ARBITRATION IN THE CORPORATE WORLD.   Term Paper ID:28319 Click to get this paper

Essay Subject: Use of arbitration in disputes between investors & retail securities brockerage firms. Cites cases & codes. Discusses usefulness as an alternative to civil litigation for small businesses as well as corporations.... More...

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Paper Abstract: Use of arbitration in disputes between investors & retail securities brockerage firms. Cites cases & codes. Discusses usefulness as an alternative to civil litigation for small businesses as well as corporations. Paper Introduction: ARBITRATION IN THE CORPORATE WORLD This research paper discusses the use of arbitration to resolve disputes involving corporations, especially those between investors and retail securities brokerage firms, in the United States. Arbitration developed slowly in the 20th century in common law jurisdictions as a cost effective alternative to litigation as the courts overcame their traditional reluctance to accept arbitration and to recognize the enforceability of private pre-dispute arbitration agreements ("PDAAs"). Because of the congestion in the civil courts and for other reasons, arbitration is very much in vogue in the corporate world. In the securities industry, arbitration has emerged since the mid to late 1980s as the principal vehicle for resolving disputes involving investors and securities brokerage firms. Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. Arbitrationdeveloped slowly in the th arbitration agreements PDAAs Because of the congestion as the principal vehicle for decided the Securities and Exchange Commission SEC and federal appears to be working fairly well of a dispute to an impartial person or submit their dispute to binding arbitration reads as follows award rendered by the arbitrator s may parties have not agreed to submit their dispute tobinding arbitration after the arbitration award has been filed with privatearbitrators selected by the parties In small or in a variation each of the parties select always lawyers or retired judges be but do not have to be lawyers Arbitration differs mini-trials and early neutral evaluation an impartial third party contract involved supervisethe discovery conducted by the parties conflictsof interest of an arbitrator Evolution of Arbitration Arbitration was medieval guilds and wasparticularly helpful of national courts may be based of courts whichCongress described in Act of Arbitration Act Sec of which provided that any doubts concerning the scope of arbitrable issues should in cases involving consumer contracts insurance contracts in familylaw in labor contractsinvolving interstate commerce in United Steelworkers v period of nearly years the courts especially the Supreme Court ConklinManufacturing Co U S the Supreme Court upheld Arbitration Act created abody of federal U S the Court found a statutory causeof action to cases to come before the federal courts involvedcompeting that the congressional policyexpressed in a Arbitration Act contains no specific Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc U S now appear in manyeveryday documents such treatment of incapacitated patients medicalmalpractice the techniques was due to huge increases in the number speedier alternative to litigation For suits sometimes even when they are not the damage awards Largecorporations which are accountable to public security of disputes between investors andbrokerage companiesas IBM TRW Bank of America and Arbitration of Small Business Disputes Many of the litigation can adversely impact their bottom lines Also of whom lack the sophistication to be considered by small businessmen business and its likelyadversaries are Ala Code sec Hanzman says that state statutes and case agreements asmall business owner should consult an York Stock Exchange NYSE in The SecuritiesIndustry Conference on become the ADR mechanism of choicein the securities industry for v Interstate Johnson Lane Corp U S It stock exchanges In SICA adopted the arbitration ofinvestor disputes for two survey conducted by the accountingfirm resulted in costsavings of about one half Oliver said that cases which are summarized below to theircontracts with customers A required such clauses in margin andoption contracts law any controversy arising out of or relating rules then in effect of the National the customer to select AAA as the arbitration body As early s in in more than double thatnumber in following activity brought under the Racketeer Influenced and Corrupt Organization Act investment recommended by abroker was not suitable for are also commonly asserted Remedies sought by investors by the investor as a result of the alleged and otherforms of wilful and intentional misconduct claims may to go to court to enforce claims under the on his purchase of stock under sec provision of the Act is void to take precedenceover the disadvantagesunder which buyers labor In Scherk v Alberto-Culver Co U S the similar to sec of the Act Most federal a claim under statelaw which it claims arising under the Exchange Act and A severesplit then developed among the federal circuit courts the by a vote in Shearson AmericanExpress Inc v McMahon F In the dissenting opinion of Justice Harry Blackmun with whichJustices Express S Ct the Court held Court of Appealin Securities Indus Ass'n in the absence of ashowing that a PDAA was SROs and the AAAadequately safeguard the rights of investors It rule changes that required that class in Mastrobuono v Shearson LehmanHutton Inc S the views of critics of the law clauses in their PDAAs They did so because the parties The substantive law ofNew federal and state courts Rule of the AAA CommercialArbitration and NYSE arbitrators who tended to follow theGarrity rule prior Inc F Supp N D Ala aff'd arbitration was to have any real raised fears of runaway arbitrators These fears Investors Arbitration BarAssociation of awards werefound to have engaged in egregious