Categories: Financial Services

By: John F. Fullerton III

This is the first of a series of posts on practice and procedure in employment-related arbitrations before FINRA.  Check back often for future posts, subscribe by e-mail (see the sidebar), or follow @FSemployer on Twitter so you don’t miss any updates!

More than one lawyer has been burned by a FINRA arbitration panel that seemed ideal on paper, but then, at the hearing, just did not “get it.”  Conversely, a panel that initially looks troubling sometimes does a great job at the hearing and gets the decision right (i.e., in your favor, of course). And there are plenty of times when the arbitrators perform exactly as their experience and background would lead you to expect.  Is there really any proven method of selecting the “best” arbitrators for an employment-related (industry) case  before FINRA (as opposed to a customer dispute, which we do not address here), or might you just as well hang the list of arbitrators you receive from FINRA on your office wall and throw darts at it?

The simple answer is that although you will never be able to predict with certainty, or even a strong probability, how the case will be decided based on the arbitrators you select, we have compiled just a few suggestions that should, at the very least, provide comfort that you have done all you can to obtain the best panel possible under the circumstances.Do Your Due Diligence

The first thing to remember is that, despite your due diligence and thoughtful selection process, there is still a good chance you will not get the arbitrators you preferred on your panel.  This is because of the  manner in which the panel is determined by FINRA, in which each party strikes certain arbitrators from a list tendered by FINRA, ranks the remaining arbitrators numerically by preference, and then FINRA combines the lists and appoints the highest ranked arbitrator in each category (chairperson, public arbitrator and non-public (or “industry”) arbitrator). See, e.g., FINRA Code of Arbitration Procedure Rules 13404, 13405 and 13406.  (pdf)  If there are no matches between the parties, FINRA simply appoints an arbitrator(s) who was not even on the original list.  Nevertheless, it makes sense to begin the process by gathering as much information from as many sources of information as possible, so that you can at least strike those arbitrators you definitely do not want and submit the most informed rankings possible.

  • Read the biographies of each potential arbitrator provided by FINRA to find out the individual’s primary occupation and to obtain a general sense of his or her background.  Look for updated information on the Internet. Social media outlets such as LinkedIn, Facebook and Twitter offer another valuable resource for learning more about the arbitrators on your list.
  • The FINRA biographies also include a list of cases in which the arbitrator has served.  Look for cases in which your company was a party, so that you can find out from colleagues or company records how the arbitrator ruled. If you see a case on the list against another company where you have a contact, call the person; he or she may not be at liberty to share details about the case, but you can ask for his or her impressions of the arbitrator.
  • Next, read through all the publicly available awards from cases in which the arbitrator served, with the caveat that those awards almost never offer any reasoning behind the decision.  But, for example, if someone has never ruled in favor of the employer in any employment case, at least you will find that out.  FINRA awards are available on the FINRA website and through services such as LEXIS and WESTLAW.  In addition, the lawyers who handled the case are identified in the awards and can also be a source of information about the arbitrator.

Reading the Tea Leaves

Once you have compiled all the background information you can find and have a sense of each proposed arbitrator, you must decide whom you should strike, and how to rank the remaining arbitrators. What kind of arbitrator should you be looking for?  While there are many schools of thought, here are a few suggestions (based solely on experience and anecdotal evidence, not on any sort of psychological or statistical study).

  • All things being equal, unless you have already eliminated them for other reasons, choosing more experienced arbitrators—those with numerous awards under their belts—is generally preferable to taking a chance on an unknown quantity. In theory, at least, a more experienced arbitrator should not only be “better” at arbitrating (regardless how the individual tends to rule), but being selected or appointed frequently is a sign that other parties and their lawyers were comfortable using these individuals.
  • Next, choosing a lawyer as the panel chairperson is not a bad idea.  That individual will usually be the one ruling on evidentiary and other objections during the hearing, and may also rule on any pre-hearing discovery disputes.  It is therefore helpful to have someone making that decision who has a sense of the law and common practice in these areas.  In addition, a lawyer may—although not always, of course—have a better sense of how to maintain control over the proceedings and move them along efficiently.
  • From an employer’s perspective, especially in cases in which an employee has been discharged or denied bonus pay, deferred compensation or benefits as a result of his or her own conduct, certain occupational backgrounds may be more appealing.  For example, consider giving a higher ranking to arbitrators who have been compliance officers or in-house counsel, and those with law enforcement or military backgrounds, on the theory that are accustomed to following and enforcing the rules (and contractual agreements) and have the same expectation of others.  In the same vein, those with management experience may have a better appreciation of the demands of running an operation or department, and thus, the need for compliance with rules and policies.
  • Conversely, it often makes sense to avoid arbitrators who appear to have similar backgrounds or have done the same type of work as the opposing party, on the theory that they will more readily put themselves in the opposing party’s shoes and perhaps sympathize with his or her situation.

Of course, these are all just general suggestions for consideration, not to be followed blindly in every specific situation. But you may find that thorough due diligence and a few simple guidelines are better than throwing darts against the wall or picking names out of a hat.  Good luck!

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