FINRA Dispute Resolution Task Force Issues Interim Summary of Key Issues

In June (yes, I am behind on my blogging), the FINRA Dispute Resolution Task Force, which FINRA formed last summer (see here), issued an “Interim Summary of Key Issues” to “alert users of the forum, arbitrators, mediators and the general public to its current thinking on the key issues before it.”  While the Task Force did not formally vote on any particular item, the list includes items on which the Task Force “appears” to have “reached consensus” and thus will likely make recommendations.

Some of the recommendations that made the list that I expected from the Task Force include: expressly banning class action waivers in broker-dealers’ pre-dispute arbitration agreements (i.e., codify FINRA’s ruling in the Schwab case, see here, here and here); developing an in-person hearing option for small claims; expanding the use of mediation to resolve claims, by, among other changes, requiring mediation in all cases subject to an opt-out by either party;  strengthening arbitrator disclosure requirements (what could be bad about more accurate disclosure?); and enhancing arbitrator training (what could be bad about more training?).

Some of the more unexpected items (at least unexpected to me) include expanding the use of explained decisions by making it the default requirement (at first blush, I favor this idea) and expanding the grounds for permissible Motions to Dismiss to include claims previously adjudicated (seems OK though I would have to review precise language).

Interestingly, the Task Force was “not ready to state even a tentative position” on certain more controversial topics, such as whether broker-dealers may continue to include “forced arbitration” clauses in their customer agreements; whether the FINRA arbitrator should “more closely resemble a juror or a judge,” and whether FINRA should increase arbitrator compensation (which is currently far below market rates).

The one disappointment for me was a failure to reach consensus thus far on the “who should the arbitrator be” question.  I believe that the FINRA arbitrator classification system needs to be thrown out and redesigned.  With all of the revisions and amendments to the definitions of public and non-public arbitrators over the years, I believe the current definitions are overly diluted and internally inconsistent so as to strip the roster of any arbitrator with any kind of connection to the industry.  Disputants in FINRA customer arbitration are, in my view, hard-pressed to select neutral panelists with sufficient expertise to decide their dispute.

As I wrote in my forthcoming article, Justice Scalia’s Hat Trick and the Supreme Court’s Flawed Understanding of Twenty-First Century Arbitration, 81 Brooklyn L. Rev. __ (forthcoming 2015), the Supreme Court’s arbitration jurisprudence is based on a twentieth — rather than twenty-first  –century understanding of arbitration.  Included in that understanding is a (now faulty) premise that arbitrators are experts in the subject matter of the dispute.   This flawed premise, among others, results in a legal framework that has no bearing on the process it purports to regulate, hurting disputants in the end.

I look forward to reading the Task Force’s final report, due later this year.


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