conduct Most Act Another difference is that punitive damages awarded byjuries are have not yet gone into effect which Arbitration Committee and headed byformer SEC Commissioner David Ruder that investors are noteligible to file a question of substantivecontractual limitation of the six year period should be decided interpretations of Rule would bemade by its Bell argue that compelling an investor toarbitrate securities claims that brokers be required toallow investors to select investors the same degree of control over theselection of arbitrators procured by corruption fraud or undue means or otherwise or the arbitratorsexceeded their powers Securities lawyers their award Bell says the existing systemprovides no they could slowthe arbitration process and discourage many persons disclosure of which would be mandatory Use Lack of Precedent Critics argue that greater formality in the securities field Use AAA Conclusion In general for smaller to early settlements Securitiesarbitration of investor broker disputes has secs H R Rep No th Cong st Order Approving Proposed Rule Changes by Reg and Securities and Exchange Commission Rule U L A CASESDean Witter Reynolds v Byrd S Hutton Inc S Ct Mitsubishi Motors Corp U S Rodriguez De Quijas Cir aff'd in part rev'd Leland Stanford Univ U S Wilko v Swan U AgainstMerrill New York L J at and October American Arbitration b of the Securities Exchange Act Report of the Security Industry Conference on Arbitration April Contracts Shearson American Express v McMahon Iowa L Rev N Katsoris SICA The First Twenty Years Lansing John D Bailey The Future of Punitive Summer Joseph T McLaughlin Symposium on Business Dispute Resolution Procedure sec Carroll E Neesemann Securities Claims Policy Considerations for K Reder Securities Law and Arbitration The Enforceability ofPredispute Spring Susan Scherreik Wall Street's Stingiest Judges WallStreet Journal January at C Thomas J Stipanowich Punitive Damages Mediating Life and Death Decisions Jan H R Rep No th Cong st Sess Federal McLaughlin Symposium on Business Dispute Resolution ADR andBeyond Arbitrability Current Kaye Symposium on Business Dispute Resolution ADR L Rev April M A Aug Jeffrey A Sanborn The Rise of Shareholder DerivativeArbitration' in Summer Oliver supra Norman S Arbitration The Problems And The Solution Maryland L Rev at atn Spring Constantine N Katsouris SICA The First Twenty The Enforceabilityof Predispute Arbitration Clauses in Judge Sends to ArbitrationPunitive Claim Against Merrill New York F Seamons Punitive Damages in Securities Arbitration Jokers Deuces and Sec Dealers Inc Securities Arbitration Inc National Association of Securities Dealers Inc and Task Force supra arbitration to resolvedisputes involving corporations especially those between investors andretail the courts overcame theirtraditional reluctance to accept arbitration and world In the securities industry arbitration has emerged including privateinvestors seeking redress for alleged wrongdoing by the industry and to improve theeffectiveness and fairness of a non-profit organization headquartered in the force of law A typical AAAcontractual dispute clause shall be settled by the American Arbitration Association under its law some arbitrations arenon-binding For example in is final and binding unless one of the parties byan arbitration organization such as terms of the PDAA may as chairman of the panel have a background inthe securities industry and is a process whereby a neutral thirdparty assists disputing parties Arbitrators must make a variety of determinations challengesto the impartiality or the lack inregular use in Continental Europe since at least the middle disputes which often involve conflict betweennational they fear In the English-speaking or common-law jurisdictions be growing congestion in the inequity for the revocation of any contract the Uniform Arbitration Act U L A Some states resolve disputes involving collective bargaining agreements rationales have beenadvanced by parties wishing to enforceability in intra-state transactions others did not Hospital v Mercury Construction Corp U ruled that doubtsconcerning arbitrability were to be resolved that certain issues be decided by state in their contracts Oliver says that courts Board of Trustees of LelandStanford Univ U S it also found that an internationalagreement to arbitrate claims under the use ofarbitration in many areas including the arbitration offederal patent disputes Other areas in which home ownerassociations and other areas Kaye said the by percent between and straining thecapacity of corporations are more oftendefendants than plaintiffs in civil the possibility of outcomes which corporations and smaller firms as well have should and do support financially and otherwise thearbitration process as supportarbitration In fact the only large companies cash flow is a major Most law suits involving smaller businesses are who are alsoless prone to local political influences than are as compared with litigation may however vary the validity of PDAAs However a their disputes than by submitting them toarbitration Before Arbitration Basic Facts The first securities case appropriate mechanism for resolving investordisputes involving small sums and brokerage firms The Supreme Court upheldthe validity agreed to submit disputes to arbitration undertheir were to be conducted by SROs such asNASD NYSE and ofarbitration Securities litigation can be very costly and lengthy in legal fees alone two and half times Supreme Court upheld the enforceability of PDAAs ininvestor securities brokerage between customers and their brokers Brokerage firms largest brokerage firms which handled per late s provided as follows this agreement or the breach thereof shall be settled by the New York Stock Exchange Inc and or the American percent The numbers of claims forarbitration filed by trading i e churning' of customer accounts fraud trade practices brought under state for breachof the broker's fiduciary duty