Entries Tagged as 'Arbitration'

FINRA to Propose Making All-public Arbitration Panels Permanent

Over two years ago, I wrote about a pilot program FINRA established to test all-public arbitration panels.  FINRA, the financial industry’s regulatory arm, will be submitting to the Securities and Exchange Commission a rule change proposal next month to make this option for claimants permanent.

The current pilot program involves 14 firms that agreed voluntarily to a set number of investor cases that did not involve individual brokers. The proposed rule would apply to all investor disputes against any firm and any individual broker. It would not apply to arbitration disputes involving only industry parties.

Roughly 60% of participants opted for the all-public panels.

Stock Market Arbitration Filings up 43% in 2009

Filings for arbitration at the Financial Industry Regulatory Authority (FINRA), the self-regulation body of Wall Street, are up 43% in 2009 over the previous year.  Nearly all brokerage agreement specify FINRA arbitration as the only way to resolve a dispute between a client and broker or an employee and broker.  In years where the stock markets are down, arbitration filings tend to increase as investors seek redress for their losses.  The average time from filing to award decreased from 13.0 months in 2008 to 11.5 months in 2009 — a 12% decrease. Investors received a monetary or non-monetary award in 45% of the cases in 2009, up from 37% in 2008.

FINRA also has an mediation program.  Filings in their mediation program were also up (23%) and average turnaround time dropped 33% from 135 days in 2008 to 91 days in 2009.

I arbitrate cases for FINRA, among other bodies.

Are Judges and Juries like Referees and Umpires? Are Referees and Umpires Fair? Why lawsuits are crapshoots.

Analogies between a finder of fact (a judge or jury) and referees or umpires (the arbiter of a game’s rules) are often made.  It is open to debate whether the analogy firmly holds.  However, it is often interesting to discuss whether any “neutral” decider of an outcome (game rules or rules of law) have biases.

When a party enters the courthouse or arbitration room, each party expects (and hopes) that the person(s) making the decision as to who is “right” is being impartial and fair. It is certainly open to debate how to define fair, which is usually in the eye of the beholder.  Each time I went through arbitration training (to be a private judge), the class is asked to perform an exercise.  The class is broken up into groups of three people.  One person plays the arbitrator, one person the complainant and the other the respondent.  Each group is given the same exact fact pattern and the parties make their cases.  After a specified period of time, the arbitrator makes their ruling which is turned into the person running the training.  Every single time I’ve done the exercise, the distribution of rulings in the room fall out from one  end of the possible spectrum to the other with everything in between.

Why?  Everyone had the same exact case to argue.  Shouldn’t “justice” be consistent?  In reality, several things happen.  First, not every party presents the case the same exact way.  Some people are more effective than others, just as some lawyers are better skilled than others. In a real case, anyone who speaks (lawyers, witnesses) can have good and bad days.  Trials are performances.  Second, every single human being has biases.  We grow up with things we like or don’t like.  We have all had good and bad experiences with things, people and scenarios.  These create the filters through which we see the world.  There is also a theory many attorneys ascribe to which states that whomever the jury or arbitrators likes better in terms of attorneys and litigants will win the case. Likability trumps “rightness”.

Getting back to the sports (referee) analogy, there have been some recent studies showing bias in referees.  And I am not referring to the Tim Donaghys of the world who seek personal gain from their on-the-court rulings.  In the Netherlands, two professors discovered that soccer (the other football) referees are more likely to call ambiguous fouls on taller players.  A study out of England showed that referees favored home teams in their calls, especially in disciplinary sanctions (yellow and red cards).  From the world of Tae Kwon Do, referees tend to award more points to competitors wearing red uniforms.

In the U.S., college basketball referees tend to also favor the home team by calling fewer fouls.  The college refs also try to level the playing field for the teams by issuing “make up” calls, calling more fouls on the team in the lead, and trying to even up the number of fouls between the teams regardless of the aggressiveness of the level of play of each team.  A 2007 study also found that white NBA referees tend to call more fouls on black players than white players.

