What to Expect When You’re Expecting… to go to FINRA Arbitration

Customers of almost all broker-dealers must utilize FINRA arbitration for disputes with brokerage firms and/or their financial advisors because of a contractual provision in their account agreement that requires them to resolve all disputes through FINRA arbitration proceeding instead of filing a lawsuit.

Arbitration is a method of resolving a dispute between two or more parties by a neutral who serves as decision-maker after a hearing. The decision-maker(s) are called arbitrators. There are certain laws governing the conduct of an arbitration proceeding. One of the most important of these is perhaps the fact that an arbitration award is final and binding; subject to review by a court, only on a very limited basis.

Arbitration is an alternative to litigation or mediation in order to resolve a dispute.

Arbitration panels are composed of one or three arbitrators who are selected by both of the parties. They read the pleadings filed by the parties, listen to the arguments, study the documentary and/or testimonial evidence, and render a decision.

The panel's decision, called an "award," is final and binding on all the parties.

Arbitration is generally confidential, and documents submitted in arbitration are not publicly-available, unlike court-related filings. However, if an award is issued at the conclusion of the case, FINRA posts it in its Arbitration Awards Online Database, which is publicly available.

On average, arbitration can take a little over a year to complete from the time the claim is filed until an award is rendered. The turnaround time varies, and can be affected by many factors, including the number of parties and witnesses involved, the complexity of the issues, the volume of discovery and the schedules of the parties and arbitrators.

The cost of an arbitration case varies. Cost is affected by the amount of the claim, the number of hearing sessions, number of discovery motions, and any postponements.

Generally, there are four major expenses associated with a FINRA arbitration dispute. These expenses are generally the customer's responsibility.

First, there is a filing fee that occurs when an investor submits a Statement of Claim with FINRA. These fees vary depending on the amount involved in the dispute. The average filing fee is $1,425.

In addition to filing fees, there may be hearing session fees. A hearing session is any meeting among the parties and the panel that lasts four hours or less, including a pre-hearing conference with the panel. A hearing day consists of two hearing sessions. Hearing session fees also vary and depend on the number of hearing sessions and the number of arbitrators involved. Generally, these fees range from $750 to $2,500 per day but are assessed by the Arbitration Panel. The average hearing may take 2 to 4 days or more.

A major expense may be expert witnesses fees. An expert witness is someone who brings specialized knowledge and credentials to your case and whose testimony during the hearing could help FINRA arbitrators understand important issues. Expert witnesses generally are paid for the time they spend reviewing your case and providing testimony. We will consult and advise you as to the cost and necessity of retaining a competent expert witness and on the scope of their involvement in your case.

Another expense in a FINRA arbitration dispute can be attorney fees. The hours an attorney spends on a case can vary greatly, depending on its complexity. However, in most instances, the Law Office of Howard Rosenfield represents investors on a primarily contingency or ‘hybrid' fee basis. Since each case is different, a non-refundable retainer fee may also be required.

A fourth expense may be reimbursement for such items as duplication of materials, overnight mail, travel, and similar expenditures.

The arbitration process begins with a party filing a Statement of Claim with FINRA. The party who files the Statement of Claim is called a Claimant. The party against whom the Statement of Claim is filed is called the Respondent. The Statement of Claim is a written narrative that should provide the details of the dispute, which may include relevant dates, names of entities and individuals involved, and the type of relief requested and the Respondents from whom the Claimant is seeking relief or damages. The type of relief a claimant may request, may include but is not limited to, actual monetary damages, interest, and statutory or market-adjusted damages.

In addition to the Statement of Claim, a Claimant must also file a Submission Agreement. A Submission Agreement is a document that parties must sign at the outset of an arbitration in which they agree to submit to arbitration under the FINRA Code of Arbitration for Customer Disputes.

Once you sign and file a Submission Agreement with FINRA, the procedures and timing set out in the Codes and by the Arbitration Panel become operative and binding.

Initial Filing Fee – The fee a Claimant pays to file a claim. Part of the initial fee is non-refundable.

Parties may submit a written request for a fee waiver stating the reason(s) that would make payment of the filing fee a financial hardship.

In support of the request, parties should include the following information with the written request:

• a copy of the most recently filed tax return;
• two of the most recent pay stubs; and
• documentation of garnishment or lien, or other documents that evidence hardship.

