On Monday, May 16, 2011, the revisions to FINRA’s Discovery Guide (“Guide”) and Document Production Lists (“Production Lists”) for customer arbitration proceedings take effect. These revisions will apply to all customer cases filed on or after May 16. FINRA first adopted the Guide in 1999 for use in customer arbitration proceedings and last revised the Guide in 2007. The Guide supplements the discovery rules contained in the FINRA Code of Arbitration Procedure for Customer Disputes. (See Rules 12505-12511.)
FINRA’s revisions to the Guide expand the guidance FINRA gives to parties and arbitrators on the discovery process. This expanded guidance is particularly important because of the growing prevalence and raising costs of electronic discovery (“e-discovery”). The revisions to the Guide also replace the current fourteen Production Lists with just two Production Lists of presumptively discoverable documents. One Production List will specify which documents firms/associated persons should produce. The other Production List will specify which documents customers should produce.
The revised Discovery Guide makes clear that it applies to e-discovery. The revised Guide expressly states that “electronic files” are “documents” within the meaning of the Guide. The revised Guide also empowers the arbitrators to decide any dispute regarding the form in which a party produces a document. The form of production continues to be a hot topic in-e-discovery. Parties can get into numerous disputes over the form of production, including whether “native” electronic files should be produced and whether metadata should be included with the production.
Importantly, the revised Guide provides that a party may object to producing documents on a Production List if the cost or burden of production is disproportionate to the need for the document. To determine whether the party must produce the documents, the arbitrators can weigh the cost or burden of production against the relevance and likely benefit of the document. The arbitrators also can consider whether there are alternatives that can lessen the impact, such as narrowing the time frame or scope of an item on the Production List. These considerations can be used to control the costs of electronic discovery and are similar to the proportionality principles codified in Federal Civil Rule 26(b)(2)(C)(i)-(iii) and discussed in The Sedona Conference’s commentary on proportionality. Recently, many federal judges have applied proportionality to limit the number of document custodians, prevent the production of backup tapes, and conduct discovery in incremental phases.
The revised Guide also gives arbitrators guidance on deciding disputes over the confidential treatment of documents. The party asserting confidentiality has the burden of establishing that a document requires confidential treatment. The revised Guide also makes clear that parties are not required to produce documents that are subject to an established privilege, such as the attorney-client privilege or attorney work product doctrine, and that arbitrators cannot use confidentiality agreements to require the production of privileged documents.