Arbitration Lost:

Well, I received word from my father that in the case of Bernstein v. Craig Hassel and H&R Block Financial Advisors, Inc., the arbitration case in which I represented my father, we lost. Not only that, but the arbitrators chose to award $4,500 in costs against him.

[CLARIFICATION: My father misunderstood the ruling. Each party was assessed his own costs. Both Claimaints and Respondents had to pay normal NASD fees.]

I haven't seen the decision yet, and I'm sure I'll have more to say when I do. But two things strike me as very odd about the decision: (a)there was one small claim for $360 which H & R Block conceded at the hearing, and that they truly had no defense to. Regardless of the other claims, I don't see how the arbitrators could have awarded nothing, or for that matter, costs to the other side, given that fact; and (b)our side consistently requested mediation, to save both sides time, money, and aggravation. The other side consistently refused it, obviously (and correctly) thinking that my father couldn't represent himself adequately in an arbitration, and that his claim wasn't large enough to get a securities attorney to represent him(think about that if you are currently or thinking in the future of becoming an H&R Block customer!--more on why you shouldn't be one in the future). How in God's name can you justify awarding costs against a party who consistently sought to be in a different and less expensive forum?

I'll be blogging a bit about the arbitration, partly to get it off my chest, and mostly because I think my experiences have some important public policy ramifications, given that the NASD is a huge forum for litigation at this point.

Sorry about the result, David. That's a real shame.

I'm not suggesting this is a cost-effective option, but it's entirely possible that you could have a meritorious motion to vacate, if the panel truly refused to award you anything on a claim that was conceded by the respondent. Although there's no transcript, you can get the audiotapes if you call the NASD (there is a charge for this).

The mediation issue is interesting. I'm surprised you were able to bring to the arbitrators' attention the fact that you sought mediation, since that fact typically stays out for the same reason evidence of settlement negotiations isn't admissible in court. I guess the response would be, if the claim was truly frivolous (which is what the arbitrators seemed to think of it), then you can't fault the respondent for refusing to mediate - the claimant never should have filed in the first place.

I typically advise my (industry) clients to mediate because it's so expensive to take a case to hearing, for both sides.
7.19.2005 8:15pm
Joe O'Donnell (mail):
Arbitration panels almost never state their reasoning for an award. A recent policy change requires it if the Claimant requests it in advance.
I am surprised that the panel awarded costs against your father -- very unusual.
Your point on mediation would not have been considered.
7.19.2005 8:37pm
don't get your hopes up if you're waiting for a reasoned opinion. arbitration panels generally don't issue them.
7.19.2005 8:56pm
I'd be curious to hear whether you got the impression that you were facing an example of the so-called "repeat player" effect.
7.19.2005 9:56pm
Cornellian: I'm not sure what you mean by "effect," but I can tell you that he was certainly facing a repeat player. Most NASD members end up in NASD arbitration on a regular basis.
7.19.2005 10:21pm
CaDan (mail):
I've been representing consumers for several years who consistently get the short end of the stick in arbitration. While arbitration is touted as a fast and inexpensive means to resolve disputes, my experience has been that it is really a method used by those with money and power to keeep their money and power.

As more and more people higher in the economic hierarchy get to experience the "wonder" of arbitration, perhaps we will finally see some moves to reform the Federal Arbitration Act.
7.19.2005 11:12pm
Robert Schwartz (mail):
I am terribly sorry for your father and for you. The problem is endemic to the securities industry arbitration system. If changes hsould be made they should be made to the 34 act not to the FAA.
7.19.2005 11:29pm
give me a break. yes, NASD arbitration is random, but it cuts both ways - you get zeros on legit complaints, and big awards to people with no claim who want to recoup their daytrading losses. but the panels always give the benefit of the doubt to the customers - procedural rules aren't enforced, and anything is let into evidence, relevant or not. most lawyers I know who practice in this area fear going up against pro se litigants, b/c the panel will give them every benefit of the doubt and in the end, if there is no violation, will still "split the difference." in my view, the process pretty clearly favors customers, who are not held to the same standards as NASD members in arbitration (Bernsteins annecdotal evidence notwithstanding).