Even just looking at the games you watch, do you agree with each decision the referee or umpire makes regarding your team?  How about instant replay, the analogy of an appeal in court?  Does the referee get it right even when they have a TV with 20 angles and slow motion to look at each play?  Sometimes not.

So what does all of this tell you?  Try to resolve the case without having someone else decide it for you.  That’s what mediation helps the parties accomplish.  The outcome is on your terms and is unaffected by the biases of others.

Please contact me if you would like to further discuss how mediation can help facilitate a resolution to your lawsuit, divorce or family dispute.

Aribtration Vacature Request Denied and Counsel Fees Charged to Filing Party

Arbitration is an alternative to a court making a decision on an issue in dispute by having an arbitrator, or private judge, make a decision on a matter. The benefits of arbitration include a quicker and less expensive trail to a decision. The disadvantage is that the ruling of the arbitrator cannot be appealed, except on very narrow grounds. Those grounds include an award procured by fraud, corruption, or undue means; evidence of partiality or corruption among the arbitrators; the arbitrator(s) were guilty of misconduct that prejudiced the rights of a party; or the arbitrators exceeded their powers. Some parties try to argue “manifest disregard of the law” as a way to vacate an arbitration award, but this ground is not specifically mentioned in the Federal Arbitration Act (FAA), which governs arbitration award vacature by courts.

The US Supreme Court recently ruled in Hall Street Associates LLC v. Mattel Inc. that manifest disregard is not among the grounds for vacature and thus cannot be used to vacate an award of an arbitrator — even if the parties agree to allow this ground for vacature by a court in their private arbitration agreement.

In November 2009, the 10th Circuit handed down an opinion which not only upheld Hall Street, but also awarded counsel fees as a sanction to the respondent of the appeal. The case is DMA International Inc. v. QWest Communications International, Inc. The court said, in part, “[U]njustified, protracted attempts to vacate arbitration awards destroy the ‘promise of arbitration’ and will not be tolerated….Thus, one who ‘assumes a never-say-die attitude and drags the dispute through the court system without an objectively reasonable belief that it will prevail’ does so at the risk of being sanctioned.”

The take-away: understand that an arbitrator’s award is likely final and has limited grounds for appealing a decision you do not agree with. If you want to limit your risk, build in a high-low scenario which limits awards in both directions or an upside-downside.

Credit Card Industry in Disarray

Most credit cardholder agreements contain a provision that upon default, the dispute will go before an arbitrator (a private judge) for a decision.  As with home mortgages, many consumers in default on their debt will ignore the notices for the arbitration hearing.  The arbitrator then rules on the matter with whatever evidence has been presented.  Once an arbitrator rules in favor of the credit card company, the company can then sue in court to enforce the arbitration award.  These arrangements have come under criticism because consumers cannot negotiate these terms in the card holder agreements (it becomes a contract of adhesion).  Also, the credit card companies hire the arbitrator so the perception is that they work for the credit card company.

Now, the two largest players in the credit card arbitration market — National Arbitration Forum and the American Arbitration Association — have announced they are leaving the field.  NAF was sued by the Minnesota Attorney General’s office for failing to disclose ties to the collections industry.  Their departure from consumer arbitration is to settle that lawsuit (they admitted no wrongdoing).  AAA is waiting for new guidelines to be established (odd, given that AAA rules are widely used for arbitrations and they have long been considered industry leaders).  Meanwhile, the federal government is looking at the matter of mandatory arbitration clauses in consumer agreements.

I suspect the courts will now be overburdened with credit card default filings with such a huge void in the consumer credit arbitration market.  I mediate a good number of these cases for the NJ courts and most of them resolve.  Credit card companies would rather be paid and consumers would rather not have bank levies and wage garnishments done to them — plus pay the bank’s legal fees.  Anyone can voluntarily enter mediation at any time.  Keep that in mind should you find yourself in this situation.  The earlier cases are resolved, the less expensive it is for all parties.

