The "Rogues" Report: Is Anyone Going to Step Up?
One of the endless frustrations experienced in working through the Byzantine auspices of the NASD-DR is the marked reluctance of the organization to actually exercise its powers, and render a decision on procedural issues pertaining to claims in arbitration. These types of issues seem to arise with increased frequency, and may require the staff of the NASD-DR to actually enforce and uphold the Code of Arbitration Procedures. Yet, with extraordinary regularity and deftness, the staff avoid making a decision, even if the outcome would appear to be pre-ordained by the underlying rules relating to arbitration. Rather than enforce these rules, however, we hear the refrain “we will refer it to the panel for consideration,” even if to do so eviscerates the underlying motion and renders it meaningless or, worse, creates the potential for arbitrator hostility towards a party. Why is the staff so religiously reluctant to take a position? What can we do about it?
The first question may be the easier to address. Perception is everything, and the NASD-DR does not wish to be cast as standing in the way of giving a party his/her opportunity to prosecute a claim or defend an allegation, even if the rules must be bent or torn asunder to accomplish this objective. Accordingly, it has proven easier, and less controversial, for the NASD-DR to simply decline an overture to enforce its rules, and cast the obligation upon the panel, thereby avoiding any spillage if the decision proves provocative. How else can one interpret the staff’s persistent and unexplained refusal to decline to enforce the provisions of Rule 10201 of the Code, which relate to the composition of panels and procedural issues arising out of claims of statutory discrimination? What other rationale can there be for the staff’s failure to enforce the six-year eligibility rule? And has the staff ever opined on a motion for severance? If so, I am not aware of it.
So, what can be done under the current environment? Candidly, not much. First, where would you take the complaint? Most parties will not spend the additional costs to do battle in court with the NASD-DR over peripheral issues, especially in light of the reluctance of courts to intervene in such disputes. Second, those organizations that serve as an ombudsman for the industry are not going to expend their good-will or influence asserting the interests or rights of a single firm or broker unless and until the industry as a whole clamors for intercession, and the issue is reasonably well defined and has been determined to have an industry-wide impact, and is susceptible of non-controversial, Solomon-like solution. And, third, the regulatory overseers of the NASD-DR are not going to intercede in a brawl of this nature--there is nothing in it for them and it doesn’t impact on the way they do their business.
So, perhaps its time to introduce some significant changes in the way such issues are addressed by the NASD-DR. Initially, if the staff is asked to address a procedural rule, why not require the staff to provide an explanation for the decision, especially if the application is going to be rejected? Following the adoption of a rule, there is often a dearth of later commentary by the NASD-DR defining its application. By providing explanation when a procedural Motion is either rejected or upheld by the staff, a body of precedents may be established to govern the conduct of other practitioners. It may also establish a measure of consistency between the various regional offices when issues of similar nature arise.
It does not advance the process or the interests of justice for the staff to dispose of a Motion with a bare “denied,” or simply refer it to the Panel for resolution, especially in instances in which the Motion turns on matters relating to the Panel composition or the impartiality of a Panelist, or may otherwise adversely impact on the views of the Panel toward a party in the proceeding (e.g. When a party moves for a severance because multiple Claimants are referenced in a single proceeding, and there is concern that the Respondent will be prejudiced by having to defend unrelated, multiple claims in a single action, it is counter-intuitive to have the Hearing Panel address the Motion).
Alternatively, the NASD-DR should establish an arm that just addresses pre-hearing Motions. The Motion Practice Tribunal would address pre-hearing, procedural motions, rather than the Panel designated to hear the case. Accordingly, in instances such as the one cited above, the Motion Practice Tribunal would have the power to direct a severance of claims, if that is appropriate to the circumstances of the case, thereby avoiding the possible taint of the underlying hearing by the introduction of inflammatory evidence. The decision of the Motion Panel would be subject to review by the NASD-DR at the request of the party against whom the Motion is decided. No appeal would be permissible beyond the staff. To avoid frivolous appeals, a fee would be imposed against the party seeking review. If the appeal proves fruitful, the fee would be reimbursed.
It’s not the answer to life, but it may be a better alternative than the one currently practiced. There was at an earlier time a reasonably well-defined body of precedence that enabled parties in security disputes to mutually decipher the state of the law. We have lost much of this ability through the present means for resolving these disputes. There should be a mechanism to provide concrete guidance to contestants in such proceedings. Perhaps this is a logical first step.
