June 16, 2007
RE: SR-NASD-2006-088 (Dispositive Motions)
Dear Secretary Morris:
Dispositive motions, indeed, motion practices generally, are not consonant with the precepts of arbitration. They always promise to expedite proceedings and, inevitably, serve to delay them. There are occasions when it will be obvious to a Panel that the claim is time-barred or frivolous or otherwise worthy of immediate dismissal, but arbitrators should be trusted to see those special instances and to deal with them by balancing the equities of going forward or ending the case.
Generally speaking, any case with a chance of succeeding should be permitted a hearing, but qualified arbitrators already know that. NASD should not be dictating the circumstances under which arbitrators must consider a dispositive motion,nor should it be describing a meticulously defined standard for granting or denying a dispositive motion.
NASD typically distrusts the discretion of its own arbitrators. The result of that display of distrust is to generate a loss of arbitrator self-confidence, as arbitrators begin to believe that the NASD is the party they need to satisfy, not themselves. Dictating restrictive standards in rulemaking and emphasizing those restrictions in training also creates the impression that the NASD is running the arbitration, something nobody wants.
If there must be a rule about dispositive motions with a standard arbitrators must adhere to, the "extraordinary circumstances" standard is a poor choice. NASD uses that standard in Rule 12207 already, for staff determinations about extending deadlines. There, the standard has been given a totally different gloss than it has in this Rule proposal. There, the standard means that "unusual and unforeseeable conflicts," such as hurricanes, earthquakes or terrorist attacks, warrant an extension. Those events have no relevance to one's consideration of a dispositive motion. The use of the same phrase in two totally different contexts just invites mischief. Find another restrictive word or phrase or, better yet, dump the proposal and trust the arbitrators.
Perhaps, the most disturbing aspect of this rule proposal is the notion that NASD underwrites the prospect, however extraordinary, of a dispositive ruling pre-hearing, while not providing at all for the publication of such decisions. NASD's practice is and will continue to be, if this proposal is approved, to permit dispositive rulings that dismiss one or more parties in an arbitration without making that ruling publicly available. If, for instance, a Respondent is dismissed on a dispositive motion and non-moving Respondents remain in the case, the arbitral order granting that dismissal will not be made publicly available.
In other words, NASD does not consider that dispositive ruling eliminating a party from an arbitration to be an "Award" for purposes of Rule 12904 (making Awards publicly available). There are several big and unfair consequences arising from this anomaly. First, NASD takes the position that dispositive motions should be granted only in "extraordinary circumstances," but, when it occurs, the ruling is kept secret. Because the dispositive order is not deemed an "Award," it will not be made available online as NASD Awards are, nor will it be mentioned in the Arbitrator's Award history, when s/he is nominated for future Panels, as all NASD Awards are.
Moreover, Arbitrators are not prompted to disclose such rulings by the NASD's disclosure questions. They should be and a copy of such Orders should be available to parties. NASD will say that the dispositive ruling is mentioned in the final Award, in the circumstances I describe, but there are two things wrong with that. First, such rulings, if granted, are important enough to future parties that they should be allowed to view the Order itself. Secondly, and more to the point, if the remaining Respondents settle after the dispositive ruling, there will be no final Award and information about that dispositive ruling will be lost to future parties.
This policy of non-disclosure, in addition to being unfair, also creates confusion for Claimants who suffer such rulings. If a Respondent is dismissed in a multi-Respondent case via a dispositive ruling, courts will often consider the dispositive ruling an "Award" for FAA purposes. If a Claimant waits until the end of a case to challenge the dismissal order, s/he may find that the time to move for vacatur has passed. Thus, the winning Respondent gets a dismissal of which there will be no public record and the Claimant may be misled into a timeliness trap by NASD's practice of not according that Order the status of an Award (as the courts will).
If NASD wishes to proceed with this proposal, it should include a provision for making the Orders that result publicly available as "Awards" under Rule 12904 and 13904.
I appreciate the opportunity to make these comments to the Commission.
Respectfully submitted,
Richard P. Ryder