FINRA Arbitrator Says It's Too Late To Turn Back Now

January 27, 2020

When is "enough" enough?  When does "reasonable" become "unreasonable?" How many times does it take before "infrequent" is deemed "frequent?" In a recent FINRA intra-industry arbitration, the Arbitrator was asked to decide whether an expungement claim was filed "timely." FINRA's so-called Six-Year Eligibility Rule offers some guidance on the issue, but it depends upon when you set the date by which the countdown begins. Be that as it may, are there some claims that are just too old for expungement? How about one that's been steeping and brewing for 17 years? 

Case In Point

In a FINRA Arbitration Statement of Claim filed in August 2019, associated person Claimant Pimental sought the expungement of a customer complaint from his Central Registration Depository record ("CRD"). Respondent JP Morgan generally denied the allegations and asserted various affirmative defenses. In the Matter of the Arbitration Between Daniel Lawrence Pimental, Claimant, v. J.P. Morgan Securities Inc, Respondent (FINRA Arbitration Decision 19-02601)

Motion to Dismiss

In October 2019, Respondent JP Morgan filed a Motion to Dismiss pursuant to FINRA Rule 13206, which Claimant Pimental opposed.

SIDE BAR: FINRA Code of Arbitration Procedure for Industry Disputes Rule 13206: Time Limits:

(a) Time Limitation on Submission of Claims
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. 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 13606.
(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 13504(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 13212 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 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, 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 Arbitration
If 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.

Arbitrator Grants Motion

In granting Respondent JP Morgan's Motion to Dismiss, the sole FINRA Arbitrator explained in part that:

[C]laimant had ample opportunity to bring a timely claim to expunge the disclosure; after 17 years the evidence for or against an expungement recommendation has likely deteriorated; and Respondent should not be forced to incur further costs or expenses to defend itself against Claimant's untimely, ineligible claim. 

Respondent's Motion to Dismiss pursuant to Rule 13206 of the Code is granted by the Arbitrator without prejudice to any right the Claimant has to file in court; the Claimant is not prohibited from pursuing his or her claims in a court pursuant to Rule 13206(b) of the Code.

Bill Singer's Comment

Compliments to FINRA Arbitrator Denise L. Presley for getting to the point and doing so with authority. Although I would love to provide you with my own brilliant insights about Arbitrator Presley's rationale, she has done so in a manner that makes any further commentary from me superfluous. Frankly, this is as good as it gets when it comes to the preparation and publication of a FINRA Arbitration Decision! Accordingly, I stand aside and let Presley's words speak for themselves:


Respondent was the successor in interest to the company that Claimant was affiliated with during the time he was the customer's financial advisor. Sometime after Respondent's February 2000 acquisition of Claimant's former employer, Claimant affiliated with another broker dealer. On or about August 28, 2019, Claimant filed a claim seeking expungement of customer dispute Occurrence Number 1114017 from his registration records maintained by the CRD dated December 20, 2002, which disclosed a customer complaint that Respondent settled, and to which Claimant contributed. Respondent's Motion to Dismiss is based on FINRA Rule 13206, which states: 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. The panel will resolve any questions regarding the eligibility of a claim under this rule (hereinafter, the "Rule"). Accordingly, Respondent argues that Claimant's petition should be dismissed because 17 years have passed since the event giving rise to a claim, so dismissal is plainly required under the Rule; and as a matter of law, pursuant to Massachusetts' statutes of limitation and repose. 

For his part, Claimant argues that the time period for eligibility to arbitrate this matter should be tolled because: the Rule does not establish a 'bright line' for determining timeliness of making a claim and arbitrators have the authority to rule on eligibility on a case by case basis; publishing the disclosure constitutes an ongoing occurrence or event; and Claimant wasn't a party to the aforementioned settlement. 

