Via the Securities Law Prof Blog, we learned of SEC Commissioner’s Elisse B. Walter’s comments on mandatory securities arbitration at the 2011 annual NASAA Conference: Regardless of changes in the relationship between investors and the professionals to whom they turn for advice, disagreements will arise that need to be resolved quickly and fairly. Following the dictates of Dodd-Frank, the SEC intends to thoroughly review the mandatory arbitration provisions that are written into most brokerage contracts. I believe that in recent years FINRA has provided a relatively cost-effective way to fairly resolve disputes. Nonetheless, I also completely understand the frustration of investors who are denied their opportunity for a day in court and find themselves forced to make their case in front of an arbitration forum. As readers may already know, the Restoring American Financial Stability Act of 2010 (a.k.a. the “Dodd-Frank Wall Street Reform and Consumer Protection Act” ) would give the SEC the power to ban or limit mandatory arbitration in certain agreements. The final version of the bill is here. Here are some relevant provisions: SEC. 921. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION. (a) AMENDMENT TO SECURITIES EXCHANGE ACT OF 1934.—Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o), as amended by this title, is further amended by adding at the end the following new subsection: ‘‘(o) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.— The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.’’. (b) AMENDMENT TO INVESTMENT ADVISERS ACT OF 1940.—Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–5) is amended by adding at the end the following new subsection: ‘‘(f) AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.— The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any investment adviser to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.’’ Stay tuned. Technorati Tags: law, ADR, arbitration  

In Cape Flattery Limited v. Titan Maritime, LLC, No. 09-15682 (9th Cir. July 26, 2011) Cape Flattery, a shipowner had contracted with Titan, a salvage company, to remove a stranded vessel from a reef. The contract contained the following arbitration clause: Any dispute arising under this Agreement shall be settled by arbitration in London, England, in accordance with the English Arbitration Act 1996 and any amendments thereto, English law and practice to apply. Titan moved the vessel from the reef, however, serious damage was inflicted on the reef and the U.S. government sued Cape Flattery for $15 million for damages to natural resources pursuant to 33 U.S.C. 2702(b)(2). Shortly thereafter, Cape Flattery sued Titan seeking indemnity and/or contribution alleging gross negligence in its salvage of Cape Flattery’s vessel. Titan moved to compel arbitration pursuant to the salvage agreement. The district court, however, refused to compel arbitration. Titan appealed. The Ninth Circuit held that the claim for indemnification was collateral to the salvage contract and did not “arise out of” that contract. The court agreed with the trial court’s reasoning that the “arising under” language in the agreement signifies a narrow arbitration agreement. If the parties had intended all disputes associated with the contract to be resolved by arbitration, the court said, the parties would have used broader language such as “arising out of or relating to.” Therefore, the court concluded that the present dispute was not arbitrable.

The International Chamber of Commerce (“ICC”) released its new Arbitration and ADR Rules on September 12, 2011, in Paris. The Rules, effective on January 1, 2012, address developing issues in international arbitration, such as multiparty contracts and causes of delay and excessive costs. Read the ICC press release here. The Rules may be downloaded here. Technorati Tags: arbitration, ADR, law

In Janvey v. Alguirre, No. 10-10617 (5th Cir. July 22, 2011) the Securities and Exchange Commission (“SEC”) brought suit against the investment company Standford Group Company (“SGC”) and related entities for allegedly perpetrating a massive Ponzi scheme. The U.S. District Court for the Northern District of Texas granted a motion for a preliminary injunction brought by the court appointed receiver for SGC (“Receiver”) against numerous former financial advisors and employees of the investment company (“Employee Defendants”), freezing the accounts of those individuals pending the outcome of trial. In the present case, the Employee Defendants filed an interlocutory appeal setting out the following issues: (1) whether the district court had the power to grant a preliminary injunction before deciding the motion to compel arbitration; (2) whether the district court abused its discretion when it granted the preliminary injunction; (3) whether the district court’s preliminary injunction is overbroad; (4) whether the district court properly granted a preliminary injunction rather than a writ of attachment; and (5) whether the Receiver’s claims against the Employee Defendants are subject to arbitration. The Fifth Circuit held as follows: (1) the district court had the power to decide the motion for preliminary injunction before deciding the motion to compel arbitration; (2) the district court did not abuse its discretion in granting a preliminary injunction; (3) the preliminary injunction was not overbroad; and (4) the district court acted within its power to grant a Texas Uniform Fraudulent Transfer Act (“TUFTA”) injunction rather than an attachment. We further hold that we do not have jurisdiction to rule on the motion to compel arbitration. Technorati Tags: arbitration, ADR, law