Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Granting Approval 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, 23462-23464 [E9-11608]
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Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices
(A) By order approve the proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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
Number SR–BX–2009–021 and should
be submitted on or before June 8, 2009.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–11609 Filed 5–18–09; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–59906; File No. SR–FINRA–
2009–013]
• 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–BX–2009–021 on the
subject line.
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Order Granting
Approval 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
Paper Comments
May 12, 2009.
On March 11, 2009, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) (f/k/a National Association
of Securities Dealers, Inc. (‘‘NASD’’))
filed with the Securities and Exchange
Commission (‘‘Commission’’) a
proposed rule change pursuant to
All submissions should refer to File
Section 19(b)(1) of the Securities
Number SR–BX–2009–021. This file
Exchange Act of 1934 (‘‘Act’’),1 and
number should be included on the
Rule 19b–4 thereunder.2 The proposed
subject line if e-mail is used. To help the
rule change was published for comment
Commission process and review your
in the Federal Register on April 7,
comments more efficiently, please use
3
only one method. The Commission will 2009. The Commission received five
comments on the proposed rule
post all comments on the Commission’s
change.4 This order approves the
Internet Web site (https://www.sec.gov/
proposed rule change.
rules/sro.shtml). Copies of the
submission, all subsequent
I. Description of the Proposed Rule
amendments, all written statements
Change
with respect to the proposed rule
FINRA proposed to amend the tolling
change that are filed with the
provisions in Rules 12206 and 13206 of
Commission, and all written
the Code of Arbitration Procedure for
communications relating to the
Customer Disputes (‘‘Customer Code’’)
proposed rule change between the
and for Industry Disputes (‘‘Industry
Commission and any person, other than
Code’’), respectively, to clarify that the
those that may be withheld from the
rules toll the applicable statutes of
public in accordance with the
provisions of 5 U.S.C. 552, will be
20 17 CFR 200.30–3(a)(12).
available for inspection and copying in
1 15 U.S.C. 78s(b)(1).
the Commission’s Public Reference
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 59672
Room, 100 F Street, NE., Washington,
(April 1, 2009), 74 FR 15806 (April 7, 2009).
DC 20549, on official business days
4 See letters from: (1) Seth E. Lipner, Professor of
between the hours of 10 a.m. and 3 p.m.
of Business, Baruch College,
Copies of the filing also will be available Law, Zicklin School(‘‘Lipner letter’’); (2) Joseph M.
dated April 3, 2009
for inspection and copying at the
Licare, St. John’s University School of Law,
Securities Arbitration Clinic, to Elizabeth M.
principal office of the Exchange. All
Murphy, Secretary, Commission, dated April 28,
comments received will be posted
2009 (‘‘Securities Arbitration Clinic letter’’); (3)
without change; the Commission does
Brian N. Smiley, Esquire, President, Public
not edit personal identifying
Investors Arbitration Bar Association, to Elizabeth
M. Murphy, Secretary, Commission, dated April 28,
information from submissions. You
2009 (‘‘PIABA letter’’); (4) Steven B. Caruso,
should submit only information that
you wish to make available publicly. All Maddox Hargett & Caruso, P.C., dated April 29,
2009 (‘‘Caruso letter’’); and 5) Scot Bernstein, dated
submissions should refer to File
May 1, 2009 (‘‘Bernstein letter’’).
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• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
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limitation when a person files an
arbitration claim with FINRA.
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.’’ 5 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.’’ 6 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.7 In light of the court’s
interpretation of the phrase and the
negative effect it could have on
investors’ arbitration claims, FINRA
proposed 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) 8 of the Code of
Arbitration Procedure, which was
updated and is currently designated as
Rules 12206(c) and 13206(c) of the
Customer Code and Industry Code,
respectively, to support his position that
5 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.
6 See also Rule 13206(c) of the Industry Code.
7 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case
involved claims under Section 10(b) of the Act.