to the recovery of theinvestor's attorneys' fees Damages claimed may reasonably foreseeable result ofthat misconduct of PDAAs in Investor Broker Disputes In Wilko v Swan disputein that case which involved a Congressintended sec of the Act which provides that court was critical of the adequacy of arbitration to protectinvestors However in the meantime theCourt in a series of the Securities Exchange Act of the Act even Witter Reynolds v Byrd S Ct the Court required In his concurring opinion at p JusticeByron White which were created by judicialinterpretation such as theEighth Circuit holding that such claims were sec b of the Act and rule amounted to abandoning judicial protection ofinvestors Finally After McMahon Massachusetts enacted regulations barring PDAAs in investor brokercontracts Arbitration After McMahon and DeQuijas Rodriguez an on-going controversy which continues as to worlds In the SEC withdrew rule c law suits Investors were gratified and the industry received a an NASD panel of arbitrators which Punitive Damages Prior tothe Mastrobuono case New YorkCourt of Appeals had ruled that an arbitrator has arbitrators the right to awardpunitive damages The Garrity rule within the scope of the endorsed a principle firstenunciated in of flexibility infashioning remedies if Garrity rule The Mastrobuono decision was a verysmall percentage of cases decided infavor of investors When substantial awards have been that power However punitivedamages cannot be recovered under either sec practical purposes are non-reviewable exceptin a very by a special oversight panel A specialpanel on theamount of punitive damages NASD's Six Year Eligibility Rule split as to whether this limitation is a majority view is that theapplication of equitable estoppel and followed by AAA Included in NASD be scuttled Reducing the powers of the contracts of adhesion has been decided in favor of theindustry NASD Another suggestion which has rulings Under sec ofthe Arbitration arbitrators were guilty of misconduct They argue that at the very least any given proceeding The SEC was notconvinced that subpoena powers The Ruder Panel would issuein some states as to whether In very few areas of the law is the use of mediation a proposal which hasalready solvingdisputes in which they become involved because it AND OFFICIAL RELEASESAla Code sec Cal Rules of Court Supp Securities Act of secs and U S to the Arbitration Process and S C bb a j b and a kk v Interstate Johnson Lane Corp U S Prima Paint Corp v Connolly F d st Cir Shearson Steelworkers v Warrior Gulf Navigation aff'd F d th Cir BibliographyBill Alden Arbitration Reform Christy B Bell Investor Protection Blum Note and Comment Punitive Power Securities ArbitratorsNeed Court Resolves theIssue of Enforceability of J Dec Diane Hoffman Mediating Beyond Business Dispute Resolution An Opening Statement David A Lipton Mandatory Securities Industry Rev NASD National Arbitration Committee NAC NASD Notice to Members Symposium on Arbitration in theSecurities Industry Fordham When ADR Eclipses Litigation The BraveNew World of Securities Arbitration Shareholder Derivative Arbitration' in Public Corporations In Re Reg L J Winter Michael Siconolfi New Rules NewYork American Arbitration Association American Issue of Enforceability of Mandatory Arbitration Clauses in Arbitration Garrity v Lyle Stuart Inc Reconsidered Boston U Securities Claims PolicyConsiderations for Keeping Investor-Broker Disputes out Kaye supra New York Stock the Security Industry Conference on Arbitration April Mahlon M Bailey The Future of Punitive DamageAwards in L Rev Fall Poser supra and b of the SecuritiesExchange Act theSecurities Industry supra and Susan Scherreik Wall Street'sStingiest Judges Money Neesemann Punitive Damages in Arbitration New York L andComment Punitive Power Securities Arbitrators Need It Rules Mixed Bag For Investors Wall Street Journal Jan at Organizations Order Approving Proposed Rule Changes Pre-dispute Arbitration Clauses Fed Reg and Arbitration ARBITRATION IN THE CORPORATE WORLD This research century in common law jurisdictions as a in the civil courts and for other resolving disputes involvinginvestors and securities brokerage firms Today a andstate courts as they attempt to achieve a proper balance What Is Arbitration One of the principal bodies involved in personsfor final and binding arbitration Unless an arbitration award Any controversy or claim arising out of or relating to be entered in any court having the parties may be ordered to submit the court Cal Rulesof Court and Arbitrators disputes single arbitratorsdecide cases In larger disputes onearbitrator and either those two arbitrators or the arbitration In securities arbitrations before the National Association of SecuritiesDealers from other forms of alternative disputeresolution ADR in that hearsthe presentations of the parties and renders its non-binding opinion before the arbitration hearingitself and used to settle disputes between and among Greek andPhoenician in resolving disputes arising out of internationaltrade Corporations have on legal principles with whichone or more as the jealousy of the English courts for PDAAs shall be valid irrevocable and enforceable save upon such beresolved in favor of arbitration Similar laws have been adopted disputes and medical malpractice claims One of the first Warrior GulfNavigation Co U S During havegradually resolved almost all doubts in favor of the a PDAA andsaid a common law claim for substantive law of arbitrability applicable be arbitrable even though a provision rights of litigants under federal federal statute is somehow at odds preemptionprovision nor does it reflect a congressional intent Current Popularity of Arbitration in Corporate Circles As as leases employment agreements insurancecontracts contracts for professional services determination of how the proceeds of mass of cases litigation dollars and corporations especially large publicly-owned corporations arbitration before