Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the Tolling Provisions in Rules 12206 and 13206 of the Codes of Arbitration Procedure for Customer and Industry Disputes, 15806-15808 [E9-7773]
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15806
Federal Register / Vol. 74, No. 65 / Tuesday, April 7, 2009 / Notices
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEAmex–2009–05 and should be
submitted on or before April 28, 2009.
Below is the text of the proposed rule
change. Proposed deletions are in
brackets.
*
*
*
*
*
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
12206. Time Limits
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.17
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7732 Filed 4–6–09; 8:45 am]
(c) Effect of Rule on Time Limits for
Filing Claim in Court
1. Purpose
Currently, Rule 12206, the ‘‘eligibility
rule,’’ provides that, ‘‘no claim shall be
eligible for submission to arbitration
under the Code where six years have
elapsed from the occurrence or event
giving rise to the claim.’’ 3 The
eligibility rule does not extend
applicable statutes of limitation, but
Rule 12206(c) does provide that, ‘‘where
permitted by applicable law, when a
claimant files a statement of claim in
arbitration, any time limits for the filing
of the claim in court will be tolled while
FINRA retains jurisdiction of the
claim.’’ 4 This means that, where
permitted by applicable law, state
statutes of limitation will be tolled (i.e.,
temporarily suspended) when a person
files an arbitration claim with FINRA.
For many years, FINRA has
interpreted the rule to mean that any
applicable statutes of limitation would
be tolled in all cases when a person files
an arbitration claim with FINRA. In
Friedman v. Wheat First Securities, Inc.,
however, the court found that the
phrase ‘‘where permitted by applicable
law,’’ means that State or Federal law,
as applicable, must permit tolling
expressly, or the period will not be
tolled.5 In light of the court’s
interpretation of the phrase and the
negative effect it could have on
investors’ arbitration claims, FINRA is
proposing to remove the phrase, ‘‘where
permitted by applicable law,’’ from
Rules 12206(c) and 13206(c) to make
tolling automatic as part of the
arbitration agreement.
The Friedman court granted the
defendant’s request to dismiss the
plaintiff’s complaint on statute of
limitations grounds. In arguing against
dismissal, the plaintiff sought to rely on
old Rule 10307(a) 6 of the Code of
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59672; File No. SR–FINRA–
2009–013]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change To Amend the
Tolling Provisions in Rules 12206 and
13206 of the Codes of Arbitration
Procedure for Customer and Industry
Disputes
April 1, 2009.
(a)–(b) No change.
The rule does not extend applicable
statutes of limitations; nor shall the sixyear time limit on the submission of
claims apply to any claim that is
directed to arbitration by a court of
competent jurisdiction upon request of
a member or associated person.
However, [where permitted by
applicable law,] when a claimant files a
statement of claim in arbitration, any
time limits for the filing of the claim in
court will be tolled while FINRA retains
jurisdiction of the claim.
(d) No change.
*
*
*
*
*
13206. Time Limits
(a)–(b) No change.
(c) Effect of Rule on Time Limits for
Filing Claim in Court
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (f/k/a National Association
of Securities Dealers, Inc. (‘‘NASD’’))
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
on March 11, 2009, the proposed rule
change as described in Items I, II, and
III below, which Items have been
substantially prepared by FINRA. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
The rule does not extend applicable
statutes of limitations; nor shall the sixyear time limit on the submission of
claims apply to any claim that is
directed to arbitration by a court of
competent jurisdiction upon request of
a member or associated person.
However, [where permitted by
applicable law,] when a claimant files a
statement of claim in arbitration, any
time limits for the filing of the claim in
court will be tolled while FINRA retains
jurisdiction of the claim.
(d) No change.
*
*
*
*
*
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
FINRA Dispute Resolution is
proposing to amend the tolling
provisions in Rules 12206 and 13206 of
the Code of Arbitration Procedure for
Customer Disputes (‘‘Customer Code’’)
and for Industry Disputes (‘‘Industry
Code’’), respectively, to clarify that the
rules toll the applicable statutes of
limitation when a person files an
arbitration claim with FINRA.
