By George H. Friedman SAA Publisher and Editor-in-Chief*
“Strength does not come from winning. Your struggles develop your strengths. When you go through hardships and decide not to surrender, that is strength.”
-- Mahatma Gandhi
“An optimist sees the opportunity in every difficulty.”
-- Winston Churchill
“There is no education like adversity.”
-- Benjamin Disraeli
Introduction
As we headed into 2020, we thought the most eventful development for the financial services alternative dispute resolution (“ADR”) world might be a FINRA rule change, or a SCOTUS decision, or a new trend in FINRA arbitration case filings, or the Securities Arbitration Alert’s change in ownership. While the last year indeed experienced those developments, the worldwide COVID-19 pandemic came out of nowhere to dominate the scene. This year-end review covers how the pandemic changed the ADR world in 2020, and hazards a guess about lasting impacts.
How Do You Spell “Pandemic”?
The biggest story of 2020 was of course the worldwide Coronavirus/COVID-19 pandemic, which “Zoomed” into our lives in March. Courts essentially ground to a halt, many with some combination of: no-in person hearings; no new filings; no or “essential-only” pleadings; and no paper (only online payment and filings). As the pandemic exploded onto the global consciousness, the impact pretty quickly spread to the dispute resolution field in the form of: shuttered ADR provider offices; cancelled in-person hearings; online case administration; and the seemingly overnight adoption of videoconferencing for mediation and arbitration hearings –typically via Zoom.
The Virus Forced the World to Adopt Contactless ODR
The COVID-19 pandemic forced a renewed focus on virtual hearings and paperless case administration. Courts worldwide adapted virtual hearings and online administration. Even the US Supreme Court started conducting hearings by phone. This movement of course spread to the ADR world, with the major national ADR institutions – FINRA; the American Arbitration Association-ICDR (“AAA” or “AAA-ICDR”); the International Institute for Conflict Prevention & Resolution, Inc. (“CPR”); and JAMS – moving to cloud-based administration.[1] The main change was a rapid move to virtual hearings. In response to the COVID-19 pandemic, FINRA in March started administratively postponing in-person hearings, and encouraging and facilitating hearings via the popular Zoom videoconferencing platform. The Authority also posted guidance adding: “Finally, FINRA Dispute Resolution offers virtual hearing services (via Zoom and teleconference) to parties in all cases by joint agreement or by panel order.”[2] Then seemingly every month thereafter the FINRA “no in-person hearings” date was extended (which remains the case today[3]). And formerly in-person events like PLI’s annual securities arbitration seminar, moved online.
The “New Normal” Going Forward
What’s ahead? While the vaccines of course are a game-changer, once you’ve gone to Online Dispute Resolution (“ODR”), it’s hard to go back completely to brick, mortar, and paper. Even assuming the vaccines are fully effective and we reach “herd immunity” later this year, we don’t see a light being switched on with things suddenly returning to the way they were pre-COVID. And, while some practices may go back to normal after the crisis gradually passes, some shouldn’t. Here’s what your author thinks lies ahead:
Gradual physical reopening of courts and ADR providers: This is already happening. It will not occur all at once, there will be geographic differentiation, and civil actions in court will of course take a back seat to criminal cases … and quarantined-caused divorce proceedings.[4] As for the ADR world, FINRA started posting each month a list of hearing locations: “that demonstrated public health conditions consistent with CDC guidance for activities such as in-person hearings….” For a while Pittsburgh and Syracuse made the grade, but as of December 2020, there are no hearing locations listed.
