Securities Litigation

Arbitration is an alternative to the traditional lawsuit filed in court in order to resolve a dispute. It is a formal dispute resolution process in which the parties-customers, brokers, or brokerage firms-select a neutral, third party (or parties) called an arbitrator to decide the matter. In the securities area, the Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory organization and the largest regulator of securities firms doing business with the public. Any arbitration filed that involves securities will likely be filed with FINRA, which then overseas the arbitration process. While arbitration is a common resolution process that parties to a dispute may agree to in order to resolve a dispute, in the securities area arbitration has become the most common dispute resolution mechanism. This is because the Supreme Court of the United States, in Shearson/American Exp., Inc. v. McMahon, 482 U.S. 220 (1987), held that an agreement to arbitrate is enforceable, and such provisions are included in many, if not all, brokerage agreements. The arbitration process involves many steps. The arbitration is commenced by a claimant with the filing of a Statement of Claim. The respondent then files an answer to the Statement of Claim. The parties are entitled to discovery, although much more limited as compared to the discovery the parties are entitled to in a lawsuit. The arbitration panel will review pleadings or other submissions that are filed by the parties, hear argument by the parties, study the testimonial and/or documentary evidence, and render a decision on the matter. Where a lawsuit concludes with a trial, a FINRA arbitration concludes with a "final hearing," and the panel's decision is called an "award," which is final and binding on all the parties. By arbitrating a claim, the parties forego the opportunity to have the matter decided by a court of law because an arbitration award is final and binding. In addition, there is not an appeals process, and there are very limited circumstances in which an award will be vacated or overturned. For the most part, an arbitration is confidential, and documents submitted in arbitration are not publicly-available. Also, unless the parties agree otherwise, an award will not be descriptive nor will it provide much, if any, insight into how the panel arrived at its decision. Any awards that are issued can be retrieved from the FINRA website under the Arbitration Awards Online Database, which is publicly available. Burr & Forman attorneys have vast experience with representing clients in disputes before FINRA. If you ever have a question about the process, something on the blog or have a securities question, feel free to contact any of Burr & Forman's Securities team members, and we will be happy to assist you.