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Arbitration Advantages:

As noted last week, I spent Thursday and Friday representing my father in an NASD arbitration. I won't comment on the substance, but I did find that arbitration has some real procedural advantages: (1) instead of jurors, you get triers of fact who actually have some expertise regarding the issues at hand; (2) the arbitrators interrupt and ask to clarify matters while you are still discussing them, instead of waiting for counsel to raise an important issue that may be overlooked; (3) the arbitrators are flexible about evidentiary matters. While this doesn't always work to one's advantage, I much prefer a common-sense standard for expert arbitrators to the need to keep evidence from the jury reflected in evidence codes and common law (oddly, opposing counsel didn't seem to know that the rules of evidence are only advisory, at best, in NASD arbitrations).

I'm going to open comments for a discussion of how attorneys (or litigants) who have participated in both feel about arbitrations versus jury trials.

Cheburashka (mail):
All of what you said is true, and its especially true during the hearing itself.

One downside to arbitration is that there is a tendency of arbitral panels to keep allowing more and more evidence, ad nauseum, as long as a party continues to offer it. Its very hard to get summary judgment or MOTD equivalents in arbitrations.

The reason, one suspects, is threefold. First, a refusal to hear evidence is one of the few bases under which an award can be overturned under the FAA. Second, fees. Third, one suspects that many arbitrators feel that they will be more likely to be selected for future arbitrations if the develop a reputation for giving counsel freedom in putting on the case they want to put on.
7.11.2005 2:31pm
gray mouser (mail):
I agree with you about arbitration. The arbitrators invariably are more knowledgeable than lay jurors and are much freer to interact with the lawyers and witnesses regarding any questions they may have. Probably 90% plus of everything we know is based on hearsay anyway, some more flexible evidentiary standards make a lot of sense.
7.11.2005 2:32pm
gray mouser (mail):


7.11.2005 2:33pm
JohnO (mail):
I've done both and I would say that if you've got a fact-bound case, arbitration is often preferable for all the reasons you mentioned.

On the other hand, I have found that where I have strong arguments on the law, either in terms of a motion to dismiss or a summary judgment/partial summary judgment motion, I prefer to be in court because: (1) arbitrators are notoriuous for trying to find a middle ground that gives everyone a little something; and (2) most arbitrations do not give you access to an appellate panel (and, if you're arguments are more or less legal in nature, an appellate panel is a place where you can get some real relief). And, the Federal Arbitration Act makes it very difficult to overturn an unfavorable arbitration decision in the courts, even if the arbitral panel's analysis is weak or nonexistent.

Plus, a cynic would say that an arbitrator getting paid by the hour has an incentive to deny summary judgment motions in order to get to trial.
7.11.2005 2:35pm
Ellen Dahlgren:
I'm neither a litigant nor an attorney, but I was a juror (for four weeks, no less!) in a case involving a lot of "expert" testimony about medical matters. It was obvious that my fellow jurors simply did not follow the evidence being presented, and the inability to challenge nonsense and ask follow-up questions was frustrating to me.

The idea of presenting evidence to informed triers of fact looked very appealing after that experience. I came away from the trial feeling that if I ever were accused of a crime, I'd opt for a bench trial.
7.11.2005 2:44pm
JohnO (mail):

The idea of presenting evidence to informed triers of fact looked very appealing after that experience. I came away from the trial feeling that if I ever were accused of a crime, I'd opt for a bench trial.


Ellen, you'd only opt for a bench trial if you were innocent. If you're guilty, all the things you mentioned work in your favor.
7.11.2005 2:51pm
cathyf:
arbitrators are notoriuous for trying to find a middle ground that gives everyone a little something


No kidding. This acts as a huge reward for crazy people who are making wild demands. For example, house sale. Carpet in basement has oder (not exactly a hidden defect). Buyer puts in contract that the carpet shall be cleaned. Carpet is professionally cleaned. Buyer walks through entire house before closing, makes no complaint, goes through closing. Several weeks later, buyer files action against seller claiming the carpets were not adequately cleaned, says that she has ripped out and disposed of the carpets, bought and installed new carpet, and demands to be reimbursed for all of the costs of doing so. Before this, there was no complaint, no attempt to clean the carpets again, no allowance for depreciation of the old carpets, etc., and the old carpets were in the dump by this time and impossible to inspect.

They go to arbitration, and the arbitrator hems and haws and is very sympathetic to the buyer.

It looks to me like if you want to steal $1000 from somebody, all you need to do is to go to arbitration demanding $2000. If you are distraught enough, or can fake it, you don't need to have any facts on your side.

cathy :-)
7.11.2005 3:24pm
Steve:
NASD arbitration is a mixed bag. The points David made are true in some contexts and not in others. For example, it makes for a great process if the arbitrators are proactive and ask a lot of questions; but that depends on the panel you draw. You may have a complex legal case and not get a single lawyer on the panel, resulting in a world where "anything goes." Or you may get a very savvy panel that is smarter than the lawyers. It's luck of the draw.

