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The state’s Judicial Council went to San Francisco federal court Monday seeking the dismissal of a suit challenging California’s new ethics standards for arbitrators. The motion, filed for the Judicial Council by Burlingame lawyer Joseph Cotchett, claims there is no federal jurisdiction for the suit, and that the plaintiffs — the New York Stock Exchange and the National Association of Securities Dealers’ Dispute Resolution Corp. — have no standing. “At a time when the nation’s confidence in the stock market is wavering,” Cotchett said in a prepared statement, “it is unfortunate that these stock exchanges are opposing ethics standards designed to help protect investors, who are required to have their disputes resolved by arbitration, rather than in court.” Cotchett is a partner with Cotchett, Pitre, Simon & McCarthy. The underlying suit was filed in late July in opposition to strict new standards adopted by the Judicial Council, at the Legislature’s urging. The new rules require neutral arbitrators to make detailed disclosures about any financial relationships or conflicts of interest between arbitrators and the companies, attorneys or parties in disputes. The NYSE and the NASD, claiming the new standards are burdensome and preempted by the Federal Arbitration Act, has stopped appointing arbitrators to hear complaints in California, delaying cases filed by investors claiming wrongdoing by their brokers. Their suit named not only the Judicial Council, but all of its members, including California Chief Justice Ronald George and several other jurists. Under NYSE and NASD rules, most investor suits must be submitted to arbitration under rules approved by the Securities and Exchange Commission. The NYSE and NASD say those rules conflict with the ones adopted in California. “It is not possible for plaintiffs to simultaneously comply with the California standards and the SEC-approved rules,” they said in their complaint. Last week, California Senate President pro tem John Burton and Sen. Martha Escutia, chairwoman of the Senate Judiciary Committee, filed a formal complaint with the U.S. Securities and Exchange Commission, accusing the NYSE and NASD of illegally refusing to proceed with California claims. “We fail to understand why the exchanges would jeopardize their reputations,” the senators wrote, “and, more importantly, undermine investor confidence in the securities market by embroiling themselves in a dispute between an investor and his or her brokerage firm.” Monday’s motion said the only injuries in this case “are self-inflicted” by the NYSE and NASD’s decision to stop conducting arbitrations in California. “The real ‘injured parties’ are those California consumers who have now been denied an arbitral forum by virtue of plaintiffs’ refusal to conduct arbitrations,” the motion states. Mark Perry, the partner in the Washington, D.C. office of Gibson, Dunn & Crutcher who represents the NYSE and NASD, said he had not yet seen the motion and couldn’t comment. The case is NASD Dispute Resolution Inc. v. Judicial Council of California, 02-3486.

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