By Rick Ryder, President & Founder-Securities Arbitration Commentator
AAA Award Data is updated quarterly by the American Arbitration Association. This analysis, which covers the first quarter of 2022, is provided by Rick Ryder, President of Securities Arbitration Commentator, Inc., and by SAC's ARBchek.com - securities arbitration’s original arbitrator evaluation service.
The American Arbitration Association ("AAA") releases on a quarterly basis a report providing detailed information about its many Consumer and Employment cases. The report issues in the form of an Excel sheet, with each row representing a specific disposition, whether that disposition be in the form of an Award, settlement, withdrawal, dismissal, or administrative termination. AAA has been posting this information on its Consumer and Employment cases since the early aughts, but in five-year tranches. Thus, the latest Report that AAA has posted on its Website covers the five years ending in March 2022. We'll review that Report here, focusing primarily on the latest quarter.
Spoke in AAA's Wheels?
Generally speaking, AAA processes a heavy load of "Financial Services" cases, far more than FINRA, and the number of disputes the forum handles has increased over recent years. We illustrated that in a chart published last quarter, when we reviewed AAA dispute statistics for the whole of 2021. In that chart, we showed that "Financial Services" disputes recorded in 2014 totaled only 298 and that steady increases grew that number to 2,111 in 2018. Three years later in 2021, AAA reported 5,398 "Financial Services" disputes among its Consumer and Employment caseload. This year may be different, if the first quarter is indicative, because we found only 211 such cases among a surprisingly large listing of 15,890 case dispositions (just for context, AAA reported 17,001 case dispositions for all of 2021; the 15,890 is just for this past quarter).
Now, we think we see the reason, or at least a possible explanation, in the form of a bottleneck of class action-related matters that have taken, on an individual basis, the arbitration route. Of the 15,890 dispositions in the latest AAA report, 13,740 represent cases involving Amazon disputes with customers. Only one of all these Amazon closures was decided by an Arbitrator. Amazon won that case, defeating its customer's claim for an award of $732.40. But Arbitrator Jeffrey C. Brown, Esq., an intellectual property specialist from Minnesota, also stipulated in his January 25, 2022 Award that Amazon had to pay 100% of the $1,500 arbitrator fee. Subtract three other "dismissed" cases, two settlements, and one administrative termination, and, two months later, Amazon and the disputants in 13,733 cases, led by law firm Keller Lenkner, withdrew all remaining claims.
Uber too, But Different Dynamics
Among the approximately 2,000 remaining dispositions, we found 186 matters involving Uber, defending claims that are labelled as "Consumer" claims. Here, Uber was, again, opposing the clients of one law firm, for the most part, but taking the bulk of the matters to an arbitral decision. 153 of the matters were decided by arbitrators (33 were withdrawn). 139 were represented by attorney Bryan Weir, Consovoy McCarthy (VA). Fourteen other parties went forward without representation and lost (although Uber paid the arbitrator fees). The 37 Arbitrators handling the 139 represented matters non-suited 110 of the claimants (again, Uber pays the fees). The other 28 awards were wins for the Claimants. In 11 cases, they not only won, but also received attorney fees of about $1,000 to $6,000. There, the damage awards were mostly either $4,000 or $8,000. There were 15 awards in the other cases that stopped out at $9,999.99, suggesting some stipulated limit imposed by the parties. Now, we confess that not many arbitrators ultimately had to provide their services in connection with those nearly 14,000 case dispositions, so that was not the bottleneck. But, consider, AAA had to prepare for the potential need for arbitrators to decide that flood of new cases, when first filed in 2021. We recall back then that AAA was recruiting heavily to add to its ranks for Consumer Rules cases; the forum even developed a separate cadre of arbitrators, separate and apart from its Commercial Arbitrator force. Anyway, that's our best guess as to why the forum was able to process to conclusion just 211 "Financial Services" cases in the first quarter. Certainly, we have no evidence to believe that a sharp reversal has occurred in the climb of "Financial Services" cases over the past eight years.
2022 Financial Services Results
Now, let's take a look at those 211 Consumer & Employment cases that were reported. Of the 186 "Financial Services" Consumer dispositions, 57 resulted in Awards. That's interesting in itself, because, in the whole of 2021, the 5,000+ "Financial Services" case dispositions produced 195 "Awarded" cases. That high ratio (57:186) of Awards to total case dispositions strongly supports the proposition that any delay occasioned by the Amazon and Uber cases has not prevented parties desiring an arbitral decision from obtaining one. Such delays might have an impact on party decisions not to settle or withdraw a case, but parties claiming their "day in court" seem, from these numbers, to be getting it - and proceeding to decision within a reasonable amount of time. Drawing an average turnaround time for a relevant sample among the Awarded cases, we found that arbitrators returned a final disposition with 342 days.
Among the 57 "Awarded" cases -- which the AAA legend defines as: "A case in which the arbitrator ... rendered a decision," we found 33 in which monetary relief was awarded and 13 in which the Consumer was the recipient of that monetary relief. A summary of the dispute is not information AAA provides, so we selected six of the 13 wins with a potential securities cast to delve further. It was from this set that we took the 342-day average turnaround time. As to the size of the recoveries, we found four of the six winners were granted a monetary award that either matched or exceeded the claimed amount. A fifth claim for $100,000 returned only a $2,000 award. The sixth had no stated claim and the award was small, but "other" unspecified relief was also granted. Counsel represented the claiming Consumer in four of the six matters and all cases involved hearings (i.e., not "documents only" proceedings).
The employment side of the "Financial Services" case dispositions deserves a brief paragraph. They made up the 26 other dispositions among the 211 total. Twenty-three of the matters were initiated by employees and three were brought by the business entity. Just paging through the SAC Database of these AAA cases, we quickly note that these 26 employment matters more commonly involve identifiable broker-dealers or investment advisers than the Consumer side. Only one of the 23 was an "Awarded" case and it involved a life insurance respondent. The damages claimed in these employee-initiated matters cover a wider dollar range ($75,000-$4 million) and the arbitrator fees assessed can be hefty; in the Consumer arbitrations, they are commonly limited to a one-day fee of $1,500.
Because there were only 185 Consumer cases to review, we scanned for respondent broker-dealers or RIA businesses we could recognize. We saw more than several -- none, of course, related to large wirehouses -- but, without some idea of the complaint, we can't speculate further about some of the other company names. We did note with interest a handful of matters involving cryptocurrency, where the respondent business was Coinbase. The amounts involved in those disputes ranged from $3,100 to $250,000. It would be really interesting to know the nature of the Consumer's underlying grievance.
(R. Ryder: *Take a look for yourself at AAA’s Consumer Arbitration Statistics. While the majority of the cases involves non-securities disputes, considerable arbitrator overlap exists between the FINRA and AAA roster, making this an excellent secondary source of arbitral activity when performing FINRA arbitrator evaluations. Importantly, checking for AAA Awards provides an alternative to simply striking a candidate who has no FINRA Awards -- a new arbitrator at FINRA may be highly experienced at AAA. If you happen to have a AAA dispute, your appointed arbitrator's C&E case history can lead to a wealth of information that will inform your tactical decisions. **SAC has the earlier reports on file going back to 2005 and provides Arbitrator Summary Reports in individualized Excel and PDF formats. You can check the name for free on SAC's AAA/JAMS Directory, under the green "Search ARBchek" selection on the ARBchek Homepage, and, if you hit a positive, contact SAC for a report for a very modest fee.)