17 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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17:13 Apr 06, 2009
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In its filing with the Commission,
FINRA included statements concerning
the purpose of and basis for the
proposed rule change and discussed any
comments it received on the proposed
rule change. The text of these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
PO 00000
Frm 00118
Fmt 4703
Sfmt 4703
3 FINRA describes the eligibility rule using the
rule number from the Customer Code for simplicity.
However, the proposal also applies to the identical
eligibility rule of the Industry Code. See Rule
13206.
4 See also Rule 13206(c) of the Industry Code.
5 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case
involved claims under Section 10(b) of the
Securities Exchange Act of 1934.
6 Rule 10307(a) (Tolling of Time Limitation(s) for
the Institution of Legal Proceedings and Extension
of Time Limitation(s) for Submission to Arbitration)
states in relevant part that:
Where permitted by applicable law, the time
limitations which would otherwise run or accrue
for the institution of legal proceedings shall be
tolled where a duly executed Submission
Agreement is filed by the CLaimant(s). The tolling
shall continue for such period as the Association
shall retain jurisdiction upon the matter submitted.
E:\FR\FM\07APN1.SGM
07APN1
Federal Register / Vol. 74, No. 65 / Tuesday, April 7, 2009 / Notices
Arbitration Procedure, which was
updated and is currently designated as
Rules 12206(c) and 13206(c), to support
his position that filing an arbitration
claim tolls the applicable statute of
limitations.7 The court determined,
however, that the language of old Rule
10307(a) does not toll the statute of
limitations unless such tolling is
‘‘permitted by applicable law.’’ 8 After
further analysis, the court found that no
Federal or State statute tolled the
applicable statute of limitations and
granted the defendant’s dismissal
request.9
Other courts have reached the same
conclusion in interpreting old Rule
10307(a) and the phrase ‘‘where
permitted by law.’’ In Individual
Securities v. Ross,10 the plaintiff, in
appealing a judgment of a New York
district court that dismissed the
complaint as time-barred, claimed that
the statute of limitations was tolled
while his matter was in arbitration with
then-NASD.11 The court cited old Rule
10307(a) and noted that the ‘‘where
permitted by law’’ language referred to
the applicable law in New York, which
prevented tolling of the limitations
period.12 In Rampersad v. Deutsche
Bank Securities, Inc.,13 the court, citing
Friedman, determined that, used in a
similar context, the phrase meant that
Federal law, not State law, governs the
availability of tolling the limitations
period in a Section 10(b) cause of
action.14
FINRA is concerned that courts may
begin citing this interpretation to
dismiss claims filed in court, as would
otherwise be permitted under the
7 64
F. Supp. 2d at 343.
8 Id.
9 Id.
at 347.
U.S. App. Lexis 12618.
11 On July 26, 2007, the Commission approved a
proposed rule change filed by NASD to amend
NASD’s Certificate of Incorporation to reflect its
name change to FINRA in connection with the
consolidation of the member firm regulatory
functions of NASD and NYSE Regulation, Inc. See
Securities Exchange Act Rel. No. 56146 (July 26,
2007), 72 FR 42190 (August 1, 2007) (SR–NASD–
2007–053).
12 Id.
13 2004 U.S. Dist. Lexis 5031. The case also
involved claims under Section 10(b) of the
Securities Exchange Act of 1934.
14 Id. In this case, the plaintiff filed an arbitration
claim against the defendants at the New York Stock
Exchange, Inc. (‘‘NYSE’’). The plaintiff argued that
the limitations period should have been tolled
under New York law for the period during which
the arbitration was pending, and cited NYSE Rule
606(a), which is similar to old Rule 10307(a), and
states in pertinent part:
Where permitted by applicable law, the time
limitation(s) which would otherwise run or accrue
for the institution of legal proceedings shall be
tolled when a duly executed Submission Agreement
is filed by the Claimant(s).
