For example, a Motion to Dismiss based on eligibility may only be filed after the Preliminary Answer has been filed, it must be filed within sixty (60) days prior to the first arbitration date and the opposing party must have forty-five (45) days within which to respond. Furthermore, there must be an oral argument in front of the full panel which is recorded and transcribed. The oral argument can be done over the telephone but there is still the requirement for a transcription of the oral argument. The arbitrator's decision with respect to the Motion must be unanimous. Significantly, the relevant case law from the Supreme Court of the United States provides that in the event that a panel was to grant a Motion to Dismiss on the basis that the arbitration claims are ineligible, then the Claimant is free to pursue these claims in the applicable court of law.

Clients must be counseled that even if their Motion to Dismiss based upon lack of eligibility is successful that they may still face a claim in state or federal court, but the Defendant would still have the defense of the statute of limitations. However, it is typically more expensive to litigate a claim in court versus arbitration and the client may find that it was more expensive and much less efficient to litigate the matter in court if the Motion to Dismiss was granted. Another potential pitfall with respect to the Motion to Dismiss for eligibility is that we are seeing that arbitration panels deny the Motions without prejudice with the right to the moving party to re-raise the Motion at the conclusion of the Claimant's case-in-chief. Essentially, Claimant's counsel argues that there needs to be additional evidence presented to the panel outside of the pleadings in order for the panel to properly determine a Motion to Dismiss for eligibility. However, if the panel were to require the Respondents to prepare for and attend the Claimant's case-in-chief before granting the Motion, then this would essentially require that Respondents litigate the claim twice. They would first have to litigate the claim over the course of a number of days at arbitration and also subsequently re-litigate the claim in court. Again, this type of ruling is significantly more costly to the client then simply litigating the entire case at arbitration.

Claimant's counsel also argue that there were ongoing misrepresentations or omissions after the initial investment date and that such ongoing misrepresentations or omissions constitute the event upon which the Statement of Claim is based and that such claims are eligible for arbitration. These "misrepresentations" often relate to alleged statements of the representative to "hold the course" and not sell the investments which later decline and lead to losses in the account. In fact, there are some cases which Claimants invariably cite which stand for the proposition that such claims are independent and eligible. However, there are other cases which stand for the proposition that the event or occurrence is the actual purchase date and not any subsequent alleged misrepresentations or omissions. Once this issue is fully briefed before the panel, the panel is left to make a decision based upon the pleadings and the case law presented. Arbitration panels often determine that the purchase date event is the event or occurrence and thus claims based upon the purchase date are ineligible for arbitration but that subsequent misrepresentations are eligible for arbitration. These decisions essentially bifurcate the claim and Claimants often protest the inefficiencies of such a bifurcation.

However, Respondents have been successful on Motions to Dismiss on the basis of ineligibility and there have been situations where Claimants have foregone their claims after they are dismissed from arbitration. Based upon the instances of Claimant's abandoning their claims, it is recommended that clients file Motions to Dismiss on eligibility.[1]

Even if an arbitration panel were to deny a Respondent's Motion to Dismiss for Eligibility, it is still highly likely that the panel would consider the staleness of the claim in rendering a final award. Furthermore, Respondents can exploit the staleness of the claim by pointing to some type of prejudice which would prevent them from fairly defending the claim. For example, if certain documents are no longer in existence because the claim was filed at such a late date, then Respondents can point to the unavailability of such documentation and state that this impairs their ability to fairly defend the claim.

In the situation where the Claimant complains about the suitability of investments purchased in excess of six years prior to the filing of the Statement of Claim, then it is conceivable that account statements from other accounts predating the complained of transactions would be unavailable since broker-dealers are not required to maintain account statements in excess of six years from the date that the account was closed. To the extent that the Respondent is not able to explore the Claimant's relevant investment experience, this clearly undermines the ability of the Respondent to defend the case. Again, such prejudice would likely affect the arbitrator's ultimate decision regarding the eligibility for arbitration of the allegations pled in the Statement of Claim.

Motions to Dismiss on Eligibility are clearly warranted under the FINRA arbitration rules and should be pursued by Respondents. There are many benefits with respect to filing such a Motion, the most of important of which would be having the matter dismissed from arbitration and litigated in court where a judge would apply the applicable statute of limitations which would possibly bar all claims.

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