NJ Supreme Court Allows Arbitration for Parenting Arrangements…with some Caveats

I previously have written about a New Jersey appellate decision in the case of Fawzy vs. Fawzy.  In that case, the appellate panel disallowed the use of binding arbitration to determine parenting arrangement for children in a divorce, arguing that the court can not delegate to others its own parental obligations of making sure things are done in the best interests of the children.  Arbitration is the use of a private judge to determine the outcome of a dispute.  It is optional for the parties.  Parties usually choose to arbitrate a matter because you can engage an “expert” judge who can render a decision far more quickly (and hopefully less expensively) than the court.  The disadvantage is that arbitration decisions are appeal-able only on very narrow grounds.

Last week, the NJ Supreme Court unanimously overturned the appellate panel’s decision, but added several caveats when arbitration is used in a parental setting.  The court held:

  • The constitutionally protected right of parental autonomy includes the right of parents to choose the forum in which to resolve their disputes over child custody and parenting time — including arbitration.
  • An agreement to arbitrate must be in writing or recorded and must establish that the parties are aware of and have knowingly and voluntarily waived their rights to a judicial determination. A record of documentary evidence adduced during the proceedings must be kept; testimony must be recorded; and the arbitrator must issue findings of fact and conclusions of law in respect of the award.
  • The arbitrator’s award is subject to review under the NJ Arbitration Act, except that judicial review is also available if a party establishes that the award threatens harm to the child.
  • Parental autonomy includes the right to submit any family controversy, including child-custody and parenting time issues, to a decision maker of chosen by the parents. The right of parents to make decisions regarding custody, parenting time, health, education, and other child-welfare issues between themselves, without state interference, does not evaporate when a marriage breaks down. It is only when the parents cannot agree that the court becomes the default decision maker. There is no basis to carve out of the right to parental autonomy the decision to submit child-custody and parenting-time matters to arbitration. Just as parents choose to decide those issues among themselves, they may opt to sidestep the judicial process and submit their dispute to an arbitrator whom they have chosen. The right to arbitrate serves an important family value by allowing parents the opportunity to choose an arbitrator based on her familiarity with the family or her understanding of the values that the parents hold dear and have tried to follow in raising their child.
  • A guardian ad litem may not simultaneously or sequentially serve as an arbitrator for the parties.

This ruling gives parents a greater latitude in choices while still protecting the best interests of the children.

What are your chances at trial? How well do plaintiffs and defendants do in state civil courts?

The U.S. Department of Justice’s Bureau of Justice Statistics has released the “Civil Justice Survey of State Courts, 2005“.  The 2005 CJSSC was the first time that the series examined general civil trials concluded in a national sample of urban, suburban, and rural jurisdictions.  Past reports only looked at the 75 largest counties in the U.S.

Highlights of the report:

