• Appeals from FINRA Securities Arbitration Awards: A Proposal for Reform
  • January 13, 2015 | Author: Sigmund D. Schutz
  • Law Firm: Preti, Flaherty, Beliveau & Pachios, LLP - Portland Office
  • The arbitrators in your securities arbitration have spoken. You have an award. But it's not the award you wanted and, not only that, it's an award the defies common sense, is absurd, and just plain crazy. It's an award that is the product of outright and undisclosed bias. It's an award compromised by procedural or evidentiary defects. The arbitrators refused to compel the production of evidence needed to defend (or prosecute) the claim. The arbitrators excluded evidence that was not only relevant but of critical importance to establishing your position. The bottom line is that you want to appeal the award.

    Right now you don't have a right to an "appeal" as such -- you have to file a new lawsuit in state or federal court to vacate (toss-out) the arbitration award. That's a whole new round of litigation, subject to a very exacting standard of review. The grounds for vacating an arbitration award are narrow and arbitration awards are seldom vacated -- and they shouldn't be vacated lightly, either (but that's another story).

    Is there an alternative to filing a new lawsuit to challenge an arbitration award? Not right now, but John Duval proposes that FINRA create and administer an in-house arbitration appeal process . This would be much less expensive, faster, and potentially subject to a different standard of review than what now applies in court. A FINRA process would be better suited to correcting technical errors in appointment of arbitrators, selection of arbitrators or, more generally arbitrator misbehavior prejudicial enough to compromise the integrity of the process.

    There is ample precedent for arbitration appeals. The American Arbitration Association offers rules for arbitration appeals. Federal administrative agencies also build into the administrative decision-making process an appellate stage, for example the Environmental Appeals Board, which handles appeals from administrative law judge decisions in environmental enforcement proceedings.

    John's proposal deserves consideration and could be a useful way of giving parties to FINRA securities arbitraiton proceedings a streamlined, expedited, and cost-effective option for correcting serious arbitration errors without going to court.