A new twist we have been seeing in the Stipulated Awards of late is a statement in the Award that the merits dispute was settled between the parties with the Claimant customer agreeing to a dismissal with prejudice of all claims against the Respondents. What’s wrong with that?
Well, nothing, if, indeed, as happens from time to time, the claiming customer had second thoughts and decided to drop the claim, issue is joined and the Respondent(s) wants it clear that the claim was bogus and the action is dead and will not return. In a couple of instances, though, we have been surprised to learn, when we communicated with counsel for the Claimants, that settlements of some magnitude (six figures in one case, according to BrokerCheck) had preceded the stipulation to a dismissal with prejudice.
Surprise, You Lost!!
Counsel were also surprised to find that we had recorded the Award as a win for Respondents and reported it that way in SAC’s award reporting service (n/k/a UPDATE:ARBchek (UA), a weekly email alert). If the Award does not mention any details about the settlement except the dismissal, we feel obliged to score the case as a loss for the customer (and named counsel). In cases where the broker seeks expungement and relief is granted by the merits panel, FINRA requires an explanation (RN 08-79) and that explanation will often alert us to the payment of money to the Claimant, in consideration of the dismissal of all claims. It may not, but if it does, then, in that case, the Award will be properly recorded and reported in the UA and SAC’s Award Database as a settlement instead of a loss. The grant of expungement will be recorded as relief on the counterclaim.
Defeat from Victory’s Jaws
On the other hand, when the broker’s bid for expungement fails, arbitrators will commonly forego adding insult to injury by explaining why they decided to deny the broker’s request. With no explanation regarding the expungement proceedings and the bare statement of an outright dismissal, the Award appears to be a loser. Of course, counsel for the customer must serve the best interests of the client in settlement negotiations and agree to terms, as leverage and prudence requires, but positioning a good settlement so that it reads in the stipulation like a loser seems contrary to what the Claimant would want to show the family. Moreover, the public presentation of this Award will reflect, at least on the “four corners” of the Award, a loss for Claimant.
Dismissal Much Help?
Let’s view the other side. For what practical/tactical reasons might the broker want a “dismissal with prejudice,” in a case where the dispute settled with a significant payment to the Claimant? The arbitrators during the expungement hearing will now, under the provisions of FINRA Rule 12805, review the settlement documents and ascertain the amount of payments, so touting the dismissal to the arbitrators will not take the broker very far, especially if s/he participated in the payments. In one six-figure case, the broker got the dismissal, but still lost in his quest for expungement. CRD/U4 reporting may record the outcome as a dismissal with prejudice, but the settlement will also be disclosed and the “status” on CRD will most likely say “settled.” The broker retains some bragging rights, we suppose, but only to friends, family and those who do not bother to check the CRD record.
(ed: *Claimants’ counsel should be wary of this practice, we would think. **A stipulated dismissal does not alter SAC’s “win” rate calculations, because we omit Stipulated Awards. In arbitrator ranking situations, though, we worry that parties will be misled about an arbitrator’s “win” rate. ***This reminds us of a practice that developed in the early 90’s in Florida arbitrations, where punitive damages were awarded. The State was taking a chunk of punitive damage awards under F.S. § 768.73 (see, “Florida & Punitives,” SAC, Vol. V, No. 7(12) (May 1993). To end-run the statutory requirement, a cooperative arrangement arose in which respondents would start a vacatur proceeding, claimants would consent to vacatur, and, in a side agreement, the parties would settle on a sum to be paid in lieu of the punitive award. Clever -- but fishy! Here, the stipulated dismissal does not appear to end-run the expungement process (maybe it does and we’re not seeing it. Readers?), but, more widely practiced, it could create distortions in the public record. ****These puzzling Awards do crop up from time to time. Here’s an example from 2012: FINRA ID #11-00807. *****We acknowledge some “opinionating” in this arbitration-practice piece, so we invite reader comment in response.)
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