It is almost impossible to prevail on a motion to dismiss in NASD arbitration, even where the legal grounds for dismissal are clear. For example, I handled a routine case in which the claimant alleged that he told his broker to sell some stock, but the broker failed to execute the order. The claimant sued not only the broker and the brokerage firm but also every individual whose name he could find, including the president of the company. Clearly, if a brokerage firms fails to execute a trade, the president of the company cannot be held personally liable (absent, I suppose, extraordinary circumstances that were not alleged). But the panel refused to even consider dismissal of the individual defendants. This is particularly a problem given that the securities industry is heavily regulated and any claim against you ends up on your "permanent record."

Ironically, in a world where many corporations use arbitration clauses as a way to avoid the specter of jury trials and punitive damages awards, many NASD member firms are becoming so frustrated with the arbitration process that they would prefer to defend cases in court instead. At least in court there is a mechanism for asserting legal defenses and getting rid of some frivolous claims without having to participate in a full-blown arbitration hearing.
7.11.2005 4:02pm
Tom Kanan (mail):
Arbitration procedures vary. Arbiters and their number vary. The "rules" are frequently unclear, though they can be negotiated or learned in advance of going forward. An arbitration should be a faster procedure that a judicial one, especially in matters of complexity.

Judicial procedures are well known in advance, apply to everyone, are done on a record that matters, and may be appealed if the law is incorrectly understood by the arbiters.

I'll never forget an arbitration I lost for my client when two members of a three arbiter panel simply wouldn't follow the law because they thought it was unfair to the other side. Opposing counsel admitted to me that this is what they did, and he thanked God he wasn't in court.

If in a given case, you can live with a completely senseless result, just to get the matter over with, maybe more quickly and cheaply, arbitration is the way to go.
7.11.2005 4:32pm
John Steele (mail):
I did two NASD defenses and liked the process -- with the caveats above about no motions, loose evidence, etc. I hated all other arbs I've done, because the arbitrator is not bound by law in California, and I found that pointing to an express contract clause on an issue didn't necessarily have much impact. Very frustrating. In the IP field particularly, after the AMD/Intel case, arbitrations are not favored.

One alternative to arbs and jury trials in California is to appoint a judge pro tem by reference. You get to select your arbitrator, who is then appointed pro tem to the Superior Court, and you get the benefit of motions and a merits appeal (which isn't available after an arbitrartion), plus all the flexibility of an arbitrator on scheduling, etc.

I also had a trial in Tax Court, where we drew a judge of great expertise. It was a very satisfying experience, as we didn't have to belabor the obvious, or craft rhetorical flourishes, etc. It was a $12 million case and the judge heard the entire thing in two hours -- and didn't shortcut the process for anyone.
7.11.2005 4:58pm
Per Son:
For me, I ask what is best for my client. If that means that I get a jury that has no expertise and that can be much more easily swayed by emotion, then so be it - give me my jury. On the other hand, not all juries are like that. That is why I settle low in the Fourth and push like hell for a jury in DC Superior Court. I should add that I represent victims of discrimination.
7.11.2005 9:15pm
Matt_R:
And that's one reason that my employer emigrated from DC to Virginia. Your victim of discrimination is our rent-seeking bum. Virginia juries seem to recognize the latter; D.C. juries often don't -- or perhaps do, but don't care.

(Sorry if this is off-topic; I'm just following the thread where it leads.)
7.11.2005 10:08pm
CharleyCarp (mail):
I agree that arbitration is fine for low stakes, fact driven cases. The fact that the law -- and the rules of evidence, which each exist for a damn good reason -- doesn't really apply is sufficient reason for me to avoid it whenever I have a legally sound case.

Anyone who wants a random answer fast can avoid even arbitration. Just call me. I'll give each side 15 minutes to make a case, then decide. Charge my usual hourly rates. Any takers?
7.12.2005 9:23am
JSS:
The more $$$ at stake, the less the differences between the two, IMHO. I was involved in one potentially multi-billion dollar arbitration (with damages ultimately in the hundreds of millions, and att'y fees to match) where the arbitrator was a retired federal judge and the fed. rules of civil procedure were adopted by agreement. The differences between what ensued before the arbitrator and what would have happened in court at the trial level were all but non-existent.

The key differences that always remain are finality and privacy: court review of arbitral awards is so limited that appeals are constricted in scope and often not pursued at all. The records are thus not public. In the case I mentioned above, the outcome was actually material to the financial statements of the parties, so some info became public for that reason and that reason alone.

One other difference is that you don't have to deal with jurors, but as any litgator knows, that's a mixed blessing.
7.12.2005 12:30pm
Steve:
I just had the pleasure of attending a focus group at the NASD where they solicited feedback from lawyers and arbitrators on some new procedural changes. This is one advantage of the arbitration process; the Seventh Circuit never calls me and asks what I think of their new page-limit rules. The NASD serves both its member firms and the public, so it has to maintain neutrality between the preferences of both groups, but at least it cares about the views of both groups rather than neither.
7.12.2005 4:46pm