Professors Jill Gross and Barbara Black recently submitted Perceptions of Fairness of Securities Arbitration: An Empirical Study to the Securities Industry Conference on Arbitration. The study is based on survey responses received from customers (comprising approximately 45% of those responding), corporate representatives of securities brokerage firms and persons associated with the firms (22%) and lawyers or other party representatives (31%). There was some good news for securities arbitration in the report. An overwhelming percentage of participants perceived that their arbitration panels listened to parties, their representatives and witnesses, and a strong majority also perceived that their arbitration panels were competent to resolve the disputes before them.
But the research revealed significant divergences between customers and the other participants in securities arbitration. Customers were much less likely than “non-customers” to perceive the arbitration panel as open-minded (27.97% vs. 49.43%), much less likely to perceive the arbitration panel as impartial (24.84% vs. 47.82%) and, ultimately, much less likely to view the arbitration process as fair (27.84% vs. 50.64%). Indeed, 60% of customers disagreed with the statement “I have a favorable view of securities arbitration for customer disputes,” and 61% disagreed with the statement that “[a]rbitration was fair for all parties.” The customers’ skepticism regarding arbitrators’ open-mindedness and impartiality makes it unsurprising that they also doubted the arbitration process’ fairness.
Participants with recent experience in a civil court case also were asked to compare the fairness of securities arbitration with the fairness of the court process. A whopping 75.55% of customers found that arbitration was “very unfair” (62.96%) or “somewhat unfair” (12.59%) when compared with their court experience. I don’t think that any of us ADR advocates ever imagined that one of “our” processes would compare so unfavorably with litigation.
Gross’ and Black’s empirical report is the first to focus on perceptions of fairness in securities arbitration. Perceptions, of course, do not necessarily reflect reality. But, often enough, they do. In fact, Gross and Black reference other research showing that customers’ win rates have declined in securities arbitration, as have their recovery rates. Customers do even worse when facing large brokerage firms or when their arbitrators are attorneys who also represent brokerage firms or brokers in other arbitrations. Gross and Black also cite research showing that the selection of pro-industry arbitrators has increased.
One last interesting tidbit. While more than 70% of the responding customers indicated that they were dissatisfied with the outcome of their arbitration, 55% agreed that they would be more satisfied if they had an explanation of the award.
This report is available at http://www.law.pace.edu/files/finalreporttosica.pdf.