The Law Planet Blog

Senator Russell Feingold (D-Wis.) has sponsored a bill in the Senate to eliminate consumer arbitration, including securities arbitration. This knee-jerk reaction to some "Chicken Littles" claiming that big chunks of sky have landed on their heads is misguided. Consumer arbitration, including securities arbitration, has deep roots in American commerce. I am disappointed that, once again, our government is sticking its nose where it need not do so.

Here is why arbitration is good. It is fast. It is less expensive (not cheap, by any means). And a resolution is generally final. The persons hearing the case want to be there and are generally somewhat familiar with the issues presented. They may not be geniuses, but they have some knowledge, at a minimum. In securities arbitration, there is at least one member of a three member panel who is classified as being a "non-public" arbitrator because of securities industry ties. I am classified as a "non-public" arbitrator because my firm represents brokerage firms like A.G. Edwards & Sons, Stifel, Nicolaus & Co. and Legend Equities Corporation for more than 20% of its revenues.

Here is why arbitration is bad. The panel's knowledge and prejudices are the luck of the draw. Sometimes you get a well-educated panel with no biases. Other times, you get a panel that "hates" whichever side you happen to be representing that day. And it's very difficult to overcome the biases. Further, the rights of appeal are very limited. This is usually a good thing, but sometimes an arbitration panel just blows it. They focus on the wrong points, misinterpret some facts, and come up with the wrong result. It happens. And when it does, the appeal rights are virtually non-existent.

In court there are depositions. These cost, just for the court reporter, over $1,000 per day. In court, the days tend to be shorter so less is done. There is motion practice, which means more attorneys running to court to cool their heels to argue some esoteric point of law that is part of the judicial procedural jousting. There is jury selection. And then there are the appeals. They cost money, delay the result and possibly change the result. And the expenses attendant to keeping the matter open, through appeal, would be astonishing.

Here's an example of a case we have in our office. Our client has sued a Registered Investment Advisor. The lawsuit was filed in February of this year -- almost 6 months ago. We have now been through two motions to dismiss and have served our second amended complaint. We haven't even seen an Answer from the defendant yet.

In arbitration, we would already have a hearing date and discovery would be underway. Our client is elderly and we tried to get her trial expedited. The court denied the motion. Is this the result that Senator Feingold wants? Doubtful. Be careful what you wish for, folks.

That's the view from The Law Planet - Jupiter, Florida.