8 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\19MYN1.SGM
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Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices
filing an arbitration claim tolls the
applicable statute of limitations.9 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.’’ 10 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.11
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,12 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.13 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.14 In Rampersad v. Deutsche
Bank Securities, Inc.,15 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.16
FINRA is concerned that courts may
begin citing this interpretation to
dismiss claims that would otherwise be
permitted under the eligibility rule.17
9 64
F. Supp. 2d at 343.
10 Id.
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11 Id.
at 347.
12 1998 U.S. App. Lexis 12618.
13 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 Release No. 56146 (July 26,
2007), 72 FR 42190 (August 1, 2007) (SR–NASD–
2007–053).
14 Id.
15 2004 U.S. Dist. Lexis 5031. The case also
involved claims under Section 10(b) of the
Securities Exchange Act of 1934.
16 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 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 claimants.
17 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
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16:48 May 18, 2009
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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.18
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 is intended to 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 proposed to delete
the phrase ‘‘where permitted by
applicable law’’ from Rules 12206(c)
and 13206(c). FINRA noted 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.19 FINRA stated that
it 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
claims without prejudice and may pursue all of the
claims in court.’’ See also Rule 13206(b).
18 See Securities Exchange Act Release No. 50714
(November 22, 2004), 69 FR 69971 (December 1,
2004) (SR–NASD–2001–101).
19 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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23463
would not be extended by the proposed
changes, but applicable statutes of
limitation would not run while the
matter was in arbitration.
II. Summary of Comments
The Commission received five
comments in response to the proposed
rule change, all of which supported the
proposal.20 One commenter stated that
FINRA has proposed equitable
amendments and should be commended
for its thoughtful treatment of the tolling
issues, and that the Commission should
approve the amendments as written and
without delay.21 Another commenter
noted that an automatic tolling of the
applicable statute of limitations, if any,
will protect the public interest and
preserve fairness in the arbitration
process.22
III. Discussion and Findings
After careful review of the proposed
rule change, the Commission finds that
the proposed rule change is consistent
with the rules and regulations
thereunder that are applicable to a
national securities association 23 and in
particular, with Section 15A(b)(6) of the
Act,24 in that it is designed to promote
just and equitable principles of trade,
facilitate transactions in securities,
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and
protect investors and the public interest.
The Commission believes that the
proposal is consistent with Section
20 Supra
note 4.
PIABA letter. One commenter, while
supporting the proposed rule change, suggested that
the words ‘‘and for thirty days thereafter’’ should
be added to the proposed rule amendment so that
the final sentence of Rule 13206(c) would read:
‘‘* * * any time limits for the filing of the claim
in court will be tolled while FINRA retains
jurisdiction of the claim and for thirty days
thereafter.’’ See Bernstein letter. FINRA declined to
make that change, stating that it believes the
suggested amendment to the proposed rule change
would contradict the rule, as currently drafted, by
extending applicable statutes of limitations by 30
days. The proposed rule change was intended to
clarify FINRA’s interpretation of Rule 12206(c) that
any applicable statute of limitations would be tolled
in all cases when a person files an arbitration claim
with FINRA. However, FINRA did not intend to
extend the tolling protection beyond the completion
of the arbitration case. For these reasons, FINRA
declines to amend the proposal as suggested. Email
from Mignon McLemore, FINRA (May 12, 2009).
22 See Caruso letter. See also the Securities
Arbitration Clinic letter (the proposed changes will
ensure that the intent of the rule is respected), and
the Lipner letter (investors who submit to
arbitration should benefit for the tolling of the
statute of limitations in the event that the claim is
non-arbitrable and must later be heard in court).
23 In approving this proposed rule change, the
Commission has considered the proposed rule
change’s impact on efficiency, competition, and
capital formation. See 15 U.S.C. 17c(f).
24 15 U.S.C. 78o-3(b)(6).
21 See
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19MYN1
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Federal Register / Vol. 74, No. 95 / Tuesday, May 19, 2009 / Notices
15A(b)(6) of the Act because the
proposed rule change will preserve
fairness in the arbitration process by
ensuring that investors maintain their
right to have their claims heard in court
if their arbitration cases are dismissed
on eligibility grounds by tolling the
applicable statutes of limitation while
their disputes are in arbitration.