If a party is unable to provide this documentation in support of financial hardship, the party may submit an affidavit attesting to financial hardship.

Claimant may receive:

• a waiver of the fees, which means FINRA would forgive the amount owed;
• a partial waiver of the fees, which means that a party has paid or is required to pay part of the fee and FINRA would forgive the balance;
• a deferral of the fees, which means that FINRA defers temporarily the collection of a fee until it makes a final decision on whether to waive the fee(s); and
• a denial of the request to waive the fees.

FINRA may issue a partial refund of the filing fee, less any fees or costs owed by that party, if the party notifies FINRA that the case is settled or withdrawn more than 10 calendar days before a scheduled hearing. FINRA will not issue a refund if a party notifies FINRA that a claim is settled or withdrawn within 10 calendar days of a scheduled hearing.

Your claim will be assigned a case number and a deficiency notice will be sent to you indicating any deficiencies. If all deficiencies are not cured within 30 days, FINRA may close your case without serving your Statement of Claim.

An answer is a written document that specifies the relevant facts and available defenses to the Statement of Claim. A Respondent files an answer to the claimant's Statement of Claim.

If a Respondent is named in an arbitration matter, the respondent must file with FINRA an answer within 45 days of receipt of the Statement of Claim.

The discovery process allows the parties to obtain facts and information from other parties to the arbitration in order to support their own case and prepare for the hearing. Parties are expected to cooperate with each other to the fullest extent practicable in the voluntary exchange of documents and information to expedite the arbitration process.

If the parties cannot agree on their own how to resolve any discovery dispute, then the party who still wants more documents or information may make a motion to compel the reluctant party to produce the requested documents. In the motion, the requesting party should explain to the arbitrator(s) why the discovery is relevant and necessary to the case and ask the Arbitration panel to issue an order compelling production. The arbitrator(s) may schedule a hearing before deciding the motion.

A motion is a request for the Arbitrator(s) or Director to direct some act, whether by issuing an order or ruling. For example, if a party wishes to force a party to produce documents or other information in discovery, the party must make a motion. A party may make motions in writing or orally during a hearing session.

A subpoena is a legal document that compels a person or an entity to show up at the specified date, time and place to testify under oath. It is a useful tool to gather information that is relevant to the case. A subpoena duces tecum compels a person or an entity to produce the listed documents to the requesting party at a particular time and place.

In a FINRA arbitration, only Arbitrators – not attorneys for the parties - may issue a subpoena to non-parties (persons or entities that are not claimants or respondents in the arbitration). If a party believes that the case requires information from third parties and wants the arbitrators to issue a subpoena, the party must make a written motion for the arbitrators to do so. The Arbitrators will then determine whether the subpoena should be issued and how costs will be assessed.

Once the panel is appointed, FINRA schedules the Initial Prehearing Conference (IPHC). The IPHC is the first time that the parties and arbitrators meet to set the schedule for the case and usually held by telephone. During this telephone conference, the arbitration panel will schedule evidentiary hearing dates, establish discovery deadlines, set briefing and motion deadlines, determine whether mediation is desirable, and address other preliminary matters.

After the IPHC, the arbitrators may need to convene additional prehearing conferences with the parties to resolve issues or disputes, e.g., discovery, motions.

When a party makes a request to postpone the hearing, the other parties have an opportunity to respond before the panel makes its decision. If the case is postponed, you should address your preferences for the setting of future hearing dates to the panel of arbitrators. You may do so in writing or during a pre-hearing conference.

While you are generally required to appear testify as a witness in your case, or if the panel orders you to attend the hearing, you must attend. However, your counsel may attend the hearing in your place.

The actual decision as to place of hearing is made by the Director of Arbitration. Arbitrators can be appointed in many of the major urban areas throughout the country, but consideration generally will be given to a number of factors, including the convenience of the parties, the availability of necessary records or witnesses, and the availability of qualified arbitrators. Generally, in public customer cases, the hearing location should be close to where the customer resided when the dispute arose.

The average hearing time is two to five days.

After closing the record, the arbitration panel considers all of the evidence, deliberates together, and decides what relief the Claimant is entitled to, if any.

In a three-arbitrator panel, an award is based on the vote of a majority of the arbitrators; a unanimous decision is not required.