving Proposed Rule Change To
to the party defending a dispositive Amend the Definition of Public
comments@sec.gov. Please include File
motion if it is denied; and requiring a Arbitrator
Number SR–FINRA–2007–021 on the
written explanation from the panel if
subject line.
the dispositive motion is granted.17 March 13, 2008.
Based on the concerns raised by the Paper Comments On March 12, 2007, the National
commenters, FINRA realized that the Association of Securities Dealers, Inc.
• Send paper comments in triplicate
prior proposal did not convey its (‘‘NASD’’), through its wholly owned
to Nancy M. Morris, Secretary,
position on dispositive motions subsidiary, NASD Dispute Resolution,
effectively; and did not provide Securities and Exchange Commission,
100 F Street, NE., Washington, DC Inc. (n/k/a FINRA Dispute Resolution,
guidance on how the dispositive motion Inc.) filed with the Securities and
rule and noncompliance with the rule 20549–1090.
Exchange Commission (‘‘Commission’’)
should be handled in its arbitration All submissions should refer to File pursuant to Section 19(b)(1) of the
forum. Because the comments indicated Number SR–FINRA–2007–021. This file Securities Exchange Act of 1934 (the
that these positions were unclear, number should be included on the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 a
FINRA withdrew the prior proposal and subject line if e-mail is used. To help the proposed rule change to amend the
filed this new proposal to replace it. Commission process and review your definition of ‘‘public arbitrator’’ in the
comments more efficiently, please use NASD’s Code of Arbitration Procedure
2006 (‘‘Davis Letter’’); James D. Keeney, Esq., James only one method. The Commission will for Customer Disputes (‘‘Customer
D. Keeney, P.A., dated October 5, 2006 (‘‘Keeney post all comments on the Commission’s Code’’) and Code of Arbitration
Letter’’); Jorge A. Lopez, Esq., dated October 5, 2006 Internet Web site (http://www.sec.gov/
(‘‘Lopez Letter’’); Michael B. Lynch, Esq., Levin Procedure for Industry Disputes
Papantonio Thomas Mitchell Echsner & Proctor
rules/sro.shtml). Copies of the (‘‘Industry Code’’).3 The proposed rule
P.A., dated October 5, 2006 (‘‘Lynch Letter’’); John submission, all subsequent change was published for comment in
Miller, Esq., dated October 10, 2006 (‘‘Miller amendments, all written statements the Federal Register on July 17,
Letter’’); Jenice L. Malecki, Esq., dated October 11, with respect to the proposed rule
2006 (‘‘Malecki Letter’’); Stuart Meissner, Esq., The
Law Offices of Stuart D. Meissner LLC, dated
change that are filed with the 18 17 CFR 200.30–3(a)(12).
October 13, 2006 (‘‘Meissner Letter’’); Howard Commission, and all written 1 15 U.S.C. 78s(b)(1).
Rosenfield, Esq., Law Offices of Howard M communications relating to the 2 17 CFR 240.19b–4.
Rosenfield, dated December 12, 2006 (‘‘Rosenfield proposed rule change between the 3 On July 26, 2007, the Commission approved a
Letter’’); Richard P. Ryder, Esq., Securities proposed rule change filed by NASD to amend
Arbitration Commentator, dated June 16, 2007
Commission and any person, other than
NASD’s Certificate of Incorporation to reflect its
(‘‘Ryder Letter’’); and Bryan Lantagne, Chair, North those that may be withheld from the name change to Financial Industry Regulatory
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American Securities Administrators Association, public in accordance with the Authority Inc., or FINRA, in connection with the
Inc. Broker-Dealer Arbitration Project Group, dated provisions of 5 U.S.C. 552, will be consolidation of the member firm regulatory
July 19, 2006 (‘‘NASAA Letter’’)(submitted as functions of NASD and NYSE Regulation, Inc. See
comment on SR–NASD–2003–158).
available for inspection and copying in
Securities Exchange Act Release No. 56146 (July 26,
16 See, e.g., Estell, Finer, and Woska Letters. the Commission’s Public Reference 2007). In connection with this name change, NASD
17 See, e.g., Ledbetter, Schultz and Torngren Room, 100 F Street, NE., Washington, Dispute Resolution became FINRA Dispute
Letters. DC 20549, on official business days Resolution, Inc. (‘‘FINRA Dispute Resolution’’).

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