State Developments May Have Big Impact on FINRA Arbitration Proceedings

Recently, the Florida Supreme Court issued a decision ruling that the state’s statute of limitations (“SOLs”), or laws that limit the time within which a party can bring a lawsuit against another party, applies not only to court proceedings, but also to securities arbitration cases between investors and their brokers.  As such, this ruling allows securities arbitrators in Florida to cut the time investors have to file a complaint with the Financial Industry Regulatory Authority’s (“FINRAs”) arbitration division.  This ruling may have a significant impact on those seeking to file such a complaint due to the large disparity between Florida and FINRA SOLs.  Whereas FINRA typically allows investors to bring a claim if they are filed within six (6) years from the event giving rise to the claim, Florida law imposes a four (4) year deadline to file a negligence case, and a two (2) year deadline to bring a claim under Florida’s securities fraud law. 

Florida is not the only state implementing such rules, however.  In Washington State, previous state court rulings have held that Washington’s SOLs should not be applied to arbitration proceedings that would prohibit claims otherwise valid if brought under FINRA’s SOL rules.  In response to these cases, the state legislature recently amended its Uniform Arbitration Act, allowing Washington’s SOLs to apply to such arbitration proceedings.  The rule, which will become effective on July 28, 2013, states “a claim sought to be arbitrated is subject to the same limitations of time for the commencement of actions as if the claim had been asserted in court.”  Washington did provide additional protection for investors, though, by allowing pre-dispute arbitration agreements to specify what the SOL governing the agreement will be, so long as such agreements are “reasonable.” 

It remains to be seen just how large an impact these developments may have, or how many other states may follow suit.  However, broker-dealers and investors should be aware of the regulations in their respective states, and be sure that any contracts that include a pre-dispute arbitration provision specify what rules are to govern.

For further information on this, or other related topics, please contact us at info@jackolg.com or (619) 298-2880.

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