Recommendations For Arbitrator Selection
These recommendations are based on suggestions made by practitioners at the many continuing education programs I have either chaired or been a panelist on and from my own experience in arbitrator selection when representing investors, brokers and brokerage firms. They are also based on my observations sitting as an arbitrator on cases and listening to the comments of my fellow arbitrators.
1. What Kind of Brokerage Firm is the Respondent?
If the brokerage firm is a “lower tier” firm that appears to have engaged in poor record keeping and equally poor supervision, you should try to select arbitrators whose work experience requires precision and accountability, such as IRS agents and CPAs. You will also want, as the industry arbitrator, someone from a reputable firm that has a clean supervisory record. On the other hand, if you are representing a brokerage firm in a case where the claim, in your opinion, is without merit, you want public arbitrators who have held positions of authority in business and lawyers who represent defendants or who have judicial credentials.
2. Who Should You Strike?
Keep outright strikes to a minimum on the theory that the devil you know is better than the devil you don’t know. By striking only the arbitrators who, under no circumstances, your or your client can live with, there is a greater chance that one’s lower-ranked but still acceptable arbitrators will appear on the panel.
3. Empathy Driven by Facts and Issues
Trying to select arbitrators who will be empathetic to your client’s arguments is one of the prime goals of every attorney. Often attorneys look for arbitrators who share the same personal characteristics of their clients, but even if that is achieved it does not guarantee success. If a case requires technical or complicated industry expertise, try to select arbitrators known for being able to handle technically complex cases. That is where speaking with attorneys and experts who appeared before those arbitrators is so critical.
At continuing education programs I have chaired over the years, I frequently ask the faculty whether an arbitrator’s age or sex matters in the selection process. The responses I have received are that arbitrator selection is primarily driven by the facts and issues in the case and attempting to predict an arbitrator’s acceptance of your client and his/her case based on that arbitrator’s age or sex are rarely successful metrics.
4. Membership Has Its Privileges
If you qualify to become a member of the Public Investors Arbitration Bar Association (PIABA, https://piaba.org/join-piaba), you will have the benefit of “a nationwide law firm” of experienced customer attorneys who are often know the arbitrators proposed for your case. Email a copy of proposed lists to the PIABA list serv and you will be pleasantly surprised with the speed and depth of the responses. More times than not, the feedback you receive from fellow PIABA members is information not contained or referred to in FINRA’s Arbitrator Disclosure Reports.
5. Special Focus on Potential Chairs
Since it is the Chairperson who will run the Initial Pre-Hearing Conference, most likely determine discovery issues without seeking the assistance of the two other arbitrators (i.e., the “wings”) and be the “judge” at the hearings, determining the admissibility of evidence and sustaining or denying objections, special attention needs to be made to his/her selection. What should customer attorneys look for in a Chair? The same thing defense attorneys should seek: experienced trial attorneys who are not jaded by sitting on so many cases that they will come to your case either jaded to the common arguments raised in customer arbitrations or who have preconceived beliefs that are tough to shake.
The Chair should have the strength and confidence to encourage direct communication with the parties – bypassing the FINRA Case Administrator – and the knowledge of court decisions on motions to vacate arbitration Awards that result in that arbitrator having the courage to move a case along without fear of a court’s second-guessing his/her determinations.
After you obtain the prior Awards of such arbitrators, every effort should be made to speak with the attorneys who appeared before him/her to determine how that arbitrator “runs the show.” Not having an experienced trial attorney as the Chair will most likely result in slower and longer hearings since an inexperienced Chair can be intimidated by experienced attorneys and will not know how to make consistent and reasonable discovery determinations or make firm rulings during the hearing.
6. Hearing Day
If the case is going to take more than a couple of days, choose arbitrators whose schedules will accommodate the need for multiple sessions within a reasonable period of time. For example, forget CPAs if the case is scheduled to start in the beginning or first quarter of a year. And if your hearings will be in the Northeast in the winter, try to find out if the arbitrator is a “snow bird” during the winter and thus unavailable during that season.
