Appointment of Arbitrators
Arbitrator selection is arguably one of the most important aspects of any securities case – at least for lawyers who don’t always settle their cases. But even if the case doesn’t settle, the selection of arbitrators is critical. Often what dictates whether or not a case settles is if the Claimant’s lawyer is successful in obtaining documents from the brokerage firm that dramatically help the case. Often that is only accomplished after a prehearing conference to resolve outstanding discovery disputes. The discovery conference is conducted by the Chairman of the arbitration panel, therefore, selection of the Chairman, as well as the other arbitrators is very important.
Not long after the brokerage firm files its Answer, the parties receive a letter from FINRA announcing that the case is ready for the appointment of arbitrators. It is more accurate to state that the parties select the arbitrators, because FINRA does not appoint arbitrators except in rare circumstances. The Arbitrator Ranking Form is divided into three sections – Public Chairpersons, Public Arbitrators, and Non-Public Arbitrators. A Non-Public arbitrator is also known as an industry arbitrator. Although Claimants have the option of striking all Non-Public arbitrators, they remain on every list if a Claimant determines that they want to rank one of them. Otherwise, the parties separately can strike four of the ten individuals designated as Public Chairpersons, and six strikes are permitted for the 15 Public Arbitrators. The parties then rank the remaining arbitrators in each category. Those lists are then sent to FINRA who comes up with a three-party arbitration panel, including one Chairman.
I am currently handling a case where one of the arbitrators withdrew. When this happens, FINRA does not apprise the parties why the arbitrator withdrew, and we are not permitted to inquire. Fortunately, though, FINRA was able to replace the arbitrator with another individual from the parties’ ranking. If that would not have been possible, then FINRA would have appointed an arbitrator.
Challenges for cause can skew the number of arbitrators remaining on the list. Acceptable challenges for cause are if the arbitrator is biased, lacks impartiality, or has a direct or indirect interest in the outcome of the arbitration. Most challenges for cause take place after the arbitrators are ranked because of some conduct of the arbitrator. I once successfully challenged an arbitrator for cause during the arbitration itself because the arbitrator exhibited great disdain for my case, which was clear in the questions he was asking my expert witness. FINRA will also remove an arbitrator if the arbitrator fails to disclose something that should have been disclosed.
The skill involved in ranking and striking arbitrators on the list is multifaceted. First, prior award history must be reviewed. How many prior awards does the arbitrator have? Typically, the more the awards, the less Claimant friendly the arbitrator is. Has the arbitrator ever given a good award to a Claimant? This can only be determined by looking at what was asked for and what was awarded. Has the arbitrator ever awarded attorneys’ fees to the Claimant? This is always a plus. Has the arbitrator ever awarded post judgment interest? Also, a plus. The award history of each arbitrator must be compared to the award histories of the other arbitrators.
Second, the arbitrators’ biographical backgrounds can also contain information that may impact my ranking of the arbitrator. For example, if my client is Jewish, I may be able to determine from an arbitrator bio if the arbitrator is Jewish. The arbitrator bio may reveal involvement in particular groups that my client may be sympathetic to.
Lastly, good ol’ Google searches on the arbitrator can result in a trove of useful information. For example, many of the arbitrators on the list are attorneys and reviewing the attorneys profile at the law firm website often reveals information not included in the bio.
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