Procedure

Specialist courts

Do you have a specialist court or other arrangements for the hearing of financial services disputes in your jurisdiction? Are there specialist judges for financial cases?

In some states, specialist courts have been established to hear cases involving business transactions with commercial banks and other financial institutions, and the parties may request assignment of their cases to these courts or divisions. These specialist courts may impose minimum thresholds for the value of claims they can hear or apply specific procedures to matters before them. For example, in New York, the rules of the Commercial Division impose tighter discovery limitations and timetables, apply harsher sanctions for non-compliance and include an optional accelerated adjudicatory procedure. To be heard in the Commercial Division, a dispute must exceed the monetary threshold and involve one of several designated claims, including:

  • breach of contract;
  • breach of fiduciary duty;
  • fraud;
  • uniform commercial code transactions;
  • shareholder derivative actions; and
  • commercial class actions and business transactions involving or arising out of dealings with commercial banks and other financial institutions.
Procedural rules

Do any specific procedural rules apply to financial services litigation?

No. There are no procedural rules specifically governing financial services litigation or the issues of timing of motions, damages calculations, etc, as distinguished from the procedural rules of the relevant forum court, which may differ depending on the specific state or federal venue in which an action proceeds. However, the rules applicable in certain state specialist courts that hear financial services litigation, such as the Commercial Division of the New York Supreme Court, vary in certain respects from ordinary court procedures, often to promote the more rapid and efficient resolution of commercial disputes.

Litigants in financial services disputes should also be cognisant of all available bases for federal court jurisdiction. For example, the Edge Act (12 USC section 632) provides a specific statutory basis for removal to federal court in disputes involving a federally chartered bank that otherwise might not be removable based on the type of claims or the lack of diversity among parties. To qualify for removal under the Edge Act:

  • the suit must be a civil suit ‘at common law or in equity’ (which encompasses state law claims);
  • at least one party must be a ‘corporation organised under the laws of the United States’ (ie, an Edge Act corporation); and
  • the suit must ‘aris[e] out of’ one of three types of offshore transactions or operations: ‘transactions involving international or foreign banking, or banking in a dependency or insular possession of the United States, or out of other international or foreign financial operations’ (see American Intern Group v Bank of America Corp, 712 F3d 775 (2d Cir 2013)).

 

The Class Action Fairness Act of 2005 provides for expanded federal diversity jurisdiction over class-action lawsuits, including in cases under state consumer protection laws.

Arbitration

May parties agree to submit financial services disputes to arbitration?

Yes. Arbitration of financial services disputes is extremely common, and the rules of certain financial services self-regulatory organisations, such as Financial Industry Regulatory Authority (FINRA), provide for arbitration of customer disputes, at the customer’s election, even in the absence of an arbitration clause between the parties. Arbitration clauses are commonly enforced in the context of customer disputes, but depending on the nature of the claim, some courts may find that a particular arbitration clause unduly burdens the exercise of statutory rights. Where an arbitration clause is present in an agreement between sophisticated commercial parties, courts are even more likely to give it effect, because the US Federal Arbitration Act (FAA) establishes a federal policy in favour of arbitration where the parties have chosen it contractually.

Statistics showing the number of reported new FINRA arbitrations over the past 10 years are provided in the table below.

 

YearCases filed

2020

3,902
20193,757
20184,325
20173,456
20163,681
20153,435
20143,822
20133,714
20124,299
20114,729

 

The circumstances under which the FAA’s pro-arbitration aims will be ‘overridden by a contrary congressional command’ continue to be defined through litigation and regulatory action. In 2012, for example, the US Supreme Court held that language in the Credit Repair Organizations Act providing for a ‘right to sue’ did not preclude the arbitration of consumer claims brought under that statute (see CompuCredit Corp v Greenwood, 565 US (2012)). In 2017, under the Dodd-Frank Act, the Consumer Financial Protection Bureau issued a rule that would prohibit the application of pre-dispute arbitration agreements to class litigation in court, but the rule was subsequently removed and is no longer in effect.

Out-of-court settlements

Must parties initially seek to settle out of court or refer financial services disputes for alternative dispute resolution?

Generally, parties are not required to seek to settle out of court or to resolve disputes through alternative dispute resolution (ADR), although some US district courts, state court systems or even particular judges, require the parties to participate in mediation. There is no pre-filing obligation to engage in ADR procedures unless the parties have contractually agreed that particular ADR measures must be exhausted before litigation is commenced.

Pre-action considerations

Are there any pre-action considerations specific to financial services litigation that the parties should take into account in your jurisdiction?

There are none specific to financial services litigation. Parties litigating in the US should be attuned to the fact that initial document disclosures may be required in a relatively short time frame following the commencement of the suit.

Unilateral jurisdiction clauses

Does your jurisdiction recognise unilateral jurisdiction clauses?

US courts have enforced unilateral jurisdiction clauses as part of the parties’ agreement. However, in some states, those unilateral clauses can be held invalid (or read as reciprocal regardless of their text), usually on the grounds of mutual obligation or unconscionability. Courts view a significant disparity in the parties’ bargaining power as an important, if not essential, factor in evaluating such agreements.

In particular, the use of unilateral jurisdiction clauses in arbitration agreements has produced some disagreement among courts given that certain states have continued to reject one party’s exclusive option to litigate in court. In Sabia v Orange County Metro Realty, Inc, California’s highest court is currently considering whether an unconscionability defence survives the US Supreme Court’s 2011 decision in AT&T Mobility v Concepcion, 563 US 333 (2011). The answer in federal courts has been more straightforward. For example, the US Court of Appeals for the 10th Circuit recently ruled that the FAA trumps the presumption under New Mexico state common law that a provision applying primarily or exclusively to the claims of one party is unenforceable (see THI of NM at Hobbs Ctr, LLC v Patton, 2014 US App LEXIS 1687 (10th Cir 2014)).