DEPARTMENT OF TRANSPORTATION
IV. Conclusion
AGENCY: Department of Transportation
(DOT), Office of the Secretary (OST).
ACTION: Notice.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–FINRA–
2009–013) be, and hereby is,
approved.25
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9–11608 Filed 5–18–09; 8:45 am]
BILLING CODE 8010–01–P
DEPARTMENT OF STATE
[Public Notice 6620]
Waiver of Restriction on Assistance to
the Central Government of Lebanon
Pursuant to section 7088(c)(2) of the
Department of State, Foreign
Operations, and Related Programs
Appropriations Act, 2009 (Division H,
Pub. L. 111–8) (‘‘the Act’’), and
Department of State Delegation of
Authority Number 245–1, I hereby
determine that it is important to the
national interest of the United States to
waive the requirements of section
7088(c)(1) of the Act with respect to the
Government of Lebanon, and I hereby
waive such restriction.
This determination shall be reported
to the Congress, and published in the
Federal Register.
Dated: May 7, 2009.
Jacob L. Lew,
Deputy Secretary of State, Department of
State.
[FR Doc. E9–11641 Filed 5–18–09; 8:45 am]
mstockstill on PROD1PC66 with NOTICES
BILLING CODE 4710–31–P
25 15
26 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
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16:48 May 18, 2009
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Office of the Secretary
[DOT–OST–2008–0371]
Agency Information Collection Activity
for OMB Review: Foreign Air Carrier
Application for Statement of
Authorization, ICR–2106–0036
SUMMARY: In compliance with the
Paperwork Reduction Act of 1995,
PublicLaw 104–13, this notice
announces that the Information
Collection Request, abstracted below, is
being forwarded to the Office of
Management and Budget for extension
of approval of currently approved ICR–
2106–0036, Foreign Air Carrier
Application for Statement of
Authorization. Earlier, a Federal
Register Notice with a 60-day comment
period was published (73 FR 74223,
December 5, 2008). The agency did not
receive any comments to its previous
notice.
DATES: Written comments should be
submitted by June 18, 2009.
FOR FURTHER INFORMATION CONTACT:
George Wellington, (202) 366–2391,
Office of International Aviation, U.S.
Department of Transportation, 1200
New Jersey Avenue, SE., Room W86–
125, Washington, DC 20590. Office
hours are from 8:30 a.m. to 5 p.m.,
Monday through Friday, except Federal
holidays.
Comments: Comments should be sent
to OMB: Attention DOT/OST Desk
Officer, Office of Information and
Regulatory Affairs, Office of
Management and Budget, Docket
Library, Room 10102, 725 17th Street,
NW., Washington, DC 20503, or
oira_submission@omb.eop.gov and
should identify the associated OMB
Approval Number 2106–0035 and
Docket DOT–OST–2008–0374.
SUPPLEMENTARY INFORMATION:
OMB Approval No.: 2106–0035.
Title: Foreign Air Carrier Application
for Statement of Authorization.
Form No.: Form OST 4540.
Type of Review: Extension of a
currently approved collection.
Respondents: Foreign Air Carriers.
Number of Respondents:
approximately 100.
Estimated Time per Response: 2.25
hours per application.
Total Annual Burden: 1,000 hours.
Abstract: Applicants use Form OST
4540 to request statements of
authorization to conduct numerous
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types of operations authorized under
Title 14, CFR Part 212. The form
requires basic information regarding the
carrier(s) conducting the operation, the
party filing the form, the operations
being conducted, the number of thirdand fourth-freedom flights conducted in
the last twelve-month period, and
certification of reciprocity from the
carrier’s homeland government. DOT
analysts will use the information
collected to determine if applications
for fifth-freedom operations meet the
public interest requirements necessary
to authorize such applications.
Burden Statement: We estimate that
the industry-wide total hour burden for
this collection to be approximately
1,000 hours or approximately 2.25 hours
per application. Conservatively, we
estimate the compilation of background
information will require 1.75 hours, and
the completion and submission of OST
Form 4540 will require thirty (30)
minutes.