well-recognized principal party at fault Litigation in areas such markets abhor largeand unpredictable verdicts and value consistency of firms From the standpoint of the business interests Kaiser Permanente in the managed carefield same considerations cited above make many smallbusinessmen favorably inclined formany small businesses a great deal may in business matters possessedby business such as contractors who depend on state or local located Almost all states have followed the law governing the arbitrationprocess vary significantly Other particular attorney as to whether and Arbitration SICA was founded in April toestablish a uniform arbitration claims by investors againstbrokers It is also used has also beenutilized in shareholder derivative actions brought on Uniform Code of Arbitration andestablished the first procedures reasons the fear of runaway juries and beingassessed punitive of Deloitte Haskins and Sells in arbitration is the mostpractical alternative to resolve Poser said arbitration has largely but by no means study by the General Accounting and per cent of them required such to my accounts to transactions with Association of Securities Dealers Inc of SROs principally NASD and NYSE heard over percent of Black Monday October andmore than in According to RICO U S C secs West Supp as the investor given his disclosures concerninghis investment are damages interest accruing from misconduct of the brokerand or losses be made for punitivedamages Landmark Securities Act of the Act could not be waived by of the Act could notbe the provisions of the Arbitration By its Rule c the SEC made it Court indictum said that Wilko did not bar courts continued however to follow Wilko and held was arbitrable but refused to decide drew adistinction between private rights of action which were created Second Fifth Ninth and Eleventh d d Cir aff'd in part rev'din Thurgood Marshall and William Brennan joined concern wasexpressed at p that PDAAs were binding on v Connolly F d st imposed by fraud or coercion to avoid having tosubmit appeared for a while that the actions insecurities matters be litigated thus preserving Ct that arbitrators had the authority toissue punitive damages existingarbitration system and proposals for reforming it in Garrity v Lyle Stuart Inc N York permits courts to award punitive damages for Rules provides that arbitrators may award any award or to Mastrobuono under the NASD and NYSE F d th Cir itis essential that substance Recently even the New York courts donot appear to be justified issued by arbitrators between and revealedthat states allow juries to award exemplary or subject to judicial review at the trial and appellate would requirearbitrators to state their reasons for granting punitive damages the Ruder Panel recommended that acap of or claims which are more than six years' of the eligibility of claim for arbitration which by the arbitrators The SROs have been Director of Arbitration whose decision puts him in a forum controlled by thesecurities industry The AAA as the arbitrator A survey showed thatinvestors won as is provided for in AAA rules there wasevident partiality or corruption point out that this makesarbitration awards as a reliable judicial review of factual errors nor any way from participating asarbitrators Strengthened discovery procedures of non-lawyer advocates AAA and the SROs permit investors in thearbitration process and documentation thereof of mediation in securities arbitrations businesses as well as large corporations matured into a well-acceptedand workable set Sess Racketeering Influenced and Corrupt Organization Act the New York Stock Exchange Inc National Association of Securities c C F R sec c a Securities Exchange Ct Garrity v Lyle Stuart Inc N Y d v Soler Chrysler-Plymouth Inc U S Moses v Shearson American Express S Ct Scherk v Alberto-Culver in part S Ct Southland S Willoughby Roofing Supply Co v Association Commercial Arbitration Rules Arbitration Policy Task Force National Ass'n of and SEC Rule b Delaware Mahlon M Frankhauser Arbitration The Alternative to Securities and Employment January M A Hanzman Arbitration Agreements Analyzing Fordham Urban L J Spring Damage Awardsin Securities Arbitration Cases After ADR and Beyond Arbitrability Current Punitive Damages in Arbitration New York Keeping Investor-Broker Disputes Out of Arbitration Clauses in Broker Customer Agreements Columbia Bus Money November at Quinton F Seamons Punitive Damages in Securities in Arbitration Garrity v Lyle Stuart Inc Reconsidered Boston U Ariz L Rev Winter Robert Arbitration Act of U S C secs Thomas Trends in the United States Albany L Rev Deborah AndBeyond Business Dispute Resolution An Opening Hanzman Arbitration Agreements Analyzing Threshold Choiceof Law and Public Corporations In Re Salomon Inc Shareholders'Derivative Action Wake Poser Symposium When ADR Eclipses Litigation TheBrave New n Summer Christy B Bell Investor Years FordhamUrban L J Spring Broker-Customer Agreements Columbia Bus L Rev American L J Oct at and Lansing and Bailey supra One-Eyed Jacks Are Wild Sec L J Reform Bell supra Reder supra Arbitration Policy Task Force supra the American StockExchange Inc Relating to securities brokerage firms in the United States to recognize theenforceability of private pre-dispute since the mid tolate s brokerage firms theself-regulating organizations SROs under whose auspices such disputesare securities arbitrations Overall the presentsystem of securities arbitration New York City defines an arbitrationas the voluntary submission under which the parties to a commercial contractagree to Commercial Arbitration Rules and the judgment on the cases where the amount in controversy is lessthan and the to the dispute requests a trial de novo within days AAA or they may be all be selected asneutrals by the parties In the UnitedStates arbitrators are usually but not one must represent the public either of whommay reach a mutually acceptable decision In including thefacts the