Corporate & Securities Law

FINRA has just amended its rules regarding disposition of promissory note claims that are filed in arbitration. According to a FINRA release, FINRA is amending its Code of Arbitration Procedure for Industry Disputes to establish new procedures for administering cases that solely involve a firm's claim that an associated person failed to pay money owed on a promissory note.  FINRA states that in the absence of additional allegations by firms or by associated persons, promissory note cases involve straightforward contracts with few documents entered into evidence. 

Accordingly, parties will choose a single public arbitrator from the roster of arbitrators approved to hear statutory discrimination claims.  FINRA believes that the arbitrators on this roster are especially suited to resolve these disputes because of the depth of their experience and their familiarity with employment law.

Second, if the associated person does not file an answer, simplified discovery procedures will apply and, regardless of the amount in controversy concerning the note, the single arbitrator will render an award based on the pleadings and other materials submitted by the parties.  In other words, no arbitration hearing.

Third, if the associated person files an answer (but does not seek any additional relief or assert any counterclaims or third party claims), regular discovery procedures will apply, and regardless of the amount in controversy, the single arbitrator will hold a hearing.

Finally, if the associated person files a counterclaim or third party claim, then regular discovery procedures will apply and the number of arbitrators will be based on the amount of the counterclaim or third party claim.  If the counterclaim or third party claim is not more than $100,000, exclusive of interest and expenses, the Director will appoint a single public arbitrator from the roster of arbitrators approved to hear statutory discrimination claims. 

These revisions are significant and reps who are dealing with promissory note claims clearly should seek counsel to formulate appropriate defenses and strategies in view of this Rule.  Those with questions should feel free to contact attorneys at SNSFE.

Source:  FINRA Regulatory Notice 09-48