Following the Supreme Court's holding in Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987), pre-dispute contracts to arbitrate securities claims are strictly enforceable. Any such claims against brokerage firms or their agents, including claims for punitive damages available under state law (1), are subject to arbitration in accordance with the Code of Arbitration Procedure.
Courts have long held that because of the liberal policy of promoting arbitration, all doubts of arbitrability are to be resolved in favor of arbitration. (2). Some courts have also held that a party may even be bound by arbitration absent a signature on an agreement. (3)
Arbitration, of disputes with broker/dealers has long been used as an alternative to the courts because it is devised as a prompt and inexpensive means of resolving complicated issues. There are certain laws governing the conduct of an arbitration proceeding that must be considered by those planning to use arbitration to resolve the dispute. Most importantly, perhaps, is the fact that an arbitration award is final and binding, subject to review by a court only on a very limited basis. Parties should recognize, too, that in choosing arbitration as a means of resolving a dispute, they generally give up their right to pursue the matter through the courts.
The Financial Industry Regulatory Authority ("FINRA"), Office of Dispute Resolution, (formerly NASD Dispute Resolution, Inc.) reports the filing of 35,486 arbitration cases from January 2002 through November 2008.
Many practitioners believe that FINRA Arbitration Panels, containing an industry related non-public arbitrator are biased, and that juries may often render more favorable monetary verdicts than arbitration panels. (4) However actions filed in both state and federal court, are subject to motions to dismiss, and motions for summary judgment, and accordingly, a plaintiff's claims, based sometime on legal technicalities may never survive or be presented to a jury.
In arbitration, however, as stated in the Arbitrators' Manual, "Equity is justice in that it goes beyond the written law. And it is equitable to prefer arbitration to the law court, for the arbitrator keeps equity in view, whereas the judge looks only to the law, and the reason why arbitrators were appointed was that equity might prevail."
FINRA offers 72 hearing venues, including at least one in each state of the United States, one in San Juan, Puerto Rico, and one in London, UK. Effective August 3, 2009, FINRA realigned the hearing locations. Specifically, FINRA opened new hearing locations in Jacksonville, Florida, and Syracuse, New York; and discontinued hearing locations in Clearwater, Florida; Rochester, New York; and New London, Connecticut. The three closed hearing locations are in close proximity to existing locations. There will be no impact on pending cases in the closed hearing locations. Arbitrators in the locations that were closed were reassigned to nearby hearing locations..
(1) Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 1215 (1995).
(2) Stateside Machinery Co. v Alperin, 591 F2d 234 (3rd Cir. 1979) (superseded by statute on other grounds as stated in Gold Kist, Inc. v Laurinburg Oil Co., 756 F2d 14 (3rd Cir. 1985); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 226 (1987) (The Supreme Court has consistently stated that the Federal Arbitration Act "establishes a federal policy favoring arbitration."); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24 (1983)(quoted in, Blashka v. Greenway Capital Corp., 1995 U.S. Dist. LEXIS 15191 at *7 (S.D.N.Y. Oct. 16, 1995). See also., AT&T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 (1986)(quoted in, Blashka at *7).
(3) See, e.g., Blashka at *11; Genesco v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir. 1987); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991); Stedor Enterprises, Ltd. v. Armtex, Inc., 947 F.2d 727 (4th Cir. 1991); Ziegler v. Whale Securities Co., 786 F.Supp. 739 (N.D. Ill. 1992); Creative Securities v. Bear Stearns & Co., Inc., 671 F. Supp. 961, 963 n.2 (S.D.N.Y. 1987), aff’d, 847 F.2d 834 (2d Cir. 1988); Ocean Industries, Inc. v. Soros Associates Int’l, Inc., 328 F. Supp. 944, 947 (S.D.N.Y 1971); Reed v. Fisher Controls, Inc., 814 F. Supp. 545, 547 (E.D. Tex. 1993).
(4) Perceptions of Fairness of Securities Arbitration: An Empirical Study, J. Gross and B. Black (Securities Industry Conference on Arbitration February 6, 2008)(Fairness of Securities Arbitrations.pdf).
(5) Arbitrator Manual at 1, (SICA August 2007)(Arbitrators Manual.pdf).