To follow up on our recent posts on securities arbitration (available here and here) we thought that you would like to know that the Financial Industry Regulatory Authority (FINRA) announced on October 5, 2009 the expansion of its two-year pilot program that gives investors who are filing claims the option to select an arbitration panel composed of three public arbitrators instead of two public and one non-public. Read more about the pilot program at FINRA’s website: FINRA to Expand Program Evaluating All-Public Arbitration Panels. Following is also a October 5, 2009 statement by North American Securities Administrators Association (NASAA) President and Texas Securities Commissioner Denise Voigt Crawford regarding the expansion of FINRA’s pilot program: “Regardless of the scope of FINRA’s pilot program on the composition of arbitration panels, a greater issue remains – the mandatory ‘take-it-or-leave it’ clause in brokerage contracts, which forces all investors to agree to mandatory, industry-run arbitration administered by FINRA, the securities industry self-regulatory organization.” “The only chance of recovery for most investors who fall victim to Wall Street wrongdoing is through a single securities arbitration forum controlled by the securities industry. NASAA believes that the securities arbitration system should be truly voluntary and that Congress should end mandatory securities arbitration.” On October 6, 2009 Texas Securities Commissioner Crawford testified before the U.S. House Financial Services Committee about regulatory reform. Find the text of the complete testimony here. Also find links to prepared testimony of all invited witnesses to the hearing: Capital Markets Regulatory Reform: Strengthening Investor Protection, Enhancing Oversight of Private Pools of Capital, and Creating a National Insurance Office. Any thoughts? Technorati Tags: arbitration, ADR, law, FINRA, securities arbitration, Texas Securities Commissioner

John Fleming sent us the following comments about our post of yesterday (find the post here): I have a beef with the Solin’s approach. FINRA has a new pilot program that allows customers to choose arbitration panels with only non-industry arbitrators. Guess what? In reality customers and their lawyers are actually choosing to have industry arbitrators on the panels in about 50% of the cases, even when they can exclude them. Privately, lawyers who actively represent customers in arbitration with FINRA have told me they often prefer to have an industry insider-they know really stinky behavior when they see it and may often be tougher on the offender than a public member. There are really four questions at play here and within the consumer arbitration debate generally. One is how well are consumers and employees doing in these proceedings (and how does this compare to court outcomes)? Here the really good empirical evidence is just emerging. You have to throw out many of the so called studies which have been sponsored by people with agendas. I don’t think that either the Public Watch survey dissing arbitration or the US Chamber survey praising it deserve serious consideration. What little independent research is emerging seems to indicate consumers and employees that proceed in truly neutrally administrative forums such as before the American Arbitration Association (ok, so I am on their panel), and JAMS do as well or maybe a little better than they might in a court setting. The second question is the question of choice. One of the fundamental principles of the Alternative Dispute Resolution movement is party choice. Regardless of evidence that consumers and employees may do well in arbitration, people resent the fact that the agreement to arbitrate is buried in a contract of adhesion. It just does not feel very much like a choice. Third is the question of consumer access. I do think there is merit in the argument that for some consumers and employees the arbitration forum may actually be more accessible than litigation. This is especially so when the claims are too small to generate interest of contingent fee lawyers. Of course, forum access fees are an issue in arbitration. However, the courts are generally moving in the right direction by refusing to enforce arbitration clauses where the forum access fees could deter consumers or employees from pursuing their claims. Fourth, is the real elephant in the room. There is a sense that the driving force for including arbitration in consumer and employee contracts is a hope that large companies can write their way out of being exposed to class actions. I find it interesting that now that we have rules for class arbitration proceedings, you see clauses that say something like “will if it is determined that the waiver of class action is unenforceable, then any class proceeding will be in court.” John C. Fleming Hays & Owens, L.L.P Brazos Suite 500 Austin, Texas 78701 We welcome your comments about this controversial topic! Technorati Tags: arbitration, ADR, law, FINRA, securities arbitration

