SIDE BAR: FINRA CODE OF ARBITRATION PROCEDURE FOR CUSTOMER DISPUTES Rule 12206: Time Limits(a) Time Limitation on Submission of ClaimsNo 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. The panel will resolve any questions regarding the eligibility of a claim under this rule.(b) Dismissal under Rule
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.(1) Motions under this rule must be made in writing, and must be filed separately from the answer, and only after the answer is filed.(2) Unless the parties agree or the panel determines otherwise, parties must serve motions under this rule at least 90 days before a scheduled hearing, and parties have 30 days to respond to the motion. Moving parties may reply to responses to motions. Any such reply must be made within 5 days of receipt of a response.(3) Motions under this rule will be decided by the full panel.(4) The panel may not grant a motion under this rule unless an in-person or telephonic prehearing conference on the motion is held or waived by the parties. Prehearing conferences to consider motions under this rule will be recorded as set forth in Rule 12606.(5) If the panel grants a motion under this rule (in whole or part), the decision must be unanimous, and must be accompanied by a written explanation.(6) If the panel denies a motion under this rule, a party may not re-file the denied motion, unless specifically permitted by panel order.(7) If the party moves to dismiss on multiple grounds including eligibility, the panel must decide eligibility first.
- If the panel grants the motion to dismiss the case on eligibility grounds on all claims, it shall not rule on any other grounds for the motion to dismiss.
- If the panel grants the motion to dismiss on eligibility grounds on some, but not all claims, and the party against whom the motion was granted elects to move the case to court, the panel shall not rule on any other ground for dismissal for 15 days from the date of service of the panel's decision to grant the motion to dismiss on eligibility grounds.
- If a panel dismisses any claim on eligibility grounds, the panel must record the dismissal on eligibility grounds on the face of its order and any subsequent award the panel may issue.
- If the panel denies the motion to dismiss on eligibility grounds, it shall rule on the other bases for the motion to dismiss the remaining claims in accordance with the procedures set forth in Rule 12504(a).(8) If the panel denies a motion under this rule, the panel must assess forum fees associated with hearings on the motion against the moving party.(9) If the panel deems frivolous a motion filed under this rule, the panel must also award reasonable costs and attorneys' fees to any party that opposed the motion.(10) The panel also may issue other sanctions under Rule 12212 if it determines that a party filed a motion under this rule in bad faith.
(c) Effect of Rule on Time Limits for Filing Claim in CourtThe 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, 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) Effect of Filing a Claim in Court on Time Limits for Filing in ArbitrationIf a party submits a claim to a court of competent jurisdiction, the six-year time limitation will not run while the court retains jurisdiction of the claim matter.
[T]he claims set forth in Claimants' Statement of Claim amount to no more than a claim of unsuitability, which occurred at the time of purchase, more than six years ago. The Panel did not find that there was any action or inaction by either Claimants' financial advisor or Respondent following the purchase that would constitute an event or occurrence to bring this case within the six-year eligibility of FINRA Rule 12206. Therefore, Claimants' claims are dismissed.Respondent's Motion to Dismiss pursuant to Rule 12206 is granted by the Panel without prejudice to any right Claimants have to file in court; Claimants are not prohibited from pursuing their claims in a court pursuant to Rule 12206(b) of the Code.
Page 38 of PIABA ArticleVII. CONCLUSIONFor over twenty years, the courts and FINRA have been telling the brokerage industry that the purchase date is not, as a matter of law, the "occurrence or event" that determines the eligibility of claims under FINRA Rule 12206 and its predecessors. Rather, post-Howsam the "occurrence or event" giving rise to a claim is a factual inquiry left to the arbitrators and the purchase date is often not the trigger for the six-year time limit.
Pages 4 - 5 of AboutSecuritiesLaw.com ArticleIn many FINRA customer arbitrations, there are underlying elements of fraud and instances of an ensuing "cover up," or ongoing omissions in supervision and/or disclosure. In these cases, the triggering "event or occurrence" rightfully should be when the victim actually discovered that they had been harmed. Investors are frequently recommended unsuitable investment products, which the respective investor does not appreciate were unsuitable until the previously latent, hidden risks come to bear and manifest themselves to the investor in the form of significant losses or illiquidity.To hold that the six year clock does not begin to run until the customer becomes aware that they had been harmed is consistent with previous holdings going back as far as 20 years by the NASD's own Director of Arbitration. The FINRA Director of Arbitration has denied motions to dismiss in cases under the former eligibility rule (Section 15 of the NASD Code of Arbitration) on various occasions, holding that "[I]t has been determined that the purchase date is not the event of occurrence that gave rise to this dispute. Also, Section 15 does not refer specifically to the purchase date as the time that the six year limitation begins to run. Therefore, it is equally appropriate that the discovery by the claimant be treated as the occurrence or event giving rise to the dispute." Order of Director of Arbitration (July 26, 1991).