Respondent counters that it has not yet located documents concerning Claimant's work history with the customer, and should not be required to incur additional expenses in light of the undisputed fact that the disclosure was known to Claimant at or near to the time it was filed in December 2002, and he could have filed his claim for expungement within the 6 years that followed. 

In addition to the claim filing limitation imposed by the Rule, Respondent argues that the statute of repose should apply to determining the timeliness of Claimant's petition for expungement. That argument is misplaced because the Massachusetts statute of repose reflects a legislative decision that is more important to protect certain defendants from old claims than it is to protect the rights of plaintiffs to enforce potentially meritorious claims. Under M.G.L. c. 260 the repose clock starts to run, not at the time the cause of action accrues, but at a time established by statute, which identifies numerous 'protected defendants' but none appear to ensue to the benefit of Respondent. Nevertheless, Respondent can avail itself of Massachusetts's statute of limitations, which limits to 6 years the time in which a plaintiff may bring an action "after the cause of action accrues". Notably, the same amount of time allowed by the Rule. It is true that the Rule authorizes arbitrators to toll the aforesaid time limits, however, the Rule contemplates that arbitrators will consider the circumstances of each case in making such a decision. 

Ordinarily, when a plaintiff knows or reasonably should know that he or she has suffered harm and that the harm was caused by the defendant's conduct, the statute of limitations begins to run ... unless that knowledge is delayed due to a defendant's fraudulent concealment or other misrepresentation. Here, Claimant testified during the hearing that he was aware of the disclosure on his CRD when it was filed. Moreover, when Respondent demanded his financial contribution to a settlement to resolve the Customer's complaint, Claimant testified that he was represented by counsel. Nonetheless, he claims he had no opportunity to defend himself against the charges before agreeing to contribute to the settlement. Interestingly, Claimant's CRD reflects another customer complaint that was settled in 2008 (by a different employer), but according to BrokerCheck® Claimant did not contribute to that settlement or challenge that disclosure. 

When questioned about his delay in asserting his rights, Claimant testified it's only been within the last three years that the subject disclosure demonstrably started to harm his business. Perhaps, but it strains credibility that Claimant would have paid such a significant sum of money to an organization, with whom he says he had no contractual relationship (and also blames for the recommendations that may have resulted in the customer's complaint) without at least filing a response to the disclosure citing the information he now relies upon to essentially re-open the nearly 17 year old customer dispute. Further, the cases Claimant cites as support to toll the 6 year time limit to bring a claim do not persuasively support a 12 year tolling of the statute of limitations under Massachusetts common law, or the Rule or the facts in this case. 

Next, Claimant provided little pertinent authority to support his theory that as long as the disclosure is publicly available his 'harm' arising from the event continues and therefore the disclosure constitutes an ongoing 'occurrence or event' rendering the 6 year statute of limitations immaterial. This theory is commonly applied in personal injury claims, but rarely extends to a myriad of publicly available adverse information i.e. credit reports, civil money damage judgments, inferior higher education transcripts, and divorce decrees containing off-putting personal information. All can exist in the public domain long-term and can have a negative impact on one's employment or business prospects. 

Finally, Claimant's argument that he wasn't a participant in the settlement is not quite true. He did contribute to the settlement amount, and with the aid of legal counsel. Further, any of the grounds for expungement specified in FINRA Rule 2080 were applicable, Claimant had ample opportunity during the six year period following the settlement to demand arbitration of the propriety of Respondent's actions as they affected him. Instead, he waited and now makes the bare assertion that "Following the events of September 11, 2001, Respondent insisted that clients stay invested and not sell their equities. Claimant had no involvement in making this recommendation to Customer." [See SOC at ¶ 9] This is a serious claim, which would require Respondent to defend itself even though Claimant has presented no prima facie evidence to fairly require such an order. 

FINRA's guidance to arbitrators states "An expungement of a disclosure on a financial advisor's U-5 is an extraordinary remedy that should be recommended only under appropriate circumstances."

In light of the foregoing, Respondent's Motion to Dismiss is granted.