  • 26,950 general jurisdiction cases in state level courts were disposed of in 2005.
  • Among jurisdictions that provided totals for both trial and non-trial general civil dispositions in 2005, trials collectively accounted for about 3% of all tort, contract, and real property dispositions in general jurisdiction courts.  (Note: only 1.8% of state cases in New Jersey end in a trial.)
  • A jury decided almost 70% of the general civil trials disposed of in 2005.
  • About 60% of the general civil trials included in the survey involved a tort claim and about a third involved contractual issues.  The rest primarily involved real property.
  • Plaintiffs won in 56% of trials overall.  A higher percentage of plaintiffs won in contract (66%) than in tort (52%) cases.
  • The median damage award for plaintiffs who won monetary damages in general civil trials was $28,000.  Contract cases in general had higher median awards ($35,000) than tort cases ($24,000).
  • Punitive damages were awarded to 5% of plaintiff winners in general civil trials in 2005.  It was sought in 13% of cases.
  • In the nation’s 75 most populous counties, the number of general civil cases disposed of by jury or bench trial declined by about 50% from 1992 to 2005.
  • Bench trials (57%) had a higher percentage of business litigants than jury trials (39%) and were likely to be decided in less time than jury trials. Judges were more likely than juries to find for plaintiffs. Plaintiffs won in 68% of bench trials, compared to about 54% of jury trials.
  • The median damage awards in 2005 were statistically similar for both jury and bench trials overall.  Contract cases tried before a jury ($74,000), however, had significantly higher median final awards than contract cases decided by a judge ($25,000).
  • Almost half (47%) of all civil bench and jury trials in 2005 had multiple defendants, and more than a quarter (29%) had multiple plaintiffs.
  • Among tort trials, plaintiffs were most likely to win in cases involving an animal attack (75%), followed by motor vehicle accident (64%), asbestos (55%), and intentional tort (52%) cases. Plaintiffs had the lowest percentage of wins in medical malpractice trials (23%), product liability trials that did
    not involve asbestos (20%), and false arrest or imprisonment trials (16%), compared to plaintiffs in other tort cases.
  • In contract cases, plaintiffs won in the majority of trials for all case types except subrogation (28%), which involves an insurance company seeking to recover the amount paid on behalf of a client. Mortgage foreclosure cases, in which the plaintiff was either a mortgage company or other financial lending institution, had the highest percentage of plaintiff winners (89%) of all tort and contract cases in 2005.
  • Almost two-thirds (62%) of all plaintiff award winners were awarded $50,000 or less. A small  percentage (about 4%) of all plaintiff award winners were awarded $1 million or more.
  • In 2005, jury trials for general civil cases lasted almost four days on average. Bench trials lasted almost two days.
  • Cases heard before a jury took more time from filing of the complaint to rendering of the verdict than those heard before a judge. On average, the processing of a case required an additional half year for a jury trial (26 months), compared to a bench trial (20 months).
  • Appeals were filed with the trial court in 17% of general civil trials concluded in 2005.  Plaintiffs filed appeals in 5% of general civil trials in which they prevailed, and in 15% of civil trials in which they did not win any monetary award. Defendants gave trial court notice of appeal in 12% of civil trials with a plaintiff winner, and in 2% of trials in which the plaintiff did not receive an
    award.

Incidentally, 4 New Jersey counties were used in the study: Bergen, Essex, Middlesex (all in the 75 largest nationwide) and Union.

What’s the take-away for disputants?

  • Your case is unlikely to see a trial.  If it does, your case will drag out for 2+ years and…
  • Your chances of winning (as plaintiff or defendant) is a roughly 50-50 crap shoot (factoring in a margin of error for sampling error).
  • Then there is a 1/5th chance the case will continue on appeal.
  • The chances of winning punitive damages or a windfall are very small despite the aspirations of plaintiffs.

Obviously, each case is unique to a large degree, but in every case that comes before me as mediator or arbitrator, both parties think they are right and will prevail.  The statistics do not bear that out (and it’s impossible for both sides to win at trial as it’s not set up to find win-win outcomes as mediation tries to do).

The litigation process is changing, which lends itself to mediation or arbitration.  Mediation and arbitration gets the case resolved in a shorter period of time for less money while retaining the due process each person is entitled to.  It’s your day in court outside of court.

If you’re looking to resolve your dispute less expensively and more quickly than going to court, please contact me to see how I can help you.

Is Arbitration Better than Litigation?

This question is one of the big debates going on in the legal and ADR/CDR worlds.  Arbitration is essentially a private court (actually, that’s what tv shows like “People’s Court” and “Judy Judy” are).  The advantage is generally lower costs for all the parties, quicker hearings and relaxed rules of evidence.  The disadvantage is that the arbitrator’s ruling can only be appealed on very narrow grounds (fraud, conflict of interest, abject disregard for law, etc.).  Courts generally uphold the sacrosanct nature of the limited right to appeal.  So, if you don’t like the ruling of the arbitrator, you’re stuck with it.