Reporting the number of third- and
fourth-freedom operations conducted by
an applicant carrier will require
collection of flight data, and detailed
analysis to determine which flights
conducted by the carrier are third- and
fourth-freedom. Applicants should be
able to use data collected for the
Department’s T–100 program to provide
this information (under this program,
carriers are required periodically to
compile and report certain traffic data to
the Department, as more fully described
in the Docket referenced in footnote 1
below). The Bureau of Transportation
Statistics (BTS) provide carriers with a
computer program that allows them to
compile and monitor, among other
things, flight origin and destination
data, to be used in making the carriers’
T–100 submissions.1 We estimated that
carriers will require 1.25 hours per
application 2 to compile and analyze the
data necessary to disclose the number of
third- and fourth-freedom flights
conducted within the twelve-month
period preceding the filing of an
application.
Foreign carriers will also have to
provide evidence that their homeland
1 The rule-making associated with the T–100
program can be found on the Federal Docket
Management System (FDMS) at https://
www.regulations.gov, in Docket DOT–OST–1998–
4043. Information regarding burden hours is on file
in the Office of Aviation Analysis (X–50).
2 The Office of Aviation Analysis (X–50)
estimated that small carriers would require 1
burden hour per report, and large carriers would
require 3 burden hours per report to analyze and
report T–100 program data. Considering that the
data required in this information collection can be
derived from data already collected, we have taken
an average of the estimated time required, and
conservatively shortened the time by 45 minutes
because no new data entry will be required.
E:\FR\FM\19MYN1.SGM
19MYN1
]]>Agencies
[Federal Register Volume 74, Number 95 (Tuesday, May 19, 2009)]
[Notices]
[Pages 23462-23464]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-11608]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-59906; File No. SR-FINRA-2009-013]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Granting Approval 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
May 12, 2009.
On March 11, 2009, Financial Industry Regulatory Authority, Inc.
(``FINRA'') (f/k/a National Association of Securities Dealers, Inc.
(``NASD'')) filed with the Securities and Exchange Commission
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder.\2\ The proposed rule change was published for comment in
the Federal Register on April 7, 2009.\3\ The Commission received five
comments on the proposed rule change.\4\ This order approves the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 59672 (April 1,
2009), 74 FR 15806 (April 7, 2009).
\4\ See letters from: (1) Seth E. Lipner, Professor of Law,
Zicklin School of Business, Baruch College, dated April 3, 2009
(``Lipner letter''); (2) Joseph M. Licare, St. John's University
School of Law, Securities Arbitration Clinic, to Elizabeth M.
Murphy, Secretary, Commission, dated April 28, 2009 (``Securities
Arbitration Clinic letter''); (3) Brian N. Smiley, Esquire,
President, Public Investors Arbitration Bar Association, to
Elizabeth M. Murphy, Secretary, Commission, dated April 28, 2009
(``PIABA letter''); (4) Steven B. Caruso, Maddox Hargett & Caruso,
P.C., dated April 29, 2009 (``Caruso letter''); and 5) Scot
Bernstein, dated May 1, 2009 (``Bernstein letter'').
---------------------------------------------------------------------------
I. Description of the Proposed Rule Change
FINRA proposed 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.
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.'' \5\ 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.''
\6\ 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.
---------------------------------------------------------------------------
\5\ 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.
\6\ 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.\7\ In light of the court's interpretation of the phrase and the
negative effect it could have on investors' arbitration claims, FINRA
proposed 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.
---------------------------------------------------------------------------
\7\ 64 F. Supp. 2d 338 (S.D.N.Y. 1999). The case involved claims
under Section 10(b) of the Act.
---------------------------------------------------------------------------
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)
\8\ of the Code of Arbitration Procedure, which was updated and is
currently designated as Rules 12206(c) and 13206(c) of the Customer
Code and Industry Code, respectively, to support his position that
[[Page 23463]]
filing an arbitration claim tolls the applicable statute of
limitations.\9\ 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.'' \10\ 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.\11\
---------------------------------------------------------------------------
\8\ 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.
