By Richard P. Ryder, Esq.
The American Arbitration Association reports quarterly with detailed data on the cases it closes under its Consumer & Employment Rules. The Association recently released data for the fourth quarter of 2022, as well as the five-year period from 2018 to 2022. This analysis of the 2022 data is President of Securities Arbitration Commentator, Inc., and by SAC’s ARBChek.com, securities arbitration’s original arbitrator evaluation service. The words below are his.
Why should readers of the Securities Arbitration Alert be interested in learning more about disputes decided by AAA arbitrators? Isn’t FINRA, for all practical purposes, the only arbitral forum for securities customers and industry employees to redress their grievances? While FINRA is clearly the dominant forum in this regard, other forums, most especially the AAA, play a growing role in sponsoring the resolution of securities arbitration disputes, whether it be customer disputes with their stock market providers or disputes involving broker-dealers and their employees. It’s this growth, among other considerations, that commands attention to this quarterly resource.
RIAs, Class Actions & Case Tactics
On the employment side, the ban against class action waivers and other considerations have caused some brokerage houses, particularly larger firms, to write AAA and/or JAMS into their predispute arbitration agreements (“PDAA”) with employees. Growth on the Consumer (or customer) side blossomed in the RIA space, when, in the last decade or more, the RIA model has attracted many investors away from the traditional brokerage norm. Independent RIAs are not SRO members; believing FINRA will not be open to them, they often specify AAA as the forum of choice, when they adopt PDAAs with their clients.
In addition to these sea changes within the securities industry, other more tactically-based reasons exist to keep a watchful eye on AAA cases. For example, FINRA’s arbitrator roster, now at the 8,200 level in number, has grown 50% or more in recent years, and, as new recruits, these freshly inducted arbitrators have no FINRA Awards for parties to evaluate. SAC’s Award comparisons (between recent FINRA Awards and data from the AAA quarterly reports) disclose that an estimated 15-20% of the FINRA roster overlaps with the AAA arbitrator pool deciding Consumer and Employment cases. Rather than striking new FINRA recruits for having no FINRA Awards, parties can proceed with their due diligence on such candidates by reviewing the AAA reports. These reports, which we describe in more detail below, are posted quarterly by AAA for public consumption.
Of course, if one’s case resides with AAA, checking the appointed arbitrator’s prior cases under the Consumer or Employment Rules for possible conflicts and challenges is truly advisable. Moreover, where coordination is feasible, parties can collaborate on their choice of arbitrator and, under the full Commercial Rules, which provide for list selection, control over your choices (by checking out candidates’ past case histories) adds further incentive to the mix.
Disassembling the AAA Report
So, what can we tell you about last year’s Consumer & Employment cases by referencing the year’s reports from AAA? To begin with, we need to explain the important ways in which the AAA case reports differ from FINRA’s Arbitration Awards Online (AAO). FINRA provides the Awards for users to review, while AAA provides data about the Awards. The Awards themselves are not made publicly available, but AAA’s 5-year Excel reports supply a field-based picture of each dispute that covers the people, the claim and award figures, vital dates and location, and dispute categories. Each row in the Excel report relates to a dispute between a particular claimant and respondent, so that, in multi-party matters, an arbitrator may be named on multiple rows with respect to the same matter, but only as to her decision regarding the parties named in a specific row (that has some technical appeal to it, but it plays havoc with efforts to supply accurate statistical results). Importantly, all cases -- whether the subject of an Award or one that was dismissed, withdrawn, settled or administratively terminated -- are revealed in the AAA quarterly report.
ANALYZING FULL-YEAR STATS FOR 2022
Class Action Impact on Arbitration
Now, as to the 2022 AAA statistics themselves, readers of this “AAA Stats” column may recall that, in our SAA wrap-up of the first quarter of 2022, we initially found 15,890 closed cases of all types; yet, only 211 were categorized as “Financial Services” disputes. In all of the prior year, CY 2021, 17,001 disputes were reported — so, 15,890 for a single quarter sounded anomalous — plus 5,325 of those were related to the “Financial Services” industries (ed: see our coverage elsewhere in this Alert of the substantial “financial services” component of AAA’s B2B caseload).
In that same SAA article, we found the explanation for these puzzling figures in the form of class actions that proceeded in arbitration as individual cases. Principally, Amazon appeared as respondent in 13,733 of the 15,890 cases (186 disputes involving Uber signaled another class-related set). The Amazon and Uber disputes were not financially-related, so, we delete them from consideration. The 211 “Financial Services” tally made more sense for the first quarter, when compared to only some 2,000 “independent” disputes.
Now that we had the full year’s results, we checked the second quarter and, again, class action matters presented in arbitration as individual disputes produced a statistical bulge — a big one this time. Also, the bulge occurred within the “Financial Services” category — we found 37,911 such disputes! TurboTax was the class-related business party this time, appearing as respondent in 37,143 cases. All of the 37,143 matters were marked as “withdrawn” on June 6, 2022. As with the Amazon matter, Keller Lenkner (aka Keller Postman LLC) appeared as counsel for all claimants. (Note: Here’s an article on the underlying matter and how it got to arbitration.).
