Developments in the World of Expungement
- United States
- 07/30/2008
As if it were not hard enough to obtain expungement under FINRA Rule 2130, you may find yourself with a state regulator in the case the next time you are seeking confirmation of an arbitration award. There was an important decision earlier this month by the United States Court of Appeals for the District of Columbia, in which the Court ruled that the State of Maryland had the right to intervene in a proceeding for confirmation of an arbitration award and seek to prevent records of consumer complaints from being expunged. In Karsner v. Lothian, 2008 WL 2727402 (D.C. Cir. July 15, 2008), the Maryland Securities Commissioner argued that the District Court erred in denying intervention because she had a substantial interest in ensuring the integrity of her records. The Court agreed and reversed and remanded. It found that the Commissioner’s motion to intervene was timely as it was filed less than one month after the petition was filed and before the District Court took any action and, therefore, did not act so late as to prejudice proceedings. Moreover, Maryland has a recognized property interest in the CRD, the action threatened to alter the CRD by expunging the information about the representative, and neither of the parties represented the Commissioner’s interest in protecting the integrity of the CRD.
This appeal only addressed the right to intervene and the Commissioner will now have to petition the District Court under FRCP 60(b) to void the judgment it entered confirming the award. The Court noted that the District Court will not be able to rely on Section 9 of the FAA as its authority for confirming the award as Section 9 does not provide for the confirmation of an arbitrator’s recommendation of expungement. The Court then addressed FINRA Rule 2130 and observed that it also requires a broker dealer member to “obtain an order from a court of competent jurisdiction directing such expungement or confirming an arbitration award containing expungement relief.” The Court noted that it does not read this language to include a mere recommendation for expungement.
As a practical matter, if you are fortunate to have a case that qualifies for expungement, it is important that the Panel’s award does not simply recommend expungement but orders or directs expungement. Even then, the procedures for confirmation of the award in FINRA Rule 2130(b) must be followed and, once a proceeding for confirmation of the award is commenced, you may still face opposition from FINRA or the state securities regulator. Contact Elaine Rice for more information.