\9\ 64 F. Supp. 2d at 343.
\10\ Id.
\11\ Id. at 347.
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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,\12\ 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.\13\ 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.\14\ In Rampersad v. Deutsche Bank Securities, Inc.,\15\ 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.\16\
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\12\ 1998 U.S. App. Lexis 12618.
\13\ 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 Release No. 56146
(July 26, 2007), 72 FR 42190 (August 1, 2007) (SR-NASD-2007-053).
\14\ Id.
\15\ 2004 U.S. Dist. Lexis 5031. The case also involved claims
under Section 10(b) of the Securities Exchange Act of 1934.
\16\ 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 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 claimants.
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FINRA is concerned that courts may begin citing this interpretation
to dismiss claims that would otherwise be permitted under the
eligibility rule.\17\ 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.\18\ 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 is intended to make this
clear.
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\17\ 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).
\18\ See Securities Exchange Act Release 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 proposed to delete the phrase ``where permitted by
applicable law'' from Rules 12206(c) and 13206(c). FINRA noted 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.\19\ FINRA stated that it 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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\19\ 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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II. Summary of Comments
The Commission received five comments in response to the proposed
rule change, all of which supported the proposal.\20\ One commenter
stated that FINRA has proposed equitable amendments and should be
commended for its thoughtful treatment of the tolling issues, and that
the Commission should approve the amendments as written and without
delay.\21\ Another commenter noted that an automatic tolling of the
applicable statute of limitations, if any, will protect the public
interest and preserve fairness in the arbitration process.\22\
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\20\ Supra note 4.
\21\ See PIABA letter. One commenter, while supporting the
proposed rule change, suggested that the words ``and for thirty days
thereafter'' should be added to the proposed rule amendment so that
the final sentence of Rule 13206(c) would read: ``* * * any time
limits for the filing of the claim in court will be tolled while
FINRA retains jurisdiction of the claim and for thirty days
thereafter.'' See Bernstein letter. FINRA declined to make that
change, stating that it believes the suggested amendment to the
proposed rule change would contradict the rule, as currently
drafted, by extending applicable statutes of limitations by 30 days.
The proposed rule change was intended to clarify FINRA's
interpretation of Rule 12206(c) that any applicable statute of
limitations would be tolled in all cases when a person files an
arbitration claim with FINRA. However, FINRA did not intend to
extend the tolling protection beyond the completion of the
arbitration case. For these reasons, FINRA declines to amend the
proposal as suggested. Email from Mignon McLemore, FINRA (May 12,
2009).
\22\ See Caruso letter. See also the Securities Arbitration
Clinic letter (the proposed changes will ensure that the intent of
the rule is respected), and the Lipner letter (investors who submit
to arbitration should benefit for the tolling of the statute of
limitations in the event that the claim is non-arbitrable and must
later be heard in court).
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III. Discussion and Findings
After careful review of the proposed rule change, the Commission
finds that the proposed rule change is consistent with the rules and
regulations thereunder that are applicable to a national securities
association \23\\\ and in particular, with Section 15A(b)(6) of the
Act,\24\ in that it is designed to promote just and equitable
principles of trade, facilitate transactions in securities, remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and protect investors and the public
interest. The Commission believes that the proposal is consistent with
Section
[[Page 23464]]
15A(b)(6) of the Act because the proposed rule change will preserve
fairness in the arbitration process by ensuring that investors maintain
their right to have their claims heard in court if their arbitration
cases are dismissed on eligibility grounds by tolling the applicable
statutes of limitation while their disputes are in arbitration.
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\23\ In approving this proposed rule change, the Commission has
considered the proposed rule change's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 17c(f).
\24\ 15 U.S.C. 78o-3(b)(6).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-FINRA-2009-013) be, and hereby is,
approved.\25\
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\25\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-11608 Filed 5-18-09; 8:45 am]
BILLING CODE 8010-01-P
