Determining whether specific arbitration agreements can override the general obligation to arbitrate at FINRA is crucial. This requires understanding regulatory rules, contractual agreements, and relevant legal cases. Understanding the nuances of these legal frameworks helps in comprehending how arbitration agreements interact with regulatory obligations.
General Obligation Concerning Arbitration at FINRA
FINRA Rule 12200 requires FINRA members (or associated persons) and customers to arbitrate disputes at FINRA if:
- The customer requests arbitration.
- The dispute relates to the member’s or associated person’s business activities.
FINRA arbitration ensures investor protection and fair, efficient dispute resolution. FINRA’s process is well-regulated and provides a structured environment for resolving conflicts. If an investor requests a dispute to be heard, the dispute must adhere to FINRA’s rules. This is applicable only if the disagreement pertains to the business activities of a FINRA member or associated person.
Specific Arbitration Agreements
Parties may sign specific agreements that designate different forums for arbitration. These agreements can sometimes conflict with FINRA’s general requirement, leading to disputes about which rule applies. Specific agreements might specify arbitration through other organizations, such as the American Arbitration Association (AAA) or the International Chamber of Commerce (ICC). These agreements may be valid based on factors like clear terms and legal rules for arbitration.
Parties frequently create arbitration agreements to tailor the process to their preferences. They may also select a forum that they believe will be more suitable for their dispute. Carefully write these agreements to ensure they don’t violate mandatory FINRA rules.
Renaissance Capital Group, Ltd. v. Hedge Fund Administrators Ltd.
In this case, the agreement specified a forum under the rules of the International Chamber of Commerce (ICC). The court enforced this specific arbitration agreement, allowing arbitration through the ICC instead of FINRA. The court relied on the Federal Arbitration Act (FAA), which supports honoring agreements as written.
The Renaissance Capital case demonstrates how courts can enforce specific agreements over general regulatory obligations. The court emphasized the significance of the Federal Arbitration Act (FAA), which supports enforcing agreements as written. This case shows that clear, specific agreements can override FINRA rules if they follow the FAA’s policy.
The FAA supports arbitral agreements, and courts usually respect the parties’ choice to resolve disputes in their chosen forum. The main reason for this situation was the clear and specific wording of the arbitration agreement. The agreement clearly stated that the ICC would handle the matter.
Merrill Lynch v. Georgiadis
In Merrill Lynch v. Georgiadis, the agreement required a dispute resolution process through FINRA. Georgiadis later sought a hearing through a different forum based on a subsequent agreement. The court enforced the original FINRA requirement. It stressed the rules that require the use of FINRA for disputes related to the business activities of FINRA members.
This case shows that you must arbitrate at FINRA unless there is a specific agreement saying otherwise. If there is a disagreement, you have to use FINRA’s process unless you agreed to a different method.
This highlights the need to follow FINRA’s rules for resolving disputes. It also stresses the importance of having clear agreements to avoid confusion or disputes in the future.
The court emphasized the rules that require resolution at FINRA for disputes involving FINRA members’ business activities. The decision highlighted the importance of following FINRA’s regulatory requirements, especially when the dispute involves activities central to the operations of FINRA members.
The Merrill Lynch case shows that if there isn’t a clear agreement saying otherwise, the rule to arbitrate at FINRA will apply. This decision reinforces the protective role of FINRA’s arbitration framework and its importance in maintaining the integrity of dispute resolution in the securities industry.
Can Arbitration Agreements Modify a FINRA Clause?
The key question is whether a specific agreement can defeat the general obligation to arbitrate at FINRA. This depends on the clarity of the clause and the court’s interpretation of regulatory and federal policies.
- The Renaissance Capital case shows that clear, arbitration agreements can override FINRA rules if they follow the FAA. The court’s decision to honor the ICC clause highlights the FAA’s support for enforcing such agreements.
- In the Merrill Lynch v. Georgiadis case, if there is no clear agreement, the rule is to arbitrate at FINRA. The court’s decision highlights the importance of FINRA’s rules in ensuring fair dispute resolution for investors.
Courts carefully consider the specific language of agreements and the broader regulatory context. This ensures fair dispute resolution under the FINRE Rule 12200. Courts aim to balance specific agreements with rules that protect investors and ensure a fair arbitration process.
About Bakhtiari & Harrison 
Bakhtiari & Harrison is a law firm that helps investors and financial advisors with FINRA cases and lawsuits. They handle cases involving investment losses, fraud, and breaches of fiduciary duty. The firm has extensive FINRA experience, we guide and represent clients in complicated financial disputes.
Bakhtiari & Harrison dedicate themselves to fair dispute resolution and actively protect investors’ rights, especially those vulnerable to dishonest financial practices. They create thorough legal strategies to address specific and general agreements. This ensures clients get the justice and compensation they deserve.