PLI’s “Securities Arbitration 2018” Seminar Provides Balance Between Practice and Overview
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The seminar, held at the Practising Law Institute in Manhattan on Wednesday, September 26, from 9 a.m. to 5 p.m., included six segments, each featuring a lively discussion by a five-person panel including representatives of FINRA, arbitrators and customer and industry counsel.

The seminar, chaired by Sandra D. Grannum, Esq., Drinker Biddle & Reath, and hosted by PLI, included a wealth of tips on a variety of subjects.

The Program opened with a segment on FINRA developments, fittingly moderated by Rick Berry, Executive Vice President and Director of Dispute Resolution, FINRA-ODR, and concluded with a forward-looking discussion of “Hot Topics and Future Trends in 2018” at FINRA, moderated by Ms. Grannum. Four other segments covered developments in detail on a wide range of issues: 1) diversity among neutrals, moderated by Ken Andrichik, Senior Vice President and Counsel, FINRA-ODR; 2) discovery matters, moderated by Tracey Salmon-Smith, Drinker Biddle; 3) use of experts by Claimant's and Respondent's counsel, again moderated by Ms. Grannum; 4) and technology, security and ethical concerns, moderated by Teresa Verges, Director of the Investor Rights Clinic at University of Miami Law School.

FINRA News and Outlook

Here are some of the notable current developments at FINRA and things to look for in the near future:

  • Coming improvements to the Portal will include converting from PDF the forms that FINRA uses, so that they become part of the Portal. More importantly, communications between staff and parties will be recorded and available for all parties to see online.


  • An audience question drew the response that it is feasible to store for retrieval an audio file of the hearing -- a digital transcript. One challenge would be storage space. While feasible, it is not part of the current planning.


  • On arb recruiting, the emphasis will continue to be on finding qualified Chairs in general and especially in mid-sized cities. FINRA has heard loud and clear that parties want to avoid non-local panelists and these cities require build-up to avoid congestion if volumes rise.


  • Panel Composition: 69% of the Public Arbitrators are attorneys and 42% of the Non-Public Arbitrators are attorneys. Diversity receives a critical emphasis in panel recruiting - statistics can be viewed on the FINRA-ODR Website and they continue to improve: 35% female in 2018. Changing the Roster's composition via new recruits will take place gradually. Practitioners on the Panel say they are not seeing any such impact yet; the reason is likely the list selection process.


  • The Special Proceedings Rule for Small Claims matters ($50K and under) became effective Sept. 17. The new procedures provide for expedited hearings, telephonic communication, and no cross-examination. Streamlining the process equalizes the balance between Respondents' attorneys and the pro se One Claimant's lawyer suggested that the prospect for most PIABA members, who report they do some pro bono work, to take smaller cases will be greater now. Mr. Berry noted that the first Claimant has already taken the option.


  • When challenging arbitrators, be very cautious. That a party may be stuck with an arbitrator who may not only incline to bias, but may also hold a grudge, may be part of the equation; consider that failure also risks shifting settlement leverage to the other side.


Tips and Comments on Diversity, Discovery, Experts and the Future

Here are some sample takeaways of a topical nature:


Diversity Panel: Discussed diversity among lawyers in arbitration -- since most FINRA neutrals are attorneys -- and neutrals in general. The legal industry is known as the "palest" profession, one panelist said. Diversity figures, when compared to accountants and others, run very low. It's even worse in international arbitration, another panelist rejoined. FINRA generally received good marks from the panel -- 27% of its roster is now female arbitrators.


  • Better decisions result when diversity is present among the decision-makers. The challenge is not only to recruit more women and minorities, but to get them on panels. A long discussion proceeded about "implicit" or "unconscious" bias and the need to educate and encourage progressive thinking. Read about the Mansfield Rule 2.0, the next generation of the Rooney Rule:


  • List selection was criticized by some as encouraging subjective and secretive judgments, while others observed that the process is relatively "blind" vis-a-vis gender and race information. FINRA again gets good marks here: an in-house survey determined that 28% of the arbitrators selected in the survey period were female.


Discovery Panel: When seeking Chair approval of a third-party subpoena request, "meet and confer" is the best practice. Submitting with party consent not only assures a rapid ruling, but the Chair is far more likely to approve without amendment. If consent is not possible on all points, narrow the presentation before the Chair to those points of contention by getting party consent on the rest.


  • Particularly with the bigger institutions, pave the way to more rapid production by calling ahead, finding the appropriate contact, and directing the subpoena to the correct section or department.


  • Depositions are, of course, rarely granted and infrequently used, even by consent; video-conferencing is generally viewed as a better alternative in arbitration, where feasible.


  • Predictions based on the aging population anticipate more requests for expedited treatment in the future. That also means a voir dire-type process must develop, where some testing is permitted of the underlying assumptions warranting expedited treatment.