You may not realize it, but more and more agreements you enter into contain mandatory arbitration clauses.  Credit card agreements are the big one.  Who reads those things when you sign up?  Not many people do (it’s long, boring, in small print and in legalese that the average person may have trouble understanding).  But then they get into financial trouble, default on their account payments, get scared and ignore all the arbitration notices, miss the hearing and have a default judgment against them that cannot be vacated and have little recourse afterward.  This and the converting of arbitration proceeding closer to a court trial (with higher discovery costs) are the main criticisms leveled at the arbitration process.

The U.S. Chamber for Legal Reform (an arm of the U.S. Chamber of Commerce — who represent businesses) has come out with a study showing how credit consumers are better off going through arbitration than litigation.  They compared arbitrations in California to a “random sample” of trials in New York City courts.  Their study claims that in 32% of the CA arbitrations the consumer prevailed versus 7% in NYC courts.  The arbitrations resulted in a lower default rate (47% vs. 80%) and a higher settlement rate (21% vs. 6%).

Companies like to use arbitrations because it limits their expenses on collecting on delinquent accounts.  So, in analyzing the study, consider the sponsor (and their motivations).  Also, you would be right to question if apples and oranges are being compared.

The debate will continue.

What are the costs of Civil Lawsuits and Litigation in NJ?

As a follow-up to an earlier posting about the overall costs of justice in NJ to the taxpayer, I want to look at the costs of civil lawsuits and litigation to the taxpayers of the state.  Mark Fellows of the National Arbitration Forum published an analysis of the costs of litigation to the taxpayer in several states in the December 2007 issue of The Metropolitan Corporate Counsel.  He is making an argument for the use of arbitration over litigation, which would remove cases from taxpayer funded courts into litigant funded arbitration settings.

New Jersey happens to be one state which publicly breaks out its judicial costs by part.  Fellows analyzed FY2006, where $571,570,000 was appropriated for the judiciary and $130,112,080 was allocated to the civil courts.  100,332 civil cases were resolved in NJ in 2006, leaving an average of a little under $1300.  That number, though, includes cases resulting in default judgments (where the other side doesn’t answer the complaint), dismissals for want of prosecution, settlements without judicial action and settlements through ADR.  When you exclude these cases, the estimated average cost to the taxpayer of a contested civil case is $3,112.36.

Of course, this does not even account for the costs to the litigants themselves in attorneys fees, experts fees, filing fees and more.  In a typical case, these can be in the tens of thousands which does not even guarantee a positive return on the investment (in a favorable judgment).

In a state with among the highest tax burdens in the country and no shortage of underfunded solutions for societal problems, moving cases out of the courts and into far less costly ADR forums such as arbitration and mediation can help far more than just the litigants involved.  It can help every person in the state.

If you would like to learn more about using mediation or arbitration to resolve your dispute, please feel free to contact me.

A Happy Outcome in Binding Mediation

Following up on the post about Binding Mediation, it seems that the mediator turned into an arbitrator and made his ruling.  Even though this turned into an arbitration from a mediation, all sides appeared to be very happy with the process and the outcome.  Both sides said the binding mediation process they entered after a one-day strike helped them arrive at almost identical positions in the end.

“Looking at the final results, I think we can assume that both parties bargained aggressively but fairly and that the mediator was very helpful to get them to the final agreement,” said IWK CEO Anne McGuire.

Union president Joan Jessome said the workers were pleased with the deal and the steps taken to reach it.  “They had faith in us when we went into this process that we would get them something better,” she said. “And we did. It’s brought us a long way to fairness and equity.”

In a news release Friday, Health Minister Chris d’Entremont thanked the parties and the mediator for their hard work.  “The government accepts the final outcome,” he said.

So, ADR does work even when it is called by the incorrect name.