FINRA AMENDS ITS TOLLING PROVISIONS IN THE CODES OF ARBITRATION PROCEDURE FOR CUSTOMER DISPUTES AND INDUSTRY DISPUTES

Under the current FINRA rules for customer disputes and industry disputes, “no claim shall be eligible for submission to arbitration under the Code where six years have elapsed from the occurrence to the event giving rise to the claim.” Rule 12206(a) of the Code of Arbitration Procedure for Customer Disputes; Rule 13206(a) of the Code of Arbitration Procedure for Industry Disputes. Neither rule extends applicable statutes of limitations, but each provides that “where permitted by applicable law,” the time limit for filing a claim in court is tolled while FINRA maintains jurisdiction after an arbitration claim has been filed. Rule 12206(c); Rule 13206(c).

Although the language of the above-referenced tolling provisions is intended to toll all statutes of limitations while an arbitration claim is pending, at least one state court has interpreted the phrase, “where permitted by applicable law,” to mean that the time limit for filing a claim in court is only tolled if state law expressly permits such tolling. FINRA has expressed concern over the state court decision, noting that the holding may allow courts to dismiss customer claims on the basis that the statute of limitations ran while the arbitration claim was still pending.

As such, with the approval of the SEC, FINRA recently decided to remove the phrase, “where permitted by applicable law.” The amendment will negate any concern over state court interpretations as to the tolling provisions, thereby preserving FINRA’s original intent. The amendment becomes effective on August 10, 2009, and will apply to all claims filed on or after that date.

You can read FINRA’s Regulatory Notice 09-36 here.