A warm embrace of online ADR: While there had been a clear trend toward online case administration and video hearings at FINRA and other ADR providers, the pandemic served as an accelerant. ODR has two core elements: case administration and virtual hearings. The administration part of course has several basic components: case filing; selecting arbitrators; evidence uploading; hearings (video or telephonic); and issuing Awards. Hearings come in the form of video or telephonic presentations and deliberations and offer these clear benefits over the in-person experience: 1) first and foremost, safety (ODR is contactless and virtual); 2) speed in the form of time savings (no scheduling delays getting everyone to agree when and where to hold hearings);[5] and 3) cost savings in reduced travel costs for counsel, neutrals, witnesses, and experts to go to a fixed location (and extra fees for professionals).[6]
Parties will embrace the continued use of virtual ADR: video hearings are here to stay: Having been exposed to the time and money benefits of online ADR and video hearings, some participants will never return to traditional case administration or in-person hearings in every arbitration or mediation. Disruptions to travel caused by the pandemic at first seemed likely to be brief and geographically limited, but the reality is that it will be challenging for some time to conduct hearings in-person in many parts of the world. Not every case will be a Zoom candidate. We see a hybrid, with some cases remaining all-virtual (think smaller, single-arbitrator cases), and others having at least some arbitrators, counsel, or witnesses participating remotely, especially those in a high-risk group. Mind you, virtual hearings are not a panacea, and resistance in some quarters will persist (“I want to be there to see witness faces;” “the case is too complicated;” “I want to be sure the witness is not being coached”), but virtual hearings for at least parts of cases will eventually become the new normal.[7]
So will ADR provider staff: The days of staff commuting to central locations five days a week are gone forever, and the ADR institutions will ask themselves whether there’s a continued need to lease significant square footage in those places. And the law would seem to protect older workers – and perhaps arbitrators and mediators[8] – who are reluctant to return to the workplace or hearing room or the reverse – who want to return physically but are discouraged from doing so. The EEOC last June[9] updated its COVID-19 FAQ, What You Should Know About COVID-19 and the ADA, the Rehabilitation Act, and Other EEO Laws, to address return-to-work issues. One question focused on older workers: “Do employees age 65 and over have protections under the federal employment discrimination laws?” The short answer was “Yes.” The Commission explains that the Age Discrimination in Employment Act: “would prohibit a covered employer from involuntarily excluding an individual from the workplace based on his or her being 65 or older, even if the employer acted for benevolent reasons such as protecting the employee due to higher risk of severe illness from COVID-19.”
ODR Governance Framework Needed As online dispute resolution and virtual hearings continue to become the norm, the need for standards for safe, effective, and fair administration and hearings becomes paramount for areas such as: 1) ethics concerns (example: someone off-camera holding a cue card[10]); and 2) security concerns (example: interlopers “bombing” Zoom hearings or parties stumbling into a breakout room set up for arbitrator deliberations or a mistakenly open mediation caucus). In the author’s view, any of these breaches would be disastrous. A third need is creating “how-to” ODR training. As demonstrated below all of these are happening already:
Case administration: several international ADR providers issued a joint statement, Arbitration and COVID-19; and a consortium of American and United Kingdom law firms drafted a Protocol for Online Case Management in International Arbitration and released it for comments.[11]
Hearings: FINRA published The Arbitrator Resource Guide for Virtual Hearings; JAMS issued virtual hearing guidance; in March 2020 the Seoul Protocol on Video Conferencing in International Arbitration was released; and FINRA in December 2020 published: Virtual Arbitration: Best Practices for COVID Times and Beyond.[12]
“How-to” training: this has abounded, with ADR providers creating support materials, such as guides, videos, and model orders:
- FINRA released a series of videos on how to prepare for and conduct virtual hearings.
- The AAA released three guides on virtual hearings: Virtual Hearing Guide for Arbitrators and Parties; Virtual Hearing Guide for Arbitrators and Parties Utilizing ZOOM; and Order and Procedures for a Virtual Hearing via Videoconference.
- CPR developed an Annotated Model Procedural Order for virtual arbitrations. It covers things like “no one else here” statements or disclosure of who is present.
But Life Went On
There were of course other developments of interest in the ADR and financial services worlds, but that’s a subject for another article. Just to mention a few: 1) the SEC’s Regulation Best Interest became effective; 2) the Department of Labor’s analogue to Reg BI was finally approved; 3) FINRA Dispute Resolution became “The Office of Dispute Resolution;” 4) several arbitration-related rules changes were filed or approved;[13] 5) for the first time ever, cumulative yearly industry FINRA arbitration case filings exceeded customer claims;[14]and 6) SCOTUS held unanimously in GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048 (Jan. 21, 2020), that the equitable estoppel doctrine can be used by a non-signatory to compel a signatory to arbitrate under the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. The Court also granted Certiorari in Henry Schein, Inc. v. Archer and White Sales, Inc., No. 19-963 (Schein II) to review an open issue from its 2019 ruling in Henry Schein, Inc. v. Archer and White Sales, Inc.,139 S. Ct. 524 (2019) (Schein I).[15]
Conclusion
There’s no question that 2020 was laden with adversity, but the past year also presented opportunity. And the ADR world last year shouldered well several challenges that in the end created opportunities for growth that will carry over into 2021 and beyond. We began this article with words of wisdom from some well-known thought leaders. We close with the last word on the pandemic by quoting another great philosopher:
"It ain’t over ‘til it’s over."