10 1998
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17:13 Apr 06, 2009
Jkt 217001
eligibility rule.15 FINRA does not
believe this outcome would be
consistent with the original intent of the
tolling provision or of amendments to
the eligibility rule that allow customers
to take their claims to court if their
claims are dismissed in arbitration on
eligibility grounds.16 Rather, FINRA
believes that, in such a situation, the
rule should be read to provide that a
firm or associated person has implicitly
agreed to suspend any statute of
limitations defense for the time period
that the matter was in FINRA’s
jurisdiction. Amending the eligibility
rule, as proposed, would make this
clear.
Moreover, FINRA is concerned that
the Friedman interpretation could limit
or foreclose customers’ access to other
judicial forums to address their
disputes, which would be an unfair
result. Most brokerage firms require
customers to arbitrate their disputes, a
process that can take more than a year.
Customers may be disadvantaged in a
subsequent court proceeding if the
panel dismisses the arbitration case on
eligibility grounds and the statute of
limitations is not tolled for the period of
time that the customers were in
arbitration. In addition to being an
unfair result, FINRA believes this would
undermine the intent of the eligibility
rule, which gives customers the option
of taking their claims to court when a
case is dismissed on eligibility grounds.
Therefore, FINRA is proposing to
delete the phrase ‘‘where permitted by
applicable law’’ from Rules 12206(c)
and 13206(c). FINRA notes that the
Friedman interpretation suggests that,
but for the phrase, the rule would be
read as an explicit agreement between
the parties to toll the statute of
limitations period.17 FINRA believes
15 The
rule states that ‘‘dismissal of a claim under
this rule does not prohibit a party from pursuing the
claim in court. By filing a motion to dismiss a claim
under this rule, the moving party agrees that if the
panel dismisses a claim under this rule, the nonmoving party may withdraw any remaining related
claims without prejudice and may pursue all of the
claims in court.’’ See also Rule 13206(b).
16 See Securities Exchange Act Rel. No. 50714
(November 22, 2004), 69 FR 69971 (December 1,
2004) (SR–NASD–2001–101).
17 Friedman, 64 F. Supp. 2d 338, 343 n.4 (1999).
The court indicates that it likely would accept the
amended language as representing an agreement of
the parties:
The precise meaning of Rule 10307(a) is not
entirely clear. If the phrase ‘‘where permitted by
applicable law’’ did not precede the remainder of
the paragraph, the rule would simply be read as an
explicit agreement between the parties to toll the
limitations period, regardless of what the applicable
State or Federal tolling principles provide.
However, by including the phrase the drafters
seemed to limit tolling to situations in which tolling
is expressly permitted by applicable law, thereby
making an explicit agreement between the parties
unnecessary.
PO 00000
Frm 00119
Fmt 4703
Sfmt 4703
15807
that the proposed rule change would
leave the parties in the same position in
court as they were at the start of the
arbitration with regard to any statutes of
limitation: the time period before the
claim was filed in arbitration would not
be extended by the proposed changes,
but applicable statutes of limitation
would not run while the matter was in
arbitration.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A(b)(6) of the Act,18 which
requires, among other things, that the
Association’s rules must be designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, and, in
general, to protect investors and the
public interest. The proposed rule
change is consistent with FINRA’s
statutory obligations under the Act to
protect investors and the public interest
because the proposal would preserve
fairness in the arbitration process by
ensuring that investors maintain their
right to have their claims heard in court
by tolling the applicable statutes of
limitation while the dispute is in
arbitration.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act, as amended.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received by FINRA.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
18 15
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U.S.C. 78o–3(b)(6).
07APN1
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Federal Register / Vol. 74, No. 65 / Tuesday, April 7, 2009 / Notices
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–7773 Filed 4–6–09; 8:45 am]
BILLING CODE 8010–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–FINRA–2009–013 on the
subject line.