7. Industry Arbitrators
Customer attorneys may not want a non-public, industry arbitrator who, in his/her capacity as a broker, had an arbitration brought against him/her, even if the case was dismissed. Industry arbitrators who have had adverse Awards are likely to be removed from the pool of arbitrators in any event.
While most customer attorneys select an all public panel of arbitrators, statistics show that the results of contested hearings with such a panel versus one with one industry arbitrator are about the same (see https://www.finra.org/arbitration-and-mediation/dispute-resolution-statistics ). I prefer to have an experienced securities industry representative on customer arbitration panels so that he/she can be the voice of reality to the two public arbitrators with regard to industry norms and standards. If a customer’s attorney is able to convince the industry arbitrator that the damages suffered were the result of the broker’s violation of industry rules, that industry arbitrator can serve as the “agent of reality” to the two public arbitrators who may lack the experience of the industry arbitrator.
8. The Internet
Googling proposed arbitrators can reveal articles or statements that individual has made or is making on his/her website that may relate to issues in your case. This information is only a click away.
9. Self-Description and Busy “Dance Card”
The last portion of FINRA Arbitrator Disclosure Report contains the arbitrator’s own words as to why that individual believes he/she would be a good securities arbitrator. Some arbitrators appear too eager to be selected. Others have resumes longer than your arm; it leaves conjecture to how much attention they will give to your case. Arbitrators who repeatedly mention their ability to find compromise or consider themselves mediators are not those I would want on a case which I desire a complete win.
I also have deep concern about arbitrators sitting on many pending cases; there is a section for pending cases in the Report. If you are presented with such an arbitrator, think twice about selecting him/her because: (1) it indicates they have nothing else to do with their professional lives; (2) they may not want to rule adversely to “repeat users” (i.e., brokerage firms) for fear of being struck in other cases; and, (3) it is very difficult scheduling your hearings if the arbitrator’s “dance card” is filled with 10 or more other cases.
10. Past Awards
When representing a customer, do not automatically strike an arbitrator who dismissed a customer case; nor, as a defense attorney, does should you automatically strike someone who awarded punitive damages against a broker or brokerage firm. Read the Award’s Case Summary, if one is contained in the Award, and try to figure out if the Award was the correct one under those circumstances. Getting it right is more important than judging an arbitrator solely on whether the customer or the broker won.
Obtain the prior decisions of the proposed arbitrators to determine whether a strike them. You can determine the highest amount awarded by a particular arbitrator, thereby enabling a comparison to the Award you are seeking in your case or defending against. If the proposed arbitrator is an attorney, you should obtain all Awards where he/she represented a party. (For the SAC Award database, go to http://www.sacarbitration.com and for the FINRA Award database go to https://www.finra.org/arbitration-and-mediation/arbitration-awards-online.)
A wonderful source of information about arbitrations can be found at Securities Arbitration Commentator (http://www.securitiesarbitrationcommentator.com/ Also see an updated description of its services in Appendix N of Securities Arbitration Procedure Manual) for constantly updated analyses of thousands of arbitration Awards.
11. Contact Attorneys
If you are familiar with an attorney whose name is listed on an Award, this presents an opportunity to ask that attorney his or her overall impression of the arbitrator, the arbitrator’s demeanor and attentiveness, whether the arbitrator interrupted the proceedings, whether the arbitrator was overly friendly towards the brokerage firm or the customer, whether the arbitrator conducted his or her own cross-examination, whether rulings were fair (including pre-hearing motions) and whether the attorney feels, whatever the outcome, that both sides had a full and fair opportunity to be heard.
Be sensitive to the fact, however, that you might be reaching out to the attorney whose client lost the case before that arbitrator, so the attorney may not be as objective as you would want.
12. Contact Experts
It is also productive to speak with the expert retained by the attorney, since the expert may have a more objective view of the case. Ask the attorney named in the Award for the contact information of the expert who testified. The expert will be important on the issues of whether the arbitrator understood industry rules and practices and whether the arbitrator appreciated the damage theories and calculations.
