SEC Approves Amendments to the Codes of Arbitration Procedure Regarding Motions to Dismiss (17-02)

On January 3, 2017 the SEC announced amendments to FINRA Rules 12504 and 13504 regarding Motions to Dismiss.

The Amendments state a new ground for arbitrators to act on motions to dismiss prior to the conclusion of the claimant’s case in chief and are effective January 23, 2017.

Prior to the Amendments arbitrators could not act upon a motion to dismiss prior to the conclusion of the non-moving party’s case in chief. An exception was only made when the arbitrators determined that: 

• The non-moving party previously released the claim in dispute by a signed settlement or written release
• The moving party was not associated with the account, security or conduct at issue, or
• A claim was not eligible for arbitration because it did not meet the six-year time limit for submitting a claim

Additionally, the parties then had to file written prehearing motions to dismiss, separately from the answer. The full panel of arbitrators had to decide a motion to dismiss and the panel had to hold a hearing on the motion unless the parties waived the hearing. If a panel granted a motion to dismiss, the decision had to be unanimous, and had to be accompanied by a written explanation.

Now, Rule 12504 (a) (6) (C) and Rule 13504 (a) (6) (C) state that arbitrators may also act upon a motion to dismiss a party or claim prior to the conclusion of a party’s case in chief, if the arbitrator determines that the non-moving party previously brought a claim regarding the same dispute against the same party and the dispute was fully and finally adjudicated on the merits and memorialized in an order, judgement, award or decision.

Conclusion: Motions to dismiss by arbitrators are now possible prior to the conclusion of the Claimant’s case, when there was an identical claim regarding the issue and the parties before, which was fully adjudicated and the non-moving party had the opportunity to present the claim.

If you have any questions about this Client Alert or any of the Regulatory Notice discussed, please contact Paul A. Lieberman, PLieberman@sh-law.com

Laura K. Kues assisted in the preparation of these Alerts. Laura graduated from Johannes Gutenberg University in Mainz (Germany) in June 2015 (First State Exam) with the priority area in Competition Law Intern at Eaton & Van Winkle, LLP (USA) during the 2017 German legal clerkship at the district court of Mainz (Germany).