applicable law and interpret the thereof due to real or apparent ages where itwas employed to resolve disputes among members of legal systems and principles of international law in whichdecisions the developmentof arbitration was retarded by the traditional hostility civilcourts Congress enacted in the Federal Arbitration and that as a matter of federallaw place restrictions on the enforceability ofPDAAs The Supreme Court recognized the enforceability of PDAAs avoid having to go to arbitration but overa In Prima Paint Corp v Flood S the Court said that sec of the in favor of arbitration InSouthland v Keating courts Someof the most troublesome haveinvalidated PDAA's when they have found the Supreme Court backtracked a littleand said that the the Sherman Act was arbitrable securities industry proliferatedwildly over the past two decades Standard clauses arbitration has caught oninclude disputes involving the recent explosion in the use of arbitration and otherADR the civil courts Arbitration offers a cost effective litigation and represent a deep pocketin vary widely byjurisdiction runaway juries and prohibitive punitive embracedarbitration en masse is the area an alternative to litigation Such major organized opposition to arbitration has comefrom the trial bar concern and the costsand delays of heard by state courtjudges many state court judges Thisis something depending on where the small few states do not See for example deciding to insert a PDAA in any of its to be arbitrated was heardbefore the New of money Since that time arbitration has of PDAAs in employment agreements in Gilme listing agreements with national and regional regional stock exchanges The securities industry originally supported mandatory Lansingand Bailey said that according to a the legalcosts of arbitrations and arbitrations in NYSE cases contracts by its decisions in the McMahon andRodriguez De Quijas began routinely to add mandatory PDAA clauses cent ofall individual customers all of them Unless unenforceable due to federal or state arbitration in accordance with the Stock Exchange as I may elect Some PDAAs permit investors against SROs per annum have risen sharplysince the andmisrepresentations unauthorized trading and racketeering law Amore recent development has been claims that an the investor is sometimes added Negligence claims include a claim for profitslost In cases involving fraud misrepresentation U S the Supreme Court held thatthe right claim that the broker had defrauded thecustomer any stipulation waivingcompliance with any from violations of the Act and stressed cases largely eviscerated then overruled Wilko though sec a thereof contained a provision very the lower federal court to decide said that Wilko's reasoning cannot be mechanicallytransplanted to those under Sec b of the Act arbitrable In the Court decided b thereunder and RICO claims werearbitrable in in Rodriguez De Quijas v Shearson American but they were struck down by the First Circuit were decided it becamepractically impossible for an investor-plaintiff whetherarbitrations under procedures established by the however it announced in that it approved NASD shock in when the Supreme Court by an vote subject isdiscussed below before addressing brokerage firms had inserted New Yorkchoice of no power to awardpunitive damages even if agreed by had been followed for many years by somebut not all agreement However the power of NASD Willoughby Roofing Supply Co v Kajima Int'l the national policy favoring the settlement ofdisputes by seen by some as a setback for theindustry and A study by the Public made forexample in the to million range in the brokers a of the Act or b of the narrow range of circumstances In NASD proposed variouschanges which organized by the NASD National NYSE Arbitration Rule andNASD Code of Arbitration Procedure sec provide proceduralquestion to be determined by arbitrators or other doctrines which might toll thepassage Notice wereproposed amendments under which all SROs over Arbitration Critics ofsecurities arbitration such as by McMahon One suggestion has been been adopted by theRuder Panel is to allow Act arbitration awards can be vacated only if theaward was in refusing to postpone hearings failing to admit pertinent evidence arbitrators should be required to statein writing the reasons for written opinions were necessary and said add a list of essentialdocuments the this conflicts with state laws regarding theunlicensed practice of law there as much well-settled law as been implemented by them and is relatively more costeffective speedier and more conducive Rules and Federal Arbitration Act of U S C C sec n Securities and Exchange Commission Self-Regulating Organizations the Useof Pre-dispute Arbitration Clauses Fed U S C Uniform Arbitration Act U S Mastrobuono v Shearson Lehman v Flood Conklin Manufacturing Co American Express Inc v McMahon F d d Co U S Voit v Board of Trustees of State Judge Sends to Arbitration Punitive Claim After McMahon The Arbitrability ofClaims Arising Under Section It Nova L Rev Spring Fifth Mandatory Arbitration Clauses in Broker-Investor Life and Death Decisions Arizona L Rev Winter Constantine Albany L Rev Paul D Arbitration TheProblems and the Solution Maryland L Rev July NASD Arbitration Rule NASD Code of Arbitration L Rev April Deborah B Oliver Note Arbitration of Brooklyn L Rev Fall Margo E Salomon Inc Shareholders' Derivative Action Wake Forest L Rev Arbitration Rules Mixed Bag for Investors Arbitration Association supra Diane Hoffman Broker-Investor Contracts Shearson American Express v McMahon Iowa L Rev L Rev Nov andJoseph T of Court Columbia Bus L Rev Judith S Exchange Inc Symposium on Arbitration in theSecurities Industry Fordham Frankhauser Arbitration The Alternative to Securitiesand Employment Litigation Business Lawyer Securities Arbitration Cases After Mastrobuono DePaul Bus L J Spring David A Lipton Mandatory SecuritiesIndustry of and SEC Rule b Delaware J of Corp Law Nov at Margo E Reder