Potential Impact of Florida Supreme Court Ruling


DSA analyzed the potential impact of the recent Florida Supreme Court ruling that Florida’s statute of limitations can apply to securities arbitration cases between investors and their brokers. Key Findings:

  • 1 in 5 Customer v. Member Firm arbitrations occur in Florida
  • Time limits may preclude ’08 – ’09 market losses from damage calculations

The opinion found that Florida law imposes a four-year deadline to file a negligence case, and a two-year deadline to bring a claim under Florida’s securities fraud law. The case was argued by George Guerra of Wiand Guerra King on behalf of Raymond James.  See the Reuters article here.  

Florida Accounts for 20% of Arbitrations 
DSA’s independent analysis of 2012 FINRA arbitrations found that 20.5% of Customer vs. Member Firm arbitrations occurred in Florida, the highest rate in the country. This means 1/5th of all Customer cases are potentially impacted by the Florida Supreme Court’s ruling.State Arb % by Type

Florida also hosted 12.78% of Employee v. Member Firm, 10.6% of Member Firm v. Employee and 9.0% of Member Firm v. Member Firm cases.*

Limited Exposure to Market Highs & Lows?
The S&P 500 began its sharp decline in September 2008 and bottomed out in March 2009. If arbitrators apply the four year limit to damage calculations, then claims filed after March 2013 would miss the market drop of ’08-’09If the two-year limitation is applied, then claims filed after March 2011 could potentially preclude the entire market crash period.
4 Year Limit S&P 500
Cases heading to arbitration now may miss out on the market highs from October 2007. FINRA reports an average turnaround time of 17.7 months from filing a claim to a hearing decision. This means a hearing scheduled for June 5, 2013 was filed approximately in March 2012, more than four years after the last market high.
The starting value of an account is critical in one method of damage calculation, Net-Out-of-Pocket. As the FINRA Basic Arbitrator Training Guide (page 119) explains:

“For wrongful conduct involving an entire account, net-out-of-pocket losses are calculated by taking the beginning accountvalue plus money and securities deposited, minus money and securities withdrawn, less account value on the relevant date.”

The Net-Out-of-Pocket loss could vary widely for an account (assuming the account’s value correlated with the market movement) depending on whether the “beginning value” is two, four or any other number of years prior to filing a claim.

Potential Long-Term Implications:

  • Customers may file claims sooner instead of taking a “wait & see” approach to determine if account bounces back
  • Florida “snowbirds” may file claims in other states to avoid statute of limitations

* Only cases with complete data necessary for analysis were included