By Richard P. Ryder, Esq.
ed: AAA Award Data is updated quarterly by the American Arbitration Association. This analysis of the full-year 2021 update is provided by Rick Ryder, President of Securities Arbitration Commentator, Inc., and by SAC's ARBchek.com - securities arbitration’s first 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 column representing a specific disposition, whether that disposition be in the form of an Award, settlement, withdrawal, or otherwise. 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 posted on its Website in February for year-end 2021, reflects case information for the five years from 2017 to 2021. We'll review that Report here, focusing primarily on the past year and the latest quarter.
Broad “Financial Services” Category
AAA processes a heavy load of "Financial Services" cases, far more than FINRA, and these disputes comprise a significant segment of the case dispositions in its released Report. FINRA's "Financial Services" disputes are limited to broker-dealers ("BDs") for the most part; AAA covers an array of financial services entities that resembles more the jurisdictional breadth of the CFPB (banks, credit card companies, financing agencies, etc.) than the SEC. Still, today, more securities-related disputes than ever are being arbitrated at AAA and these cases are generally reflected in the AAA’s quarterly statistics. Disputes involving independent RIAs -- a growing area for arbitration -- are included in this mix, as are also employment disputes relating to broker-dealers that have, for tactical reasons, named AAA in their PDAAs with employees.
Growth in this Caseload Sector
SAC has more than 140,000 case records in its collection of AAA reports dating back to 2005. Of that number, 17,001 derived from this past year and 5,325 of those were designated by AAA as "Financial Services" disputes. Of these, 223 were employment-related and the rest (5,102) came from the consumer sector (see the chart below). How many involved BDs or RIAs is almost conjectural. The names of the institutional parties are provided in the Report, but determining who's who among these institutions requires individual scrutiny and, due to naming vagaries in the Report, identification would still be elusive.
Growth of Financial Services* Case Dispositions at AAA: 2014-2021
|Year||Financial Services||Consumer||Employment||Arbitral decision|
2021 Financial Services Results
Of the 5,102 "Financial Services" Consumer dispositions, only 195 resulted in Awards. Settled cases, as might be expected, produced many more dispositions (1,300). Withdrawals, surprisingly, accounted for the majority of dispositions (2,747). AAA supplies a Report Legend, which defines the terms used in producing the Reports. "Withdrawals" as a term of art, does not appear to include Settlements. Interestingly, "Dismissals" are a disposition category used by AAA, but the term is undefined. There are clues indicating that non-monetary relief, such as an accounting or a declaratory judgment, may have been granted in some of the matters; the rest of these 94 "Dismissal" cases may well have been on the law, as many did have monetary claims by one or the other party.
Focus on Awards
Among the 195 "Awarded" cases -- which the AAA legend defines as: "A case in which the arbitrator ... rendered a decision," we found 49 in which monetary relief was awarded to the Consumer. Some of those 195 Awarded matters -- probably collection matters -- assessed the Consumer; in others, a claiming Consumer stated no monetary claim. Seeking a more accurate sense of the "win" rate for claiming Consumers, we counted only those "Awarded" matters (128) where the Consumer party stated a monetary claim. Among those 128 cases, 40 (33% "win" rate) disclosed a monetary award for the Consumer. As to the size of the recovery, we found 17 of the 40 winners were granted a monetary award that either matched or exceeded the claimed amount. Most of the claims were modest, but they covered a wide dollar range as a whole. Two cases claimed millions but won only low five figures; another claimed $300,000 and received an award of $844,512.
Impact of Virtual Hearings is Unclear
AAA provides data on hearing locations, but only dispositions involving "In-Person" hearings report that information. That left us unable to develop statistics on case or Award distributions, but we did learn that only five of the 195 "Awarded" dispositions involved "In-Person" hearings. How did the rest proceed? 49 of the 195 matters were decided on a "Documents Only" basis. Were the remaining 141 cases decided virtually (e.g., Zoom) -- a product of the COVID era?** Trying to judge, we compared these disposition figures to AAA's statistics in a pre-COVID year - 2019. Then, only 1,827 "Financial Services" dispositions were listed among 6000+ Consumer matters. That told us that Consumer cases have grown in number in just two years and that Financial Services cases now comprise a higher percentage of a bigger "pie." The rest left us uncertain. We know that 170 of the 1,827 cases ended in an Award. A larger number (56) of those 170 dispositions were designated Document-Only and a larger number (36) involved In-Person hearings, but how did arbitrators proceed with the nearly 80 other decisions – since virtual hearings were presumably not common three years ago? The statistics leave us uncertain on this point.
A lot more Financial Services cases were disposed of this past year (5,102 vs. 1,827). In-Person hearings were far more common (36/170 vs. 6/195) in normal times than in the 2020-2021 COVID period. The very large number of Withdrawals -- more than half of the dispositions in 2021 -- may have been occasioned, at least in part, by the serious delays and the live hearing moratorium brought about by COVID.
(R. Ryder: *The 2,111 figure for financial services cases for 2018 and 2019 is not a typo. **We are trying to figure out what types of hearing one can have, other than live hearings, documents only, or virtual. The stats seem to say there were 100+ cases utilizing virtual hearings in 2021, which could be. But, if so, then the stats also say that there were 80 virtual in pre-COVID 2019. That doesn’t seem right. ***Take a look for yourself at AAA’s Consumer Arbitration Statistics. Caveat: the downloadable Report contains data for the most recent five-year period only. ****While the majority of the cases involves non-securities disputes, considerable arbitrator overlap exists between FINRA and AAA, 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. 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 for a very low fee.)