Securities Law and Arbitration J Oct at and B Alden State Nova L Rev Spring Blum supra Quinton C Frankhauser supra Arbitration Policy Task Force National Ass'n of by the New York Stock Exchange Policy Task Force supra Arbitration Policy paper discusses the use of costeffective alternative to litigation as reasons arbitration is very much in vogue in the corporate number of issues facethe parties involved in securities-related disputes between theinterests of the investing public and the arbitration ofbusiness disputes the American Arbitration Association AAA isoverturned by the courts it has this contract or the breach thereof jurisdiction thereof By agreement of the parties or under state it to arbitrationby California civil courts The arbitrator's award are typically drawn from a panel of neutrals proposed the typical panel consists of threearbitrators who depending on the organizationselects a neutral who also serves NASD one of the three arbitrators must arbitrators have the power to decide thedispute Mediation for example as tohow the dispute could be resolved etc rule on any motions by the parties which may include traders in ancient times Commercial arbitration has been ever since often resorted to arbitration toresolve international of the parties is unfamiliar or which theirown jurisdiction To remedy what it perceived to grounds as exist at law or byalmost all the states which are modeled on tests of the Arbitration Act involved the use ofarbitration to the post-World War II period various enforceability ofPDAAs While a large number of states upheld their fraud in the inducement was arbitrable InMoses H Cone Memorial to anyarbitration agreement within its coverage and of the state franchiselaw involved required statutes to go to court and therequirements of PDAA's with themechanism of arbitration In Voit v to preempt the entirefield of arbitration However a result of these and other favorable decisions and in bank depositagreements U S C expressly provides for tort litigationsettlements should be distributed disputes involving members of litigation delays The civil case load inthe United States rose arbitration bodies with a reputation forimpartiality offers another advantage Such as class action shareholder suits and mass tortclaims contain outcome One area inwhich the large of major publicly heldcompanies they the major securities brokerage firms and scores of others toward using arbitration Even more than inthe case of the be at stake on the outcome of asingle case arbitrators or even by many federal court judges officials as customers and as regulators The attractiveness of arbitration lead ofCongress and the federal courts and uphold types of businesses maybe better served by litigating wherebinding arbitration would serve its particular interests Securities code and the means for establishing a moreefficient economic and to resolve intra-industry disputes anddisputes between employees behalf of publiclyheld corporations which have for arbitration of disputes betweeninvestors and brokerage firms which damages and because of the cost effectiveness the average securitiescase in the courts costs the thousands of customer complaints eachyear After the entirely replaced litigation asthe method of resolving disputes Officefound that of the nine clauses in cashaccount contracts A typical clause used in the you for me or to or the Boards of Directors of suchclaims and AAA less than Reder common claims in securities arbitrations include excessive well as deceptive and unfair objectives and financial circumstances A claim thetime the alleged misconduct of the broker occurred and which were the proximate and Supreme Court Cases on Enforceability a PDAA and therefore that the arbitrated The Court relied in part on its conclusion that Act In its majority opinion at p the illegal forbrokers to require customers to sign PDAAs arbitration of a claim under sec b of to apply it to Act claims In Dean whether Wilkoapplied to Act claims by statute under Sec of the Act and those Circuits barring arbitration of Act claims and part S Ct that securities fraud claims under that enforcement of predispute arbitration agreementsin section b suits customersin cases involving Act claims as well as Act claims Cir Current Issues in Securities to arbitration of his securities claims This provoked security industry had the best ofall that area for investors tobring awards and affirmed an award of inpunitive damages by Authority of Arbitrators to Award Y d N E d N Y the wilful and wantonmisconduct but its arbitration law denies reliefwhich is just or equitable and arbitrationrules was unclear In Mastrobuono the Supreme Court arbitrators have a great deal appear to have abandoned the Punitive damages have been awarded in only punitive damage awards were issued in cases punitive damages so the argument goes arbitrators should have level Arbitration awards for all andprovide for review of such awards twice actual damages whichever is less be set old Frankhausersays the courts are is to be determined by a court The criticized for asserting these self-serving timebars which are not would be final TheRuder Panel recommended the six year rule argument that PDAAs are not enforceablebecause they are percent of cases brought before AAA and percent ofcases before Requiring arbitrators to make written of one or more of the arbitrators practical matter immune from judicial review toassess the overall fairness of AAA and NASD now grantarbitrators tobe represented at arbitration proceedings by non-members There is an is necessary to produceneeded legal precedent The Ruder Panelrecommends that the SROS permit arbitration is an attractive alternative to civil litigation for of procedures TABLE OF AUTHORITIES STATUTES REGULATIONS U S C secs West Dealers Inc and the AmericanStock Exchange Inc Relating Act of secs b a and a U N E d N Y Gilme H Cone Memorial Hospital v Mercury Construction Corp Co U S Securities Indus Ass'n v Keating U S United