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FINRA Arbitration Rules: What’s Allowed During Discovery?

If you’ve started the FINRA arbitration process, you probably have a lot of questions about what happens once you file your FINRA statement of claim. Many claimants ask one question: How can I get the information to support my claim? As you or your FINRA arbitration lawyer drafts a pre-hearing brief, you will review what evidence you can provide to support your claims. Usually, you can gather this information through the FINRA discovery process. 

Using the FINRA Discovery Guide, an experienced securities lawyer can help you obtain the documents you need to support your claim. At Kurta Law, we specialize in helping victims of securities fraud navigate the often-confusing FINRA arbitration process. We have prepared this brief guide to the FINRA arbitration rules governing the arbitration discovery process. This guide should empower claimants like you as we help you prepare for arbitration.

How Does Discovery Work During FINRA Arbitration?

The FINRA discovery process allows the parties to obtain necessary documents and information from each other and third parties. The information exchanged during the discovery process is meant to support claims made in FINRA arbitration. Information obtained during the discovery process should also be used during the final arbitration hearing. 

The FINRA arbitration rules have a special section on pre-hearing procedures and discovery. FINRA Rule 12500 describes the process of making discovery requests in detail. The same rule discusses the procedure for objecting to requests and specifies the consequences for failing to meaningfully participate in the discovery process. While most people consider FINRA arbitration similar to a “mini-trial,” it has some meaningful differences from civil litigation. The discovery process is one of those differences.

The FINRA Discovery Guide

The discovery process begins shortly after you file your statement of claim. Once your statement of claim is served on the other party, the FINRA arbitration process has formally begun. The parties then receive a copy of the FINRA Discovery Guide. The FINRA Discovery Guide spells out the rules of discovery in FINRA arbitration in terms everyone can understand. This guide contains a list of all documents the parties to an arbitration must produce for one another under the FINRA arbitration rules. 

How Do FINRA Arbitration Rules Differ from the Rules of Civil Procedure for Discovery?

FINRA arbitration is a faster, often cheaper way to resolve disputes between investors and brokers or brokerage firms. Civil litigation is a long, expensive process often unavailable in the securities industry due to the near-universal use of arbitration clauses. Some key ways FINRA arbitration discovery rules differ from discovery rules outlined in the Rules of Civil Procedure include:

  • No interrogatories can be used in the FINRA arbitration discovery process;
  • FINRA provides specific lists of automatically discoverable documents; and
  • No subpoenas are required to get documents from third parties who are FINRA members.

While this may seem like a limited list, in practice, these are big differences. In civil litigation, the idea of obtaining third-party documents without a document subpoena is simply unheard of. These differences help make FINRA arbitration a less expensive and faster choice for claimants and respondents alike.

Serving and Responding to Basic Discovery Requests

The FINRA arbitration discovery phase has some similarities with discovery in civil litigation. Like civil litigation, parties need to respond in good faith to discovery requests. However, in FINRA arbitration, there is no need to serve initial discovery requests on the other party. The FINRA Discovery Guide lists documents a claimant and respondent need to provide during arbitration. 

FINRA arbitration rules also allow parties to file objections to discovery requests if needed. 

FINRA Rule 12508 allows a party to produce a written objection to a discovery request and considers unraised discovery objections waived. Therefore, it is important to ensure you raise any discovery objections during the FINRA arbitration discovery period. If you don’t, the arbitration panel may determine you have waived any objection to producing that information. Engaging an experienced securities lawyer to help you handle FINRA arbitration discovery requests and objections properly will give you the best chance of success for your case.

Limiting the Scope of Standard Discovery Tools

1. Interrogatories

If you have ever been involved in a lawsuit before, you may be familiar with a discovery tool called “interrogatories.” In civil litigation, interrogatories are lists of questions the parties serve on each other. Each side is expected to answer the questions posed by the other side before going to trial. FINRA arbitration rules, however, prohibit the use of this discovery tool. ​​FINRA Rule 13506 states “Standard interrogatories are generally not permitted in arbitration.” If you have questions about handling the limited scope of discovery without the use of interrogatories, our team at Kurta Law is eager to help. We have helped thousands of claimants recover their losses through FINRA arbitration.

2. Document requests

Though it limits the use of interrogatories, FINRA Rule 13506 allows the use of document requests in arbitration. This permits the parties to ask each other for any kind of relevant documents. In this regard, FINRA arbitration rules allow document requests similar to the document requests allowed under the Federal Rules of Civil Procedure. 

However, in practice, FINRA arbitration is typically done on a faster and less expensive scale than federal court litigation. Document requests outside the FINRA Discovery Guide’s scope are not necessarily cost-effective investments in arbitration.

What Are FINRA Arbitration Rules About Seeking Information from Third Parties?

Under FINRA Rule 12206, you have six years to file your FINRA arbitration claim. During that time, many things can change. Most commonly, your former stockbroker has changed firms, or another brokerage firm has bought the brokerage firm responding to your arbitration claim. In these circumstances, the FINRA arbitration rules authorize the arbitration panel to direct the production of documents by, or the appearance of, any non-party FINRA member firm or broker without needing a subpoena.

This means for you as a claimant that if an investment adviser or broker-dealer not party to the arbitration has relevant documents or information, you can obtain the documents needed for proper discovery. However, both the claimant and the respondent can obtain the documents from a third party. There are also some steps under the FINRA arbitration rules you need to follow before obtaining third-party documents. Each impacted party will get a say in the process: the claimant, respondent, and the third party. To help guarantee success in obtaining third-party documents, make sure to start the process of requesting them as early as possible during discovery. Your lawyer will be able to best direct the timing sequence for filing a third-party document request. 

Do FINRA Arbitration Rules Allow for Motions to Compel Discovery?

If you are familiar with the court system, you know civil lawsuits can drag on forever. These delays are due in part to something called “motion practice.” Typically, this means lawyers filing motions asking the court to make pre-trial rulings on various issues. The FINRA arbitration rules allow for limited motion practice. FINRA Rule 12503 sets forth the parameters for FINRA arbitration motion practice.

In addition, FINRA Rule 13509 explicitly allows motions to compel. A motion to compel is a filing asking a judge (or, in this case, the panel of arbitrators) to force the other side to do something. Typically, a motion to compel is directed at the production of discovery. 

For the best chance of success with your motion to compel, make every effort to resolve your discovery dispute informally first. Avoid overbroad discovery requests. Having an experienced securities lawyer with deep expertise in FINRA arbitration at the helm of your case can make a huge difference in the cost, timing, and ultimate effectiveness of your arbitration claim. 

How Kurta Law Can Help Your FINRA Arbitration Case

At Kurta Law, we have been arbitrating FINRA cases for over 25 years. Our firm is nationally recognized, and we are proud to say that we assist clients who are located all over the world. Importantly, we do not work for banks or brokers—we only work for investors like you. Our goal is to help you recover your losses and get back on your feet as soon as possible. We have a reputation for tenaciously pursuing our clients’ interests while providing a personal touch. Contact us today for a free consultation.