By Mark J. Astarita, Esq.
Arbitration awards are not, by themselves, enforceable in a court of law. The prevailing party must have the award "confirmed" by a court. The procedure is relatively simple and is governed by state and federal statutes. In New York for example, the procedure involves the filing of a petition with the court, reciting the details of the arbitration, and requesting that the award be confirmed.
While the confirmation procedure is simple, from an attorney's point of view, it is time consuming, taking up to three months to receive a judgment that can be used to collect money from the respondent. And, it involves the use of an attorney, and the attendant fees.
The various SROs have attempted to alleviate this problem, by including rules for members which make it a violation of SRO rules for a member to fail to pay an award. For example, the FINRA Code of Arbitration Procedure, requires that all monetary awards shall be paid within 30 days of receipt, unless a motion to vacate the award has been filed with a court of competent jurisdiction. Further, the section provides that the award shall bear interest if not paid in 30 days.
Apparently believing that the threat of interest was insufficient, the NASD Board of Governors (FINRA's predecessor) adopted a resolution in May, 1991, which states that it may be conduct inconsistent with the just and equitable principles of trade (and thereby subjecting the broker-dealer or broker to sanctions) and a violation of Article III, Section 1 of the Rules of Fair Practice, for a broker-dealer or broker to fail to pay an arbitration award in a timely fashion that was rendered by any of the SROs or the American Arbitration Association.
This same Board of Governors Interpretation also makes it a violation for a broker-dealer or a broker, to fail to submit a dispute to arbitration, to fail to appear at a hearing, or to fail to produce documents as directed pursuant to the Code of Arbitration Procedure.
In August, 1995, the SEC approved an amendment to the Interpretation of the Board of Governors, which also makes it a violation for a broker-dealer or a broker to fail to honor a written and executed settlement agreement obtained in connection with an SRO arbitration proceeding, or Mediation.
While there has apparently been no demonstration that any of these provisions were necessary, or that the industry was in any way ignoring arbitration directions or awards, the provisions are important for securities professionals to keep in mind, as they have the effect of over-riding state law. Under the law of many states, parties to an arbitration have 90 days after delivery of an award to move to vacate the award. The FINRA Interpretation has the effect of shorting that time period to 30 days, and brokers who rely on state law, and wait 90 days to file a motion to vacate, may well find themselves being named in a FINRAenforcement proceedings, for failing to pay, or move to vacate the award, within 30 days.
Do you have an issue with a securities or FINRA arbitration? With the experience of over 600 securities arbitrations in 24 states, the attorneys at Sallah Astarita & Cox, LLC can help you. Call 212-509-6544 for more information, or email us.