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Cardozo Journal of Conflict Resolution

Abstract

This Note assesses whether it is appropriate for a brokerdealer to commence an interpleader action in response to receiving a restraining notice on the customer's account, despite the existence of a pre-dispute arbitration clause. If not, what are the consequences, and what are the appropriate dispute resolution methods for resolving any dispute that might arise regarding the restraining notice on the customer's account? Part II of this Note presents the issue that arises when a restraining notice is served on a customer's account under the control of a broker-dealer. A description is given of the regulation of broker-dealers and their membership with FINRA. This section also discusses the use of arbitration by broker-dealers in customer disputes. Finally, an overview is given of the nature of restraining notices and the use of interpleader.

Part III analyzes cases that address the issue of whether interpleader is appropriate. This Note argues that when considering the consequences of doing nothing on the customer's account, the broker-dealers' fear of multiple and vexatious litigation is speculative and unreasonable; therefore, interpleader is inappropriate. This section also considers the analysis used to determine when to compel arbitration on an interpleader action. This Note argues that restraining notice disputes are arbitrable and, therefore, courts should compel arbitration of these disputes on interpleader actions.

Part IV of this Note proposes that the best way to get recalcitrant broker-dealers to submit to arbitration is to add new language to the pre-dispute arbitration clause. Customers should negotiate with broker-dealers for a pre-dispute arbitration clause that includes another mandatory arbitration provision requiring parties to arbitrate before they can seek interpleader relief.

Disciplines

Dispute Resolution and Arbitration | Law | Securities Law

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