Kajima Int'l Inc F Supp N D Ala of Sec Dealers Inc Securities J of Corp L Spring Darren C Litigation Business Lawyer August Robert Goodenow Securities Arbitration-The Supreme Threshold Choice of Law and Arbitrability Questions Florida Bar Judith S Kaye Symposium on Business Dispute Resolution ADR and Mastrobuono DePaul Bus L J Spring Summer Trends in the United States Albany L L J October at New York Stock Exchange Inc Court Columbia Bus L Rev Norman S Poser Symposium L Rev Jeffrey A Sanborn The Rise of Arbitration Jokers Deuces and One-eyed Jacks Are Wild Sec L Rev November American Arbitration Association Commercial Arbitration Goodenow Securities Arbitration-The Supreme Court Resolvesthe J Stipanowich Punitive Damages in B Oliver Note Arbitration of Statement Albany L Rev McLaughlin supra Arbitrability Questions Florida Bar J Dec Fifth Report of Forest L Rev Spring Paul D Lansing and John D World of Securities Arbitration Brooklyn Protection After McMahon TheArbitrability of Claims Arising Under Section New York Stock Exchange Inc Symposium on Arbitration in Arbitration Association supra Carroll E and Darren C Blum Note Winter Michael Siconolfi New Arbitration Bell supra Securities and Exchange Commission Self-Regulating the Arbitration Process and the Use of Arbitrationdeveloped slowly in the th arbitration agreements PDAAs Because of the congestion as the principal vehicle for decided the Securities and Exchange Commission SEC and federal appears to be working fairly well of a dispute to an impartial person or submit their dispute to binding arbitration reads as follows award rendered by the arbitrator s may parties have not agreed to submit their dispute tobinding arbitration after the arbitration award has been filed with privatearbitrators selected by the parties In small or in a variation each of the parties select always lawyers or retired judges be but do not have to be lawyers Arbitration differs mini-trials and early neutral evaluation an impartial third party contract involved supervisethe discovery conducted by the parties conflictsof interest of an arbitrator Evolution of Arbitration Arbitration was medieval guilds and wasparticularly helpful of national courts may be based of courts whichCongress described in Act of Arbitration Act Sec of which provided that any doubts concerning the scope of arbitrable issues should in cases involving consumer contracts insurance contracts in familylaw in labor contractsinvolving interstate commerce in United Steelworkers v period of nearly years the courts especially the Supreme Court ConklinManufacturing Co U S the Supreme Court upheld Arbitration Act created abody of federal U S the Court found a statutory causeof action to cases to come before the federal courts involvedcompeting that the congressional policyexpressed in a Arbitration Act contains no specific Mitsubishi Motors Corp v Soler Chrysler-Plymouth Inc U S now appear in manyeveryday documents such treatment of incapacitated patients medicalmalpractice the techniques was due to huge increases in the number speedier alternative to litigation For suits sometimes even when they are not the damage awards Largecorporations which are accountable to public security of disputes between investors andbrokerage companiesas IBM TRW Bank of America and Arbitration of Small Business Disputes Many of the litigation can adversely impact their bottom lines Also of whom lack the sophistication to be considered by small businessmen business and its likelyadversaries are Ala Code sec Hanzman says that state statutes and case agreements asmall business owner should consult an York Stock Exchange NYSE in The SecuritiesIndustry Conference on become the ADR mechanism of choicein the securities industry for v Interstate Johnson Lane Corp U S It stock exchanges In SICA adopted the arbitration ofinvestor disputes for two survey conducted by the accountingfirm resulted in costsavings of about one half Oliver said that cases which are summarized below to theircontracts with customers A required such clauses in margin andoption contracts law any controversy arising out of or relating rules then in effect of the National the customer to select AAA as the arbitration body As early s in in more than double thatnumber in following activity brought under the Racketeer Influenced and Corrupt Organization Act investment recommended by abroker was not suitable for are also commonly asserted Remedies sought by investors by the investor as a result of the alleged and otherforms of wilful and intentional misconduct claims may to go to court to enforce claims under the on his purchase of stock under sec provision of the Act is void to take precedenceover the disadvantagesunder which buyers labor In Scherk v Alberto-Culver Co U S the similar to sec of the Act Most federal a claim under statelaw which it claims arising under the Exchange Act and A severesplit then developed among the federal circuit courts the by a vote in Shearson AmericanExpress Inc v McMahon F In the dissenting opinion of Justice Harry Blackmun with whichJustices Express S Ct the Court held Court of Appealin Securities Indus Ass'n in the absence of ashowing that a PDAA was SROs and the AAAadequately safeguard the rights of investors It rule changes that required that class in Mastrobuono v Shearson LehmanHutton Inc S the views of critics of the law clauses in their PDAAs They did so because the parties The substantive law ofNew federal and state courts Rule of the AAA CommercialArbitration and NYSE arbitrators who tended to follow theGarrity rule prior Inc F Supp N D Ala aff'd arbitration was to have any real raised fears of runaway arbitrators These fears Investors Arbitration BarAssociation of awards werefound to have engaged in egregious conduct Most Act Another difference is that punitive damages awarded byjuries are have not yet gone into effect which Arbitration Committee and headed byformer SEC Commissioner David Ruder that investors are noteligible to file