Speaking of Amazon, we found that Amazon class-related matters continued into the second quarter as well, accounting for 23,897 of the 64,826 closed cases recorded. All told, for 2022, AAA processed 92,152 matters to conclusion. So many ranked among these class-related cases that we turned to the list of some 40,000 “Financial Services” disputes and omitted from our analysis those that appeared, like TurboTax and Amazon, to be class-related. That left 3,045 cases, not dissimilar to results we’ve encountered in prior years.
Adjusted Results - Consumer Cases
Among those 3,045 Financial Services cases or dispositions, 2,871 were classified as “Consumer” cases and the other 174 were employment-related. Taking the “Consumer” cases first, we found that 1,034 (or 37%) reflected the appointment of an arbitrator. Thereafter, 253 cases were “Withdrawn", 70 were “Dismissed”, another 512 “Settled" and 201 were “Awarded” (the remaining terminations were “Administrative”). AAA offers a Report Legend that defines many of the terms used; “Dismissed” is not one of them, so we accord the term its common meaning, i.e., that the Arbitrator granted a motion to dismiss the claim. “Awarded” is defined in the Legend to signify that the Arbitrator rendered a decision on the merits.
Compared to FINRA statistics, where about 70% of the matters settle and some 16-18% are heard, AAA Consumer matters display a much lower settlement and decision rate. What about the “Win” rate - how often does the Consumer receive a monetary award from the Arbitrator? Where the Consumer was the “Initiating Party” (192 cases), she won a monetary award in just 40 cases (21%). In none of the cases did both parties receive monetary relief, but the business party was awarded money in 26 of the matters (18 on counterclaims). In the other 136, both sides won no monetary relief.
Notably, the Consumer almost never had to pay the Arbitrator’s fee; we found only one such case among the 201 “Awarded” matters. In other words, even in the nine matters commenced by the business party — where it won relief eight of nine times— the business party still had to pay 100% of the Arbitrator’s fee. The fees charged were generally $1,500 for a one-day hearing, but we saw fees in the $10-$15,000 range in eight cases and one that soared to $33,500. Neither party received relief in that case (the Consumer’s claim amount was not stated) and, as we indicated, the business party had to shoulder the entire amount.
AAA arbitrators generally do a good job moving their cases along. Among these 201 “Award” cases, the “Days to Disposition” numbered 100-200 days in 15 of the matters, 201-300 days in 61 cases, 301-400 days in 57 cases, 401-500 in 35 cases, and longer in 33 cases. We drew a mean of 328 days — less than a year — for the 201 Award.
Unlike the Consumer cases in the “Financial Services” category, a very large majority of the 174 employment cases settled (134 or 77%). Curiously, arbitrators were appointed in 145 of the cases, even though only 15 of those matters are labeled “Awarded.” The phenomenon, we believe, relates to the apparent practice of appointing the arbitrators within 1-3 months of the case being filed. Not only are the arbitrators generally appointed early on, but the parties were almost always assessed a fee. Arbitrators collected fees in 138 of the 145 cases and the employer party in each was assessed the full amount of the fee. The 15 “Awarded” cases followed the same practice of routinely assessing fees to the business party. Monetary relief was granted in only 3 of the 15 matters; in two of the cases, the damages assessed exceeded $100,000. The fees in those three cases fell between $30-$60,000 — which helps to explain why employers are prone to settlement.
The case volume for the third and fourth quarters of 2022 seemed to return to pattern, with less influence from class-related matters. These class-related disputes are so numerous as to skew any statistical analyses, yet, for the most part, they act as one. In the third quarter, 5,425 consumer and employment cases were recorded (1,020 “Financial Services”) and, in the final quarter, 4,246 matters were filed under the two Rule sets; 703 were classified as “Financial Services” disputes. “Financial Services,” as a category, spans widely, as we saw with the TurboTax cases; AAA does not attempt to classify the business party as bank, broker-dealer or otherwise, so identifying respondent types is time-consuming and inexact. Our general observation would be that the names of RIA firms appear more often in the Consumer cases, while broker-dealer names are more often seen in the “Employment” category.
(R. Ryder: As part of its ARBChek arbitrator search service, SAC has been collecting AAA C&E reports since 2005 and compiling the approximately 200,000 case records into a case directory that we use for arbitrator searches and statistical analyses. The arbitrator reports we produce are presented in Excel and PDF formats (.csc files are available for loading into your own software). Before ordering a AAA report for your roster of arbitrators, check their names for free on SAC’s AAA/JAMS Directory, under the green “Search ARBChek” selection on the ARBChek homepage. Then, if you hit a positive, you can contact SAC for a report at a very modest fee.)