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  • Writer's pictureKirk Hartley

Auction Rate Securities Litigation – Is a Specialized Forum Better for Plaintiffs ?

The litigation industry includes myriad lawsuits regarding alleged misdealing by various financial houses with respect to the issuance of auction rate securities. This article from AmLaw Litigation Daily includes quotes indicating that plaintiff’s counsel prefer FInancial Industry Regulatory Authority arbitrations over lawsuits because in the arbitrations, evidence is quickly put on the table and motions to dismiss are not the endgame. Specifically, the article states:

"WVUH’s lead lawyer, Jim Swanson of Fishman Haygood Phelps Walmsley Willis & Swanson, has been involved in ARS cases against JPMorgan Securities and Merrill Lynch, and he said that both of those institutions also tried to avoid FINRA arbitration (his side prevailed in Manhattan federal district court against JPMorgan, but didn’t fare so well against Merrill Lynch). Swanson said arbitration is advantageous for issuers because it forces the parties to put their evidence on the table quickly. "You don’t resolve arbitration on motions to dismiss," said Swanson. "From my perspective, when you get the entire context of what was going on in this market, it makes for a compelling case from the municipality side. They were really badly injured by this product."

The comment highlights the reality that numerous lawsuits have stalled or failed because federal courts moved away from the usual pleading rule of Conley v. Gibson (allegations are assumed to be true) and moved instead to the heightened pleading standard set out in Iqbal and Twombly. Go here for a scholarly but brief discussion of the changes and their consequences.

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