SOCIAL SECURITY ADMINISTRATION
Agency Information Collection
Activities: Proposed Request and
Comment Request
The Social Security Administration
(SSA) publishes a list of information
collection packages requiring clearance
Paper Comments
by the Office of Management and
Budget (OMB) in compliance with
• Send paper comments in triplicate
Public Law (Pub. L.) 104–13, the
to Elizabeth M. Murphy, Secretary,
Paperwork Reduction Act of 1995,
Securities and Exchange Commission,
effective October 1, 1995. This notice
100 F Street, NE., Washington, DC
includes revisions and extensions of
20549–1090.
OMB-approved Information Collections
and a new collection.
All submissions should refer to File
Number SR–FINRA–2009–013. This file
SSA is soliciting comments on the
number should be included on the
accuracy of the agency’s burden
subject line if e-mail is used. To help the estimate; the need for the information;
Commission process and review your
its practical utility; ways to enhance its
comments more efficiently, please use
quality, utility, and clarity; and ways to
only one method. The Commission will minimize the burden on respondents,
post all comments on the Commission’s including the use of automated
Internet Web site (https://www.sec.gov/
collection techniques or other forms of
rules/sro.shtml). Copies of the
information technology. Mail, e-mail, or
submission, all subsequent
fax your comments and
amendments, all written statements
recommendations on the information
with respect to the proposed rule
collection(s) to the OMB Desk Officer
change that are filed with the
and the SSA Reports Clearance Officer
Commission, and all written
to the addresses or fax numbers listed
communications relating to the
below.
proposed rule change between the
(OMB), Office of Management and
Commission and any person, other than
Budget. Attn: Desk Officer for SSA.
those that may be withheld from the
Fax: 202–395–6974. E-mail Address:
public in accordance with the
OIRA_Submission@omb.eop.gov.
provisions of 5 U.S.C. 552, will be
(SSA), Social Security Administration,
available for inspection and copying in
DCBFM, Attn: Reports Clearance
the Commission’s Public Reference
Officer, 1332 Annex Building, 6401
Room, 100 F Street, NE., Washington,
Security Blvd., Baltimore, MD 21235.
DC 20549, on official business days
Fax: 410–965–6400. E-mail Address:
between the hours of 10 a.m. and 3 p.m.
OPLM.RCO@ssa.gov.
All comments received will be posted
without change; the Commission does
I. The information collection below is
not edit personal identifying
pending at SSA. SSA will submit it to
information from submissions. You
OMB within 60 days from the date of
this notice. To be sure we consider your
should submit only information that
you wish to make available publicly. All comments, we must receive them no
later than June 8, 2009. Individuals can
submissions should refer to the File
obtain copies of the collection
Number SR–FINRA–2009–013 and
instrument by calling the SSA Reports
should be submitted on or before April
Clearance Officer at 410–965–3758 or by
28, 2009.
writing to the e-mail address listed
above.
19 17
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18:20 Apr 06, 2009
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PO 00000
CFR 200.30–3(a)(12).
Frm 00120
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1. Statement of Claimant or Other
Person—20 CFR 404.702 & 416.570—
0960–0045
SSA uses the SSA–795 to obtain
information from claimants or other
persons having knowledge of facts in
connection with claims for
Supplemental Security Income (SSI) or
Social Security benefits when there is
no standard form to collect the needed
information. SSA then uses the
information to process claims for
benefits or for ongoing issues related to
the above programs. The respondents
are applicants/recipients of SSI or
Social Security benefits, or others who
are in a position to provide information
pertinent to the claim(s).
Type of Request: Revision of an OMBapproved information collection.
Number of Respondents: 305,500.
Frequency of Response: 1.
Average Burden per Response: 15
minutes.
Estimated Annual Burden: 76,375
hours.
2. Statement of Employer—20 CFR
404.801–404.803—0960–0030
SSA uses Form SSA–7011–F4 to
substantiate allegations of wages paid to
workers when those wages do not
appear in SSA’s records of earnings and
the worker does not have proof of those
earnings. SSA uses the information
received on this form to process claims
for Social Security benefits and to
resolve discrepancies in the individual’s
Social Security earnings record. We
only send Form SSA–7011–F4 to
employers if we deem it necessary; in
many situations, we are able to locate
the earnings information within our
records without having to contact the
employer. The respondents are
employers who can verify wage
allegations made by wage earners.