Since the expert may have participated in more arbitration hearings than the attorney you contacted, ask the expert to rate the arbitrator compared to others he or she has been before. You should also ask the expert if the arbitrator ran a tight proceeding or whether he or she prolonged the hearings by letting too much redundant evidence in or permitted too many witnesses to testify.
13. Maintain a Database of Information Related to Arbitrators
If you do not already do so, you should maintain a database which contains information about individual arbitrators. You should record any feedback you received during the arbitrator vetting process. It should include summary information about the Award history for individual arbitrators. If you have notable experiences with an arbitrator regarding discovery, that information should be included as well. Most importantly, throughout the arbitration process and immediately after the conclusion of the arbitration, your thoughts about the performance of each arbitrator should be recorded in the database.
14. Review Arbitrator Disclosure Reports
FINRA Awards should be categorized by type of case (customer vs. industry dispute), though information about either one may be relevant to your case. A high or low percentage of awarding damages should be reviewed in the context of the actual amount of damages sought. For example, if you represent a customer, you will be excited by an arbitrator who has awarded damages in favor of customers most of the time. However, that enthusiasm may be diminished if the actual percentage of recovery in each instance is very small.
15. Who To Rank, Who To Strike
As a respondent, if you have very strong legal defenses, you want to rank as many attorneys as possible. Ultimately, the ranking and selection process comes down to prior experience and basic instincts.
Advice on Arbitrator Selection from the Defense Bar
At SIFMA’s 2014 Compliance and Legal Society Seminar (http://www.sifma.org/cl2014/), one of the workshops dealt with arbitrator selection and the all public panel rule. The session was entitled Arbitration: The Way We Were & The Way We Are Now, was moderated by Ellen Slipp, Managing Director & Head of Litigation of Citigroup Inc. She was joined by Timothy P. Burke, partner in Bingham McCutchen LLP; Kevin Carroll, Managing Director & Associate General Counsel of SIFMA; George C. Freeman III, founding member of Barrasso Usdin Kupperman Freeman & Sarver; Theodore A. Krebsbach, partner in Murphy & McGonigle, P.C.; and Brett A. “Ben” Rogers, partner and executive committee member of Rogers & Hardin. In the segment dealing with arbitrator selection, the following advice was given to defense attorneys:
1. Strike Four – You should want to “avoid the clunkers who award punitive and pre-judge the issues,” said one of the panelists, adding: “I try to avoid people who have esoteric backgrounds-academics for years. I like people with business experience, with practical experience. What about ALJs in New York? Sometimes you have no choice.”
2. The Three 10 Person Lists – When you get the lists, do your homework; the more the better. Get their prior Awards. Google their names. One panelist added, “I use SAC and ask for each Award summary, especially with the names of the attorneys on the case. Call the attorneys but don’t e-mail them.”
• Prepare Excel Spreadsheets – On them put: name, background, cases sat on through Award, analysis of the Award, particular facts about them (objective and subjective factors) and give the proposed rank.
• What about professional mediators? One of the panelists said: “I think they are used to compromise, so it depends on the facts of the case.”
• Strategy for the all public panel Rule 12403 – The general consensus of the panel was: You don’t know if a Claimant will strike all non-public arbitrators. What if a Claimant calls you and says he will strike all the non-public arbitrators? Do the review and the striking anyway. This eliminates arbitrator industry expertise.
You submitted your selection of arbitrators to FINRA and have begun the discovery stage of the arbitration, hoping that the Chair who is appointed for your case will be strong and experienced about resolving discovery issues and in running the hearing in the most expeditious manner as possible. You hope the Chair will agree to Direct Communication – as opposed to having all communications delayed, indirectly, through FINRA – and you hope the panel selected for your case will give you and your client a full and fair opportunity to be heard and that they will decide the case on the evidence presented and not on emotions or pre-conceived, undisclosed opinions.
The process began with the drafting and filing of the Statement of Claim and the Answer and in the selection of the arbitrators. The success of your case will be determined, in large part, by the arbitrators you worked so hard to select. Good luck.