Wednesday, December 16, 2009


In February 2009, new changes to the Financial Industry Regulatory Authority’s (FINRA) Code of Arbitration Procedure became effective. These changes came in response to a study commenced in 2004 finding the “number of motions to dismiss in customer cases” began to increase. Also, FINRA received feedback that prehearing motions were “routinely and repetitively” being filed, which delayed hearings, increased customer costs, and intimidated customers. Despite that most of these motions to dismiss were denied, FINRA was still concerned that if motions to dismiss were not regulated, it would effectively limit access to arbitration. The new rule changes are set forth below.

Under the changes, motions to dismiss arbitration claims were severed from the general rule for motions and given separate provisions. Now, motions to dismiss fall under Rule 12504 (customer) and Rule 13504 (intra-industry) instead of Rule 12503 and Rule 13503. Further, new Rules 12206 and 13206 were written regarding eligibility of claims. However, the definition of a motion to dismiss remains the same.

Rules 12504 and 13504 change some of the filing requirements and the requirements for deciding the motion. These requirements are as follows:

Requirements for Filing
The motion must be in writing
The answer must be filed before a motion to dismiss
The motion must be filed separately from the answer
The filing date must be at least 60 days prior to the hearing, responses
within 45 days
After denial, parties may not re-file a motion to dismiss unless special
permission to do so

Requirements for Deciding the Motion
The full panel must decide the motion
There must be a hearing, unless parties waive the hearing
The non-moving party must sign a settlement and release barring claims OR
the moving party must not be associated with the account, security, or
conduct at issue
The claim must not be eligible for arbitration because it does not meet the
six-year eligibility requirement where the motion is filed under 12206 or
13206 (i.e. the panel cannot act on the motion to dismiss on grounds for
ineligibility until the panel determines that the claim is in fact
Hybrid claims, if decided ineligible, cannot be ruled on other grounds
Denial must be unanimous and explained in writing

FINRA has also modified the panel’s powers and parties’ filing times in regards to motions to dismiss arbitration claims in the new rules 12206 and 13206.
The panel may decide eligibility on a motion to dismiss prior to the end of
the case
Moving parties must file their eligibility motions at 90 days prior to the
hearing, responses in 45 days
The panel can issue sanctions where the motion to dismiss for eligibility
was brought in bad faith

These changes are consistent with FINRA’s previous policy statements disfavoring motions to dismiss, promoting efficiency, and recognizing parties’ rights to a hearing on the merits.

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