Our friend John C. Fleming from Hays & Owens, L.L.P sent us the following post: [update: find John C. Fleming’s comment about this post here] A reader of my blogs sent me an e-mail with a Customer Agreement from a major brokerage firm. She asked me to look it over and tell her if she should sign it. The first thing that struck me was this clause: “Brokerage activities are regulated under different laws and rules than advisory activities and generally do not give rise to the fiduciary duties that an investment adviser has to its clients.” The agreement pointed out that the brokerage firm “…may face certain conflicts of interest and as such, its interests may differ from yours.” These statements are typically inserted in account opening agreements. I asked the reader this question: Why would you entrust your assets to a firm that tells you it does not have to act in your best interests and further that it may have conflicts of interest with you which it will resolve in its favor? It gets worse: The agreement also provided that all disputes must be resolved by mandatory arbitration. Not before an impartial panel, but one appointed by FINRA, which is essentially a trade group for the securities industry. William Galvin, the highly respected Secretary of the Commonwealth of Massachusetts aptly described FINRA’s arbitration process in testimony before a congressional sub-committee as “an industry sponsored damage-containment and control program masquerading as a juridical proceeding.” Read more at: http://www.huffingtonpost.com/dan-solin/why-dont-you-just-give-yo_b_230578.html Read the full post: Why Don’t You Just Give Your Broker a Gun and Tell Him to Shoot You? Dan Solin, The Huffington Post, July 14, 2009. To learn more about arbitration of securities disputes, visit Mark J. Astarita’s Securities Law Blog section on arbitration. Technorati Tags: arbitration, ADR, law, FINRA, securities arbitration

By Holly Hayes As discussed in a previous post, an attempt has been made to explore confidentiality in the Uniform Mediation Act (UMA) and provide an updated list of the states who have implemented the Act, those where legislation is pending, states who have rejected the act and those who have chosen to adopt similar bills. The Uniform Mediation Act, constructed by committees from the National Conference of Commissioners on Uniform State Laws and the American Bar Association’s Section of Dispute Resolution, was last revised in 2003 to bring uniformity to mediation across the states. A primary purpose of the Act is to provide “a privilege that assures confidentiality in legal proceedings.” The provision of this privilege is intended to promote full disclosure of the issues to the mediator and hopefully ensure a higher level of success for the mediation and greater satisfaction for the participants. Successful mediations are expected to promote greater community confidence in the mediation process resulting in more dispute resolution through mediation. Section 8 of the UMA states: SECTION 8. CONFIDENTIALITY. Unless subject to the [insert statutory references to open meetings act and open records act], mediation communications are confidential to the extent agreed by the parties or provided by other law or rule of this State. Matt Brown from the International Institution for Conflict Prevention & Resolution (CPR) summarizes the confidentiality section of the UMA as follows: The UMA drafters hoped the Act would promote several themes. Besides the uniform practice of mediation, the drafters wanted the UMA to encourage candor. Section Four creates a privilege that provides confidentiality, except for rare exceptions, throughout the mediation process. Confidentiality encourages parties to speak candidly, which is essential to successful mediation. The drafters also tried to “encourage the policy of fostering prompt, economical, and amicable resolution of disputes in accordance with principles of integrity of the mediation process, active party involvement, and informed self-determination by the parties.” These policies and principles should provide higher participant satisfaction levels as well as higher success levels. The drafters also wanted to advance the policy that the authority to make decisions concerning the dispute lies in the hands of the parties, not the mediator. The mediator is just there to facilitate the process. Many of these themes are reflected throughout Sections 4-6 of the UMA. Eleven states have enacted the Uniform Mediation Act: Nebraska in May 2003; Illinois following nearly a month later; with New Jersey, Ohio, Iowa, Idaho, South Dakota, Washington, Utah, the District of Columbia and Vermont more recently. The UMA has been introduced in five states: Nevada, Hawaii, Minnesota, New York and Rhode Island. Three states rejected the UMA:Connecticut, Indiana and Massachusetts. Eight states adopted similar bills: Delaware, Montana, Nevada, Oregon, Wyoming, New Mexico and Florida. Florida’s statute §44.406 provides confidentiality and those who “knowingly and willfully” disclose mediation communications will be liable for damages. The statute provides remedies including attorney’s fees, mediator’s fees, equitable relief, compensatory damages and costs incurred in the mediation. The Florida rules are available here. Confidentiality in mediation must be protected. We welcome any comments on this topic. Technorati Tags: ADR, law, mediation Holly Hayes is a mediator at Karl Bayer, Dispute Resolution Expert where she focuses on mediation of health care disputes. Holly holds a B.A. from Southern Methodist University and a Masters in Health Administration from Duke University. She can be reached at: holly@karlbayer.com.