Type of Request: Extension of an
OMB-approved information collection.
Number of Respondents: 925,000.
Frequency of Response: 1.
Average Burden per Response: 20
minutes.
Estimated Annual Burden: 308,333
hours.
3. Statement of Self-Employment
Income—20 CFR 404.101, 404.110,
404.1096(a)–(d)—0960–0046
SSA collects the information on Form
SSA–766 to expedite the payment of
benefits to an individual who is selfemployed and who is establishing
insured status. The form elicits the
information necessary to determine if
the individual will have the minimum
amount of self-employment income for
quarters of coverage. Respondents are
E:\FR\FM\07APN1.SGM
07APN1
]]>Agencies
[Federal Register Volume 74, Number 65 (Tuesday, April 7, 2009)]
[Notices]
[Pages 15806-15808]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-7773]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59672; File No. SR-FINRA-2009-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing of Proposed Rule Change To Amend the
Tolling Provisions in Rules 12206 and 13206 of the Codes of Arbitration
Procedure for Customer and Industry Disputes
April 1, 2009.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
Financial Industry Regulatory Authority, Inc. (``FINRA'') (f/k/a
National Association of Securities Dealers, Inc. (``NASD'')) filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') on
March 11, 2009, the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by FINRA.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA Dispute Resolution is proposing to amend the tolling
provisions in Rules 12206 and 13206 of the Code of Arbitration
Procedure for Customer Disputes (``Customer Code'') and for Industry
Disputes (``Industry Code''), respectively, to clarify that the rules
toll the applicable statutes of limitation when a person files an
arbitration claim with FINRA.
Below is the text of the proposed rule change. Proposed deletions
are in brackets.
* * * * *
12206. Time Limits
(a)-(b) No change.
(c) Effect of Rule on Time Limits for Filing Claim in Court
The rule does not extend applicable statutes of limitations; nor
shall the six-year time limit on the submission of claims apply to any
claim that is directed to arbitration by a court of competent
jurisdiction upon request of a member or associated person. However,
[where permitted by applicable law,] when a claimant files a statement
of claim in arbitration, any time limits for the filing of the claim in
court will be tolled while FINRA retains jurisdiction of the claim.
(d) No change.
* * * * *
13206. Time Limits
(a)-(b) No change.
(c) Effect of Rule on Time Limits for Filing Claim in Court
The rule does not extend applicable statutes of limitations; nor
shall the six-year time limit on the submission of claims apply to any
claim that is directed to arbitration by a court of competent
jurisdiction upon request of a member or associated person. However,
[where permitted by applicable law,] when a claimant files a statement
of claim in arbitration, any time limits for the filing of the claim in
court will be tolled while FINRA retains jurisdiction of the claim.
(d) No change.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, FINRA included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. FINRA has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Currently, Rule 12206, the ``eligibility rule,'' provides that,
``no claim shall be eligible for submission to arbitration under the
Code where six years have elapsed from the occurrence or event giving
rise to the claim.'' \3\ The eligibility rule does not extend
applicable statutes of limitation, but Rule 12206(c) does provide that,
``where permitted by applicable law, when a claimant files a statement
of claim in arbitration, any time limits for the filing of the claim in
court will be tolled while FINRA retains jurisdiction of the claim.''
\4\ This means that, where permitted by applicable law, state statutes
of limitation will be tolled (i.e., temporarily suspended) when a
person files an arbitration claim with FINRA.
---------------------------------------------------------------------------
\3\ FINRA describes the eligibility rule using the rule number
from the Customer Code for simplicity. However, the proposal also
applies to the identical eligibility rule of the Industry Code. See
Rule 13206.
\4\ See also Rule 13206(c) of the Industry Code.