-- Yogi Berra
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*George H. Friedman, Publisher and Editor-in-Chief of the online Securities Arbitration Alert and an ADR consultant, retired in 2013 as FINRA’s Executive Vice President and Director of Arbitration, a position he held from 1998. He also serves as non-executive Chairman of the Board of Directors of Arbitration Resolution Services. In his extensive career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President. He is an Adjunct Professor of Law at Fordham Law School, and is also a member of the AAA’s national roster of arbitrators. He holds a B.A. from Queens College, a J.D. from Rutgers Law School, and is a Certified Regulatory and Compliance Professional. He is admitted to practice in New Jersey and New York, several U.S. District Courts, and the United States Supreme Court.
ENDNOTES
[1] Many institutions also no longer accepted paper filings or checks. See generally the Alert’s March 25 blog post Coronavirus and the ADR Providers – What You Need to Know.
[2] A securities industry party resisted without success a Zoom hearing ordered over objection, in Legaspy v. FINRA, No. 1:20-cv-04700 (N.D. Ill. Aug. 13, 2020). Legaspy alleged breach of contract because the FINRA Code of Arbitration Procedure doesn’t expressly authorize hearings to be held by videoconference absent party agreement. District Judge Lefkow addressed each of the plaintiff’s assertions and rejected them. Legaspy appealed and the Seventh Circuit, which in a one-page Order posted the same day, declined to issue either a temporary or preliminary injunction or to expedite briefing. On the other hand, see Miller v. FSD Pharma, Inc., 2020 ONSC 2253, No. CV-19-614980-00CP (Ontario Super. Apr. 14, 2020), where the Court ruled there could be no Zoom hearing over party objection in a securities class action certification dispute. Your publisher still thinks the FINRA Code should be amended to establish express arbitrator authority in this regard. See, Letter from the Editor: Change the Code to Support Virtual Hearings (May 8, 2020).
[3] The latest announcement pushed the date to April 2, 2021.
[4] See, for example, Sidestep COVID-19 Judicial Logjams by Converting Litigation to Arbitration, Skadden, Arps, Slate, Meagher & Flom LLP (Apr. 16, 2020): “Civil litigation in many of the nation’s busiest commercial centers has been disrupted to varying degrees by measures to combat the COVID-19 virus. When the courts resume normal operations, there is expected to be a backlog of civil matters requiring judicial attention, which may take a backseat to pending criminal matters.”
[5] For example, online ADR provider Arbitration Resolution Services, Inc., (“ARS”), whose Board the author chairs, reports: for cases that went from Application to Final Decision (including those with Appeals), the timeline ranged from 19 to 272 calendar days. The average time is 78 calendar days, and the median time is 67 Calendar Days.
[6] Hard numbers here are difficult to find, but a 2017 ARS poll of securities arbitration experts yielded these results: over 95% of “away” cases required that one or more arbitration participants to travel at least 100 miles to get to an in-person hearing; over 40% required at least three such travelers. Also, a little over half of those responding agreed videoconferencing technology would make them more productive with 40% of them estimating saving at least a day of their time.
[7] See, e.g., Virtual Hearings – the New Normal, Global Arbitration Review (Mar. 27, 2020): “We are just beginning to appreciate the potentially catastrophic effect of COVID-19 on a core feature of the arbitral procedure – the in-person hearing.”
[8] While arbitrators and mediators are not ADR provider “employees,” one can envision accommodations for older, at-risk neutrals who would prefer to conduct hearings virtually even after in-person hearings generally resume. Conversely, we cannot imagine the ADR providers barring such arbitrators from participating in person if they want to. Query whether this info should be included in arbitrator and mediator bios (e.g., “virtual hearings only”)?
[9] The guidance was last updated December 16, 2021. See https://www.eeoc.gov/wysk/what-you-should-know-about-covid-19-and-ada-rehabilitation-act-and-other-eeo-laws.
[10] For a cautionary tale on surreptitious witness coaching, see Ngai v. Old Navy, a subsidiary of GAP, Inc., 2009 U.S. Dist. LEXIS 67117, No. 07-5653 (D. N.J. 2009) (unpublished), where the Court held not protected by the attorney-client privilege evidence that an attorney was coaching a witness by text during a video deposition.
[11] For a nice retrospective, see the podcast Reflecting on Nine Months of Virtual ADR, JAMS ADR Blog (Jan. 4, 2021).
[12] By Dan Zailskas, Case Administrator, FINRA Dispute Resolution Services -- Southeast Regional Office in The Neutral Corner, Vol. 2020:4, pp. 5-8.
[13] See the analysis in The Neutral Corner, Vol. 2020:4, pp. 12-14.
[14] This reverted to mean after a while, however.
[15] The Court in Schein I held unanimously that there is no delegation carveout under the Federal Arbitration Act for “wholly groundless” assertions of arbitrability. The issue for review in Schein II was: “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.” The Court heard oral argument on December 8, 2020.