plus, the panel members aren't lawyers, and are notoriously unreceptive to even clearly meritorious legal arguments (Bernstein experienced this too, w/ his $300 claim). it's all the luck of the draw. and there's no appeal. many businesses are moving away from arbitration agreements simply because the process is unpredictable and there's no appeal. and since there's no written opinion, the panel's not accountable for their actions. if the claimant has no claim on paper, but shows up to the hearing in a wheelchair and on an oxygen tank, respondent is screwed - and it can work the other way around too.

also remember, in reading Bernstein's posts, you're hearing it through the slanted perspective of one party. i'm sure if you spoke to counsel for the other respondent, they'd have a compelling story as well, about how they got screwed paying $20k in atty fees to defend a frivolous claim.

anyway, sorry for the rant. basic take home: NASD is a crap shoot, but to the extent there is any bias, it ain't in favor of the firms.
7.19.2005 11:58pm
James968 (mail):
(Not sure if this applies to your case or not). One of the Consumer Advocates (Clark Howard) was talking about how most arbitrators are hired/selected by the Corporation. So their incentive is to side with the Corporation which choose them. I think he quoted a 95%+ rate of siding with the Corporations against the consumer.
7.20.2005 8:53am
Voiceguy (mail):
My own experience in representing clients at NASD arbitrations was one of being appalled by the poor quality of the arbitrators. They seemed distracted, uninterested in the facts or the law, and bewildered by the legal principles involved. That is, when they appeared to be awake and sentient, rather than nodding off. The outcomes are random and unpredictable -- giving profound meaning to the word "arbitrary."

The people who sing the praises of this kind of arbitration almost certainly have not had any actual experience with it.
7.20.2005 9:48am
jallgor (mail):
I didn't want to discourage you while you were still fighting it but I agree with "Guest's" analysis above. The root word for arbitration is fitting because it is arbitrary. I generally advise my clients to take their arbitration clauses out of their form contracts. I'd rather be in court no matter how small the claim.
And just in case anyone has ever wondered, the main reason not to go to H&R Block is that they are incompetent and unethical. My friend was once advised by H&R Block that he could deduct his law school tuition. He doubted the advice and asked a manager to come over. The manager confirmed the advice. He was then told to deduct x amount for gifts to charity because that was what most people with his income could claim without raising eyebrows. I couldn't beleive my ears but since this incident I have repeatedly heard similar stories.
7.20.2005 10:34am
There's a big difference between the NASD and some other arbitration forums. With the NASD, the process is fair, although you basically get the luck of the draw and you may get a claimant-friendly panel, or you may get a respondent-friendly panel. Other arbitration venues, which you come across in credit card contracts and the like, are basically rigged against the consumer, but that's not David's situation.

It's well documented that people will set up an arbitration business, and approach credit card issuers promising "use us as your mandatory arbitration forum, and we guarantee to cut your payouts by 30%!" That's very shady, but the state of the law is so favorable towards arbitration right now that there's not a lot a consumer can do about it.
7.20.2005 11:42am
David: I think you're embarrassing yourself by attempting to smear the other arbitration participants on your blog. NASD arbitration is arbitrary - you win some you lose some. Most people don't post names of prevailing parties and panel members on the internet, and then explain how they are professional failures. It doesn't reflect well on you, and there may be some sort of defamation claim in there, if either of the people you named happens across this website.
7.20.2005 1:55pm
David E Bernstein (mail):
Professional failure? I'm a law professor doing pro bono work for my dad, not a securities attorney. And NASD rules specifically allow parties to recount their experiences.
7.20.2005 2:36pm
i think you misread my post. i was not referring to you as a professional failure. i was referring to the fact that you are making others out to be either biased, incompetent, or crooked. i am glad to see you took the post down though.
7.20.2005 2:57pm
There's one fact that proves that arbitration proceedings are biased against consumers—-the dealers (and mutual fund companies and credit card companies, etc., etc., etc.) require customers to agree to arbitration. If the big players thought arbitration would help consumers, the big players would never think about requiring it.

The dealers write their contracts to protect their interests. There may be an occasional oddball pro-consumer decision, but if arbitrators stopped favoring dealers, dealers would write their contracts differently.
7.21.2005 5:09pm