What are Challenges for Cause?
FINRA Rule 12407 allows the Director of Arbitration to remove an arbitrator on the Directors own initiative or on the request of a party. FINRA Rule 12407 states:
- (1) The Director will grant a party's request to remove an arbitrator if it is reasonable to infer, based on information known at the time of the request, that the arbitrator is biased, lacks impartiality, or has a direct or indirect interest in the outcome of the arbitration. The interest or bias must be definite and capable of reasonable demonstration, rather than remote or speculative. Close questions regarding challenges to an arbitrator by a customer under this rule will be resolved in favor of the customer.
- (2) The Director must first notify the parties before removing an arbitrator on the Director's own initiative. The Director may not remove the arbitrator if the parties agree in writing to retain the arbitrator within five days of receiving notice of the Director's intent to remove the arbitrator.
- (b) After First Hearing Session Begins
- After the first hearing session begins, the Director may remove an arbitrator based only on information required to be disclosed under Rule 12405 that was not previously known by the parties. The Director may exercise this authority upon request of a party or on the Director's own initiative. Only the Director may exercise the authority under this paragraph (b).
Each arbitrator must answer very detailed questions for the Arbitrator Disclosure Report, in part, so that parties can ferret out any conflicts of interest or bias. The arbitrator bios list Employment information for the past several decades, including any periods of unemployment, names of firms and positions held. An Education section lists the start and end dates of each school attended and the degree. A Training section lists all FINRA or other courses or training. One section of the arbitrator’s biography is entitled Disclosure/Conflict Information. It is here that the arbitrator lists the Type of disclosure, the Firm Name and the Details. Proper disclosures include other investment accounts and the identity of those brokerage firms, including brokerage accounts held by family members. Disclosures may also consist of Board of Directors positions, members of groups, publications, and any prior legal actions.
The Arbitrator Disclosure Report also has sections for Publicly Available Awards for Cases Involving Public Customers, Publicly Available Awards for Cases Not Involving Public Customers, Cases Currently Assigned Involving Public Customers, And Cases Currently Assigned Not Involving Public Customers. Lastly, on the Arbitrator Disclosure Report is a section entitled Arbitrator Background Information. Here the arbitrator can write whatever he or she wants about experience or background.
The foregoing information can be used to determine whether to simply strike the arbitrator or ask for removal of the arbitrator from the roster. The reason a lawyer may want to remove the arbitrator as opposed to simply striking him is because, if the challenge is granted, the lawyer did not waste a strike. There is little downside to challenges for cause or removal of arbitrators during striking and ranking of the arbitrators, because the panel is not yet in place. The danger comes in making such challenges after the panel is already in place, because it is not a good situation to have an arbitrator deciding your case who you have sought to remove and were unsuccessful.
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