| It is common for customer agreements of broker-dealers to
include "choice of law" language. These provisions usually provide that
any dispute between the firm and a client will be governed by the laws of a
particular state, usually the state of New York. During arbitration with
Utah clients, many firms have used these provisions as a defense and have argued
for dismissal of claims based under Utah law.
The Utah Uniform Securities Act provides numerous rights and remedies to Utah investors. The Utah Legislature made it clear that these rights and remedies may not be waived by contract or agreement. Specifically, § 61-1-22(9) of the Act states: "A condition, stipulation, or provision binding a person acquiring a security to waive compliance with this chapter or a rule or order hereunder is void." Based upon this statute, the Division considers the choice of law provisions in new account documentation to be void to the extent that the provisions may be interpreted to eliminate any protections or remedies that Utah citizens have under the Act. However, the Division does not dispute the ability of broker-dealers and clients to agree by contract to submit disputes to arbitration. On December 12, 2003, the Division sent a letter to all broker-dealers licensed in Utah to notify them of the status of Utah law on this issue and to notify them that future assertions of this defense in a proceeding involving a Utah citizen could subject them to discipline and sanction by the Division for engaging in dishonest or unethical business practices. A copy of the Division's letter can be found here: Choice of Law Letter (December 12, 2003) |
