Since 1987, when the U.S. Supreme Court issued its opinion in Shearson/American Express v. McMahon, 482 U.S. 220 (1987), customers of securities broker-dealers generally have been required to resolve any disputes with their broker-dealers (and their associated personnel) by way of binding arbitration conducted under the auspices of the industry’s self-regulatory organization, formerly the National Association of Securities Dealers (NASD), and now known as the Financial Industry Regulatory Authority (FINRA). For several decades, commentators and practitioners have railed about supposed pro-industry or pro-investor biases that allegedly “infect” the process. Regardless of which side of the argument one takes in that debate, two things are reasonably certain: (1) awards by arbitrators in securities cases are notoriously unpredictable, and (2) the economic and psychological costs to clients of preparing a case and proceeding through a final hearing—while likely less than what would be spent in litigation in state or federal court—are substantial. There are a few reasons why this is so. First, it is relatively easy to become a FINRA arbitrator, and no industry experience is required. In fact, amendments to FINRA arbitration rules in 2011 and again in 2013 actually promote the increased use of so-called “public” arbitrators1 who, by definition, do not have any recent or material involvement in—and, therefore, may not have any relevant experience in or understanding of—the securities industry. And, while most arbitrators presumably are honest and well-intentioned, anyone who has practiced for any length of time in this area has experienced the arbitrator who is frequently distracted or inattentive, or who unduly prolongs the length of a hearing by virtue of extended lunch breaks and abbreviated hearing sessions. Second, there is very little “motion practice” in securities arbitration, and very limited grounds on which a party may seek a summary disposition of a case before final hearing. Indeed, FINRA arbitration rules expressly state that motions to dismiss are “discouraged.” (See FINRA Rules 12504(a)(1) and 13504(a)(1)). This, in turn, encourages the filing of what euphemistically might be described as cases of “less certain merit,” because experienced claimants’ counsel understand that they have a good chance of getting an arbitration panel to hear their client’s case, without having to overcome summary judgment motions or other costly and potentially case-dispositive obstacles that would exist in court. Third, arbitration awards are extremely difficult to reverse or modify (for either side), even where it is fairly obvious that the arbitrators simply got it wrong under applicable law and/or the facts of a given case.
Because of these inherent uncertainties and costs associated with securities arbitration, many participants are turning to voluntary, non-binding mediation, before a qualified, “neutral” mediator, in an effort to regain some control over the dispute resolution process and the outcome of their cases. This article first will address whether to mediate, when to mediate, and the importance of selecting a qualified mediator. Next, this article will discuss certain considerations relating to who should attend the mediation, and the pros and cons of extensive “opening statements.” Lastly, this article will address certain “best practices” to ensure that an agreement reached at mediation is final and enforceable.