  • Advice to Claimants on e-discovery: be prompt, be clear and definite, and coordinate with outside counsel. Search terms are critical -- the process is complicated by the increasing use of third-party processors. Sharing a "hit" list that highlights expected results for each proposed search term gives an opportunity to review and prune -- good will is vital here.


  • Goal of counsel for IPHC should be to have completed document production and be able to give panel mutually agreeable dates for hearing.


  • Insurance discovery, now the subject of a rule proposal that will make policy information presumptively discoverable, also stresses that the information disclosed is presumptively inadmissible. See SIFMA comment letter on this point.


Panel on Experts: Two members of the Panel mentioned the "Find An Expert" function on the Securities Experts Roundtable Website as a great place to find experts.


  • Usual tension present, with experts seeing value in their being brought in early (help with numbers, with drafting SOC, with discovery documents) and attorneys wanting testifying, not consulting experts -- i.e., deferring retention until sure there will be a hearing.


  • Estimates of how often experts are used in cases were consistent among practitioners at around 80%, but that's when the case is heard; in terms of use in comparison to all cases, only 10% of the time.


Panel on Predictions & The Future: At Ms. Grannum's request, Rick Berry described the Schwab decision and the importance of FINRA Rule 2268 in protecting customers from class action waivers. Panelists clarified that the FINRA ban on class action waivers only applies to customer cases.


  • During the break, we spoke with one Claimants' attorney who has a number of employee-Claimant cases against a big institutional firm that uses JAMS. With FINRA's assistance, the lawyer was able to invoke RN 16-25 and persuade the broker-dealer to arbitrate at FINRA instead (ed: that's unconfirmed).


  • Asked for predictions for securities arbitration in the coming year, some of the panel interpreted the question as market-based and others as FINRA-based. Those in the former column agreed that, while they could not say which cause might stimulate a market change, clouds were forming for a big change. One panelist pinpointed rising interest rates as the most likely cause (ed: which seemed to be confirmed with an 800+ drop in the Dow on October 10), and fixed income products as a growing source of new claims.


  • Three practitioners agreed in an earlier panel that Awards are often late. Mr. Berry answered those complaints in this panel, agreeing that, while the Awards are issuing within the 30-day requirement on average, the staff is continually working to speed up the process. Among the causes of delay is the occasional difficulty of getting arbitrators to deliberate and sign off. Also, in the special case of merit Awards that grant expungement relief an explanation for the grant of relief must be drafted.


  • Practitioners also agreed that communicating with staff, and the responsiveness of staff on matters like motions and on getting out the arbitrator list, have been much improved. One panelist stated that he filed a SOC through the Portal and it was served the next day. Claimants' lawyers would like to use FINRA more often for RIA client disputes, according to panelists (ed: PIABA Conference attendees evidently echoed this desire to FINRA representatives -- with Claimants' lawyers in pretty wide agreement, we are told). They want a low-cost, efficient forum at which RIA customers can arbitrate disputes with their fiduciary advisors. This is currently problematical, not only because FINRA-DR places some restrictions on these non-member RIA disputes, but also, because RIA PDAAs often name AAA or JAMS as available forums and, as non-members, RIAs are not subject to FINRA "customer demand" Rule 12200.

(ed: The remaining members of the PLI Panel were, in alpha order: Kathy Adams, Adams Dispute Resolution (CA), Katrina Boice, Girard Bengali, APC (CA), Steven Caruso, Maddox Hargett & Caruso (NY), Kenneth Crowley, UBS Wealth Management (NJ), Darya Geetter, LPL Financial (MA), Prof. Elissa Germaine, Pace University (NY), Susan Harper, Bates Group (NY), Jamie Helman, Drinker Biddle (NJ), Prof. Nicole Iannarone, Georgia State University (GA), Ross Intelisano, Rich Intelisano & Katz (NY), Prof. Jeff Jury, University of Texas (TX), Laura Kaster, Arbitrator-Mediator (NY); Marnie Lambert, Lambert Law Firm (OH), Barry Lax, Lax & Neville (NY), Prof. Paul Radvany, Fordham Law School (NY), David Robbins, Kaufmann Gildin & Robbins (NY), James Schroder, Associate Vice President, FINRA-ODR (NY), Beverly Jo Slaughter, Wells Fargo Advisors (MO), Andrew Stoltman, Stoltman Law Offices (IL), Beth Trent, (NY), Harry Walters, Morgan Stanley Wealth Management (NYC), and Bert Ware, Bressler Amery & Ross (NY). Ms. Grannum gathered an excellent roster of speakers, all of whom delivered good information and valuable commentary to the audience.) (SAC Ref. No. 2018-39-01)

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