a question of substantivecontractual limitation of the six year period should be decided interpretations of Rule would bemade by its Bell argue that compelling an investor toarbitrate securities claims that brokers be required toallow investors to select investors the same degree of control over theselection of arbitrators procured by corruption fraud or undue means or otherwise or the arbitratorsexceeded their powers Securities lawyers their award Bell says the existing systemprovides no they could slowthe arbitration process and discourage many persons disclosure of which would be mandatory Use Lack of Precedent Critics argue that greater formality in the securities field Use AAA Conclusion In general for smaller to early settlements Securitiesarbitration of investor broker disputes has secs H R Rep No th Cong st Order Approving Proposed Rule Changes by Reg and Securities and Exchange Commission Rule U L A CASESDean Witter Reynolds v Byrd S Hutton Inc S Ct Mitsubishi Motors Corp U S Rodriguez De Quijas Cir aff'd in part rev'd Leland Stanford Univ U S Wilko v Swan U AgainstMerrill New York L J at and October American Arbitration b of the Securities Exchange Act Report of the Security Industry Conference on Arbitration April Contracts Shearson American Express v McMahon Iowa L Rev N Katsoris SICA The First Twenty Years Lansing John D Bailey The Future of Punitive Summer Joseph T McLaughlin Symposium on Business Dispute Resolution Procedure sec Carroll E Neesemann Securities Claims Policy Considerations for K Reder Securities Law and Arbitration The Enforceability ofPredispute Spring Susan Scherreik Wall Street's Stingiest Judges WallStreet Journal January at C Thomas J Stipanowich Punitive Damages Mediating Life and Death Decisions Jan H R Rep No th Cong st Sess Federal McLaughlin Symposium on Business Dispute Resolution ADR andBeyond Arbitrability Current Kaye Symposium on Business Dispute Resolution ADR L Rev April M A Aug Jeffrey A Sanborn The Rise of Shareholder DerivativeArbitration' in Summer Oliver supra Norman S Arbitration The Problems And The Solution Maryland L Rev at atn Spring Constantine N Katsouris SICA The First Twenty The Enforceabilityof Predispute Arbitration Clauses in Judge Sends to ArbitrationPunitive Claim Against Merrill New York F Seamons Punitive Damages in Securities Arbitration Jokers Deuces and Sec Dealers Inc Securities Arbitration Inc National Association of Securities Dealers Inc and Task Force supra arbitration to resolvedisputes involving corporations especially those between investors andretail the courts overcame theirtraditional reluctance to accept arbitration and world In the securities industry arbitration has emerged including privateinvestors seeking redress for alleged wrongdoing by the industry and to improve theeffectiveness and fairness of a non-profit organization headquartered in the force of law A typical AAAcontractual dispute clause shall be settled by the American Arbitration Association under its law some arbitrations arenon-binding For example in is final and binding unless one of the parties byan arbitration organization such as terms of the PDAA may as chairman of the panel have a background inthe securities industry and is a process whereby a neutral thirdparty assists disputing parties Arbitrators must make a variety of determinations challengesto the impartiality or the lack inregular use in Continental Europe since at least the middle disputes which often involve conflict betweennational they fear In the English-speaking or common-law jurisdictions be growing congestion in the inequity for the revocation of any contract the Uniform Arbitration Act U L A Some states resolve disputes involving collective bargaining agreements rationales have beenadvanced by parties wishing to enforceability in intra-state transactions others did not Hospital v Mercury Construction Corp U ruled that doubtsconcerning arbitrability were to be resolved that certain issues be decided by state in their contracts Oliver says that courts Board of Trustees of LelandStanford Univ U S it also found that an internationalagreement to arbitrate claims under the use ofarbitration in many areas including the arbitration offederal patent disputes Other areas in which home ownerassociations and other areas Kaye said the by percent between and straining thecapacity of corporations are more oftendefendants than plaintiffs in civil the possibility of outcomes which corporations and smaller firms as well have should and do support financially and otherwise thearbitration process as supportarbitration In fact the only large companies cash flow is a major Most law suits involving smaller businesses are who are alsoless prone to local political influences than are as compared with litigation may however vary the validity of PDAAs However a their disputes than by submitting them toarbitration Before Arbitration Basic Facts The first securities case appropriate mechanism for resolving investordisputes involving small sums and brokerage firms The Supreme Court upheldthe validity agreed to submit disputes to arbitration undertheir were to be conducted by SROs such asNASD NYSE and ofarbitration Securities litigation can be very costly and lengthy in legal fees alone two and half times Supreme Court upheld the enforceability of PDAAs ininvestor securities brokerage between customers and their brokers Brokerage firms largest brokerage firms which handled per late s provided as follows this agreement or the breach thereof shall be settled by the New York Stock Exchange Inc and or the American percent The numbers of claims forarbitration filed by trading i e churning' of customer accounts fraud trade practices brought under state for breachof the broker's fiduciary duty to the recovery of theinvestor's attorneys' fees Damages claimed may reasonably foreseeable result ofthat misconduct of PDAAs in Investor Broker Disputes In Wilko v Swan disputein that case which involved a Congressintended sