Securities Litigation

In Regulatory Notice 13-40, FINRA announced that the SEC had approved amendments to its Discovery Guide. The Discovery Guide applies to customer cases (rather than intra-industry cases) and outlines presumptively discoverable documents that the parties to an arbitration should exchange without FINRA or an arbitrator intervening. The amendments concern three areas: (1) electronic discovery, (2) product cases, and (3) affirmations. First, the Discovery Guide was amended to clarify that electronic files are "documents" under the meaning of the Discovery Guide and that arbitrators should decide any disputes over the form of production of documents. The parties are encouraged to agree to the form of production, and the parties are required to produce files in a "reasonably usable format." A reasonably usable format is generally the format in which a document is stored or a format to which a document is converted that does not make it more difficult to use. Arbitrators, when deciding motions concerning the format of productions, are instructed to consider the totality of the circumstances, paying special attention to: (i) the form the documents are stored in ordinarily if produced by a party, and whether the chosen form of production differs; (ii) the form in which documents provided by a third-party were provided to a party, and whether the chosen form of production from the party differs; and (iii) the reasons for and effects of any conversions of documents away from their original format. FINRA also explicitly notes that cost and burden may be considered in the context of electronic documents. Second, the Discovery Guide was amended to differentiate between product cases and other customer cases. The guide now notes that product cases may require the production of additional documents beyond the two existing Document Production Lists. Examples of additional needed documents include documents about a firm's creation of a product and documents about due diligence reviews of a product. The amendments also empower arbitrators to seek explanation from the parties as to why the parties believe that a case is or is not a product case. Finally, the Discovery Guide was amended to address affirmations when a party indicates that it has been unable to locate responsive documents in its possession, custody, or control or a party makes only a partial production. The guide explains that, upon the request of a party seeking a document that was not produced,

…the customer or the appropriate person in the brokerage firm who has knowledge, must: 1) affirm in writing that the party conducted a good faith search for the requested document; 2) describe the extent of the search including, but not limited to, stating the sources searched; and 3) state that, based on the search, the party does not have the requested document in the party's possession, custody, or control.

Arbitrators are also empowered to order affirmations regarding requests for documents beyond those contained in the Discovery Guide.

The amendments are effective for all customer cases filed on or after December 2, 2013.

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