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Amendments Regarding Discovery
Amendments Regarding Motions
Amendments Regarding Hearing Plans
Amendments Regarding Hearing Fees
Amendments Regarding the Liability of Guarantor FCMs
Other Miscellaneous Amendments
Over the past few years,
NFA has seen an increase in the size and complexity of the claims
that have been filed with NFA's Arbitration Department. For example,
the average claim amount has increased from approximately $63,000
in 1991 to almost $115,000 in 1995, and the volume of claims filed
for $100,000 or more has increased from 9 percent of our caseload
in 1991 to 18 percent in 1995.
Most of NFA's problem cases in the past few years
have been the claims of $100,000 or more. While these large cases
make up less than 20 percent of our caseload, they involve some
of the most complex claims which are filed at NFA and they consume
a disproportionate share of NFA's resources. For instance, the
average turnaround time for cases with claims of $100,000 or more
that closed between January 1, 1994 and July 1, 1996 was approximately
12 months compared to just over seven months for cases with claim
amounts of under $100,000. An average of 4.5 motions were filed
in the large claims which closed during the same period, while
an average of just one motion was filed in the smaller claims.
Since 1994, NFA commenced oral hearings in 31 cases with claims
of $100,000 or more and twelve of those cases required three or
more hearing days. Furthermore, the parties and their attorneys
in the large cases seem to be more contentious than those in the
cases with smaller claim amounts, and some arbitrators have complained
to NFA about the tactics employed by the attorneys in these cases,
both before and during the hearing.
In response to these developments, NFA issued a
Notice to Members asking for comments on proposed changes to NFA's
Arbitration Rules. The Notice was also sent to arbitrators and
to customers, or attorneys for customers, recently involved in
NFA proceedings. NFA received almost 70 comments which overwhelmingly
supported NFA's efforts to keep the arbitration process efficient,
expeditious and free of abuses by parties or their counsel.
NFA staff reviewed the comments and suggestions
received with NFA's Advisory Committees as well as with an Arbitration
Discussion Group which consisted of attorneys and arbitrators
who were involved with some of NFA's most problematic cases.
They agreed with many of our recommendations and offered other
suggestions to address the problems we are having.
After considering all of the comments received,
as well as the recommendations of NFA's Advisory Committees and
the Arbitration Discussion Group, NFA's Board of Directors determined
to amend NFA's Arbitration Rules as proposed herein. Detailed
explanations of the proposed amendments are as follows:
To address problems
with discovery -- where the parties refuse to produce requested
documents and information, file last-minute discovery requests
or extensive discovery motions, or refuse to comply with the arbitrators'
discovery orders -- the proposed amendments provide for a procedure
for the early automatic exchange of routine documents. Under
the procedure, NFA staff would identify the standard documents
that are routinely relevant for the causes of action alleged in
a particular case from a list of documents approved by NFA's Board
of Directors. NFA would then notify the parties that they must
automatically exchange the documents with each other no later
than 15 days after the last pleading is due. The parties may
ask for documents and information not subject to the automatic
exchange rule according to NFA's current discovery deadlines.
Although NFA's proposal calls for the standard
documents to be automatically exchanged by the parties no later
than 15 days after the last pleading is due, as a practical matter,
the parties should have ample time to comply with this deadline.
Under this procedure, NFA will identify the standard documents
for the parties at the time we accept the claimant's Demand and
serve it on the respondents. An Answer is not due from the respondents
until 45 days after that, and the parties would have an additional
15 days from the Answer due date to exchange the standard documents.
That means the parties would essentially have 60 days to locate,
assemble and exchange the standard documents, which should be
a sufficient amount of time. Furthermore, it is likely that the
Members and Associates will be gathering and reviewing many of
these documents anyway in preparing their Answer.
The Board also revised the arbitration rules related
to the pre-hearing stage of the arbitration process. One amendment
makes it clear that the arbitrators have the authority to schedule
a conference with the parties, in person or by telephone, to decide
any outstanding discovery issues. The Board also amended the
arbitration rules to allow one or more of the arbitrators, with
the consent of the other Panel members, to decide any pre-hearing
motion or to conduct pre-hearing conferences with the parties.
This procedure should conserve the arbitrators' time.
Late requests to compel discovery are also a problem.
The proposed amendments provide that NFA will not allow late
motions to compel except for good cause shown. Finally, to further
encourage the parties to cooperate with each other to resolve
discovery disputes, the proposed amendments require the party
filing a request to compel to include a certification with the
request. The certification will state that the party filing the
motion, or its representative, has made a good faith effort to
resolve the matters forming the basis for the motion through either
a telephone conversation or an in-person meeting with the other
party or its representative.
Arbitrators complain to NFA about the high number
of pre-hearing motions the parties file. They are also concerned
that many of the motions are unnecessary and frivolous. To address
these concerns, the proposed amendments prohibit the parties from
filing only one type of motion: motions to dismiss for failing
to state a claim. This restriction would also apply to any motion
which staff determines is really a motion to dismiss for failing
to state a claim, even if the party filing it calls it something
NFA would allow the parties to file a motion to
dismiss on other grounds but would require the parties to include
the motion in a timely filed Answer or Reply. For example, a
respondent will be able to ask the arbitrators to consider whether
to dismiss a claim because it was not filed within NFA's two-year
time limit or because it is barred by the doctrine of res judicata.
