USE OF ADR IN

SECURITIES and FRANCHISING

Charles E. Rumbaugh

www.Rumbaugh.net

ADROffice@Rumbaugh.net

Session No.24
State Bar Business Law Section
Committee on ADR
9:00-12:00 am
May 15, 2004

A.            CURRENT TRENDS--Securities

1.      NASD “Forum” of choice. 

Website www.nasdadr.com

Arbitration Code, rules, statistics, etc.

California cases—waiver of “California Ethics Standards for

Neutral Arbitrators in Contractual Arbitration”

2.      Number of Arbitration claims filed, requests for mediation, settlement rates.

3.      Types of Securities

4.      Damages awarded in arbitration cases--2003: $132M

5.      Punitive damages awarded in 2003--$30M

6.      CURRENT “ISSUES” IN ARBITRATION OF SECURITIES DISPUTES:

·        “Discovery Abuse”

“Discovery Guide”

Sanctions

Production for evidence verses discovery

·        “Expungement of record in NASD Central Registration Depository (CRD)

Basis for expungement

Awards verses Stipulated/Consent awards

·        “Excessive” prearbitration motions

·        Last minute Postponements “requests”

·        Other:  NASD Employment disputes and….

2.   CURRENT TRENDS—Franchises

1.      AAA Forum of Choice.  Website:  www.adr.org

Others arbitral associations….

Applicable Rules

2.      CURRENT “ISSUES” IN ARBITRATION OF FRANCHISE DISPUTES:

·        Many franchise agreements provide for single/multi-step “voluntary” ADR process before binding arbitration

“Agreement to agree?”

·        Scope of arbitration clauses

“arising out of or relating to this contract”

Arbitration issues verses Court resolved issues

·        Arbitrability…for the courts or arbitrator?

Applicable Rules

                        Poweragent Inc. v. Electronic Data Sys.

                                    Inc., 2004 WL 345741 (9th Cir. Feb. 25, 2004)

·        Party-Appointed Arbitrators

Neutral verses non-neutral

Applicable/date of arbitration rules—Code of Ethics

·        Discovery Issues

Motions for Summary Judgment,

Schlessinger v. Rosenfeld et al 40 Cal. App. 4^th 1096

(1996)

                        See 2003 AAA “Dispute-Wise Management^®--

                              Improving Economic and Non-Economic

                              Outcomes In Managing Business Conflicts”

                              Report

·        Class Actions or additional parties?

                        Garcia v. DirecTV, Inc., No B158570 (Cal. 2d

                              App. Dist. January 28, 2004)

·        Venue

Will any State statute “control” venue question

notwithstanding contract provision providing for

venue?  See, e.g. Cal. B&P Code §20040.5

                        Role of Federal Arbitration Act (FAA)?

                        Unconscionability issues

·        Fees, Costs, Attorney Fees Recovered?

See Leamon v. Krajkiewcz, (F038025, Calif. Ct. of

Appeals, Fifth District, filed 2/24/2003), compliance with contractual pre-arbitration provision, i.e. mediation, required in order to obtain attorney fees?

·        Should/does the clause “require” the arbitrator to “follow the law?”

“Manifest Disregard of the Law” standard?

Grounds for appeal in contract?

·        Punitive Damages

·        Other