---------------------------------------------------------------------------
For many years, FINRA has interpreted the rule to mean that any
applicable statutes of limitation would be tolled in all cases when a
person files an arbitration claim with FINRA. In Friedman v. Wheat
First Securities, Inc., however, the court found that the phrase
``where permitted by applicable law,'' means that State or Federal law,
as applicable, must permit tolling expressly, or the period will not be
tolled.\5\ In light of the court's interpretation of the phrase and the
negative effect it could have on investors' arbitration claims, FINRA
is proposing to remove the phrase, ``where permitted by applicable
law,'' from Rules 12206(c) and 13206(c) to make tolling automatic as
part of the arbitration agreement.
---------------------------------------------------------------------------
\5\ 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case involved claims
under Section 10(b) of the Securities Exchange Act of 1934.
---------------------------------------------------------------------------
The Friedman court granted the defendant's request to dismiss the
plaintiff's complaint on statute of limitations grounds. In arguing
against dismissal, the plaintiff sought to rely on old Rule 10307(a)
\6\ of the Code of
[[Page 15807]]
Arbitration Procedure, which was updated and is currently designated as
Rules 12206(c) and 13206(c), to support his position that filing an
arbitration claim tolls the applicable statute of limitations.\7\ The
court determined, however, that the language of old Rule 10307(a) does
not toll the statute of limitations unless such tolling is ``permitted
by applicable law.'' \8\ After further analysis, the court found that
no Federal or State statute tolled the applicable statute of
limitations and granted the defendant's dismissal request.\9\
---------------------------------------------------------------------------
\6\ Rule 10307(a) (Tolling of Time Limitation(s) for the
Institution of Legal Proceedings and Extension of Time Limitation(s)
for Submission to Arbitration) states in relevant part that:
Where permitted by applicable law, the time limitations which
would otherwise run or accrue for the institution of legal
proceedings shall be tolled where a duly executed Submission
Agreement is filed by the CLaimant(s). The tolling shall continue
for such period as the Association shall retain jurisdiction upon
the matter submitted.
\7\ 64 F. Supp. 2d at 343.
\8\ Id.
\9\ Id. at 347.
---------------------------------------------------------------------------
Other courts have reached the same conclusion in interpreting old
Rule 10307(a) and the phrase ``where permitted by law.'' In Individual
Securities v. Ross,\10\ the plaintiff, in appealing a judgment of a New
York district court that dismissed the complaint as time-barred,
claimed that the statute of limitations was tolled while his matter was
in arbitration with then-NASD.\11\ The court cited old Rule 10307(a)
and noted that the ``where permitted by law'' language referred to the
applicable law in New York, which prevented tolling of the limitations
period.\12\ In Rampersad v. Deutsche Bank Securities, Inc.,\13\ the
court, citing Friedman, determined that, used in a similar context, the
phrase meant that Federal law, not State law, governs the availability
of tolling the limitations period in a Section 10(b) cause of
action.\14\
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\10\ 1998 U.S. App. Lexis 12618.
\11\ On July 26, 2007, the Commission approved a proposed rule
change filed by NASD to amend NASD's Certificate of Incorporation to
reflect its name change to FINRA in connection with the
consolidation of the member firm regulatory functions of NASD and
NYSE Regulation, Inc. See Securities Exchange Act Rel. No. 56146
(July 26, 2007), 72 FR 42190 (August 1, 2007) (SR-NASD-2007-053).
\12\ Id.
\13\ 2004 U.S. Dist. Lexis 5031. The case also involved claims
under Section 10(b) of the Securities Exchange Act of 1934.
\14\ Id. In this case, the plaintiff filed an arbitration claim
against the defendants at the New York Stock Exchange, Inc.
(``NYSE''). The plaintiff argued that the limitations period should
have been tolled under New York law for the period during which the
arbitration was pending, and cited NYSE Rule 606(a), which is
similar to old Rule 10307(a), and states in pertinent part:
Where permitted by applicable law, the time limitation(s) which
would otherwise run or accrue for the institution of legal
proceedings shall be tolled when a duly executed Submission
Agreement is filed by the Claimant(s).
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FINRA is concerned that courts may begin citing this interpretation
to dismiss claims filed in court, as would otherwise be permitted under
the eligibility rule.\15\ FINRA does not believe this outcome would be
consistent with the original intent of the tolling provision or of
amendments to the eligibility rule that allow customers to take their
claims to court if their claims are dismissed in arbitration on
eligibility grounds.\16\ Rather, FINRA believes that, in such a
situation, the rule should be read to provide that a firm or associated
person has implicitly agreed to suspend any statute of limitations
defense for the time period that the matter was in FINRA's
jurisdiction. Amending the eligibility rule, as proposed, would make
this clear.
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\15\ The rule states that ``dismissal of a claim under this rule
does not prohibit a party from pursuing the claim in court. By
filing a motion to dismiss a claim under this rule, the moving party
agrees that if the panel dismisses a claim under this rule, the non-
moving party may withdraw any remaining related claims without
prejudice and may pursue all of the claims in court.'' See also Rule
13206(b).
\16\ See Securities Exchange Act Rel. No. 50714 (November 22,
2004), 69 FR 69971 (December 1, 2004) (SR-NASD-2001-101).
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Moreover, FINRA is concerned that the Friedman interpretation could
limit or foreclose customers' access to other judicial forums to
address their disputes, which would be an unfair result. Most brokerage
firms require customers to arbitrate their disputes, a process that can
take more than a year. Customers may be disadvantaged in a subsequent
court proceeding if the panel dismisses the arbitration case on
eligibility grounds and the statute of limitations is not tolled for
the period of time that the customers were in arbitration. In addition
to being an unfair result, FINRA believes this would undermine the
intent of the eligibility rule, which gives customers the option of
taking their claims to court when a case is dismissed on eligibility
grounds.
Therefore, FINRA is proposing to delete the phrase ``where
permitted by applicable law'' from Rules 12206(c) and 13206(c). FINRA
notes that the Friedman interpretation suggests that, but for the
phrase, the rule would be read as an explicit agreement between the
parties to toll the statute of limitations period.\17\ FINRA believes
that the proposed rule change would leave the parties in the same
position in court as they were at the start of the arbitration with
regard to any statutes of limitation: the time period before the claim
was filed in arbitration would not be extended by the proposed changes,
but applicable statutes of limitation would not run while the matter
was in arbitration.
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\17\ Friedman, 64 F. Supp. 2d 338, 343 n.4 (1999). The court
indicates that it likely would accept the amended language as
representing an agreement of the parties:
The precise meaning of Rule 10307(a) is not entirely clear. If
the phrase ``where permitted by applicable law'' did not precede the
remainder of the paragraph, the rule would simply be read as an
explicit agreement between the parties to toll the limitations
period, regardless of what the applicable State or Federal tolling
principles provide. However, by including the phrase the drafters
seemed to limit tolling to situations in which tolling is expressly
permitted by applicable law, thereby making an explicit agreement
between the parties unnecessary.
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2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\18\ which requires, among
other things, that the Association's rules must be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest. The proposed rule change is consistent with
FINRA's statutory obligations under the Act to protect investors and
the public interest because the proposal would preserve fairness in the
arbitration process by ensuring that investors maintain their right to
have their claims heard in court by tolling the applicable statutes of
limitation while the dispute is in arbitration.
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\18\ 15 U.S.C. 78o-3(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received by FINRA.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
[[Page 15808]]
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-FINRA-2009-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-FINRA-2009-013. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for inspection
and copying in the Commission's Public Reference Room, 100 F Street,
NE., Washington, DC 20549, on official business days between the hours
of 10 a.m. and 3 p.m. All comments received will be posted without
change; the Commission does not edit personal identifying information
from submissions. You should submit only information that you wish to
make available publicly. All submissions should refer to the File
Number SR-FINRA-2009-013 and should be submitted on or before April 28,
2009.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-7773 Filed 4-6-09; 8:45 am]
BILLING CODE 8010-01-P