However, the request must be included in a timely filed pleading
so that the arbitrators may consider it early on in the process.
NFA will allow the parties to also file motions for summary judgment
in cases where there really are no disputed facts. The rules
will also clarify that the parties may raise motions for a directed
verdict at the hearing.
The hearing plan is an important tool that is unique
to NFA arbitration. The purpose of the plan is to provide a road
map to help the hearing run smoothly and efficiently. NFA requires
a hearing plan for all cases with oral hearings, except Member
cases where it is within the arbitrators' discretion to require
a plan. Many members of the Arbitration Discussion Group, however,
had experiences where the parties' hearing plan was useless or
they did not even prepare one. In some cases, the parties submitted
the plan late or they refused to cooperate with NFA staff in preparing
Currently, NFA requires the parties to serve a
hearing plan on NFA no later than 10 days before the hearing begins.
However, the proposed amendments require the parties to submit
a joint hearing plan, or separate plans if the parties cannot
agree on a joint one, 30 days before the hearing begins. The
amendments also allow the arbitrators to hold a hearing plan conference
with the parties to modify the plan, if needed. Furthermore,
the Board believed that more can be done to educate the parties
and their representatives about what the hearing plan involves
and what it should accomplish and, therefore, it determined to
define the hearing plan in the arbitration rules.
The Board also decided that the arbitration rules
should require a hearing plan in all cases that involve an oral
hearing. The Code of Arbitration already includes this requirement,
but the Member Rules do not. Therefore, the Member Rules were
amended to make a hearing plan mandatory in Member cases with
an oral hearing.
Another hearing-related problem is the high number
of hearing sessions. NFA staff and members of the Arbitration
Discussion Group felt that in many cases the parties needlessly
extend the hearing.
Our statistics show that the oral hearings in cases
with claims less than $500,000 generally conclude after one or
two days. On the other hand, it appears that claims of $500,000
or more involve four or more hearing sessions. Right now, parties
who file claims over $500,000 deposit $1,450 in hearing fees,
which will compensate three arbitrators for two full-day hearing
sessions. This means that NFA invariably has to collect additional
hearing fees from the parties in the case. The proposed amendments
raise the hearing fee deposit for claims of $500,000 or more to
$2,900, which will cover four full-day sessions.
The Board also amended the arbitration rules to
increase the daily hearing fee to be the standard fee if the hearing
continues for more than four days, regardless of the claim amount.
Under this approach, the daily hearing fee will increase from
$725 to $1450 for the fifth hearing day and all subsequent hearing
days. These higher fees should discourage the parties from engaging
in dilatory tactics during the hearing. However, the Board determined
to give the arbitrators the option of keeping the fees at the
standard amount if, for example, the excess days are due to case
complexity rather than the parties' tactics.
The Board amended Section 10(g) of the arbitration
rules to clarify that a guarantor FCM is required to pay an arbitration
award or settlement agreement whenever its guaranteed IB ("GIB")
does not, even if there is no award against or settlement agreement
with the guarantor FCM. Under the proposal, NFA will notify the
FCM that guaranteed the introducing broker during the relevant
time that its GIB has failed to comply with an award or settlement
agreement. The guarantor FCM will then have 30 days from the
date it receives actual notice of the unpaid award or settlement
agreement to pay the award or settlement agreement. If the FCM
does not pay within that time, NFA will follow its normal procedures
to suspend the guarantor.
Another change relating to Section 10(g) of the
arbitration rules clarifies that the summary suspension of a Member
or Associate is not the same as disciplinary action under NFA's
Compliance Rules. NFA can, however, take an action under the
Compliance Rules if it believes that the summary suspension procedure
is not adequate in a particular case.
The Board amended the arbitration rules to clarify
that a party's right to counsel and the confidentiality of communications
between the parties during mediation apply to the entire mediation
process, rather than just specific mediation conferences. In
addition, the Board amended Section 9 of the arbitration rules
to address requests to reopen the record. Currently, the Panel
may reopen the record any time before the award is issued (i.e.,
before it is served on the parties). The amendment to this section
makes it clear that the record may not be reopened once the arbitrators
have reached their decision, regardless of whether the award has
been mailed to the parties.
Finally, the Board amended the arbitration rules
to conform them to NFA's actual practice concerning the duties
performed by the President, Secretary, and staff of NFA. In reality,
the Arbitration staff carries out most responsibilities under
the arbitration rules, except for certain matters handled by an
NFA attorney who is designated by the Secretary to act for him
or the President. Therefore, the arbitration rules were modified
to meet with NFA's actual practice.
NFA respectfully requests that the Commission review
and approve the proposals contained in this submission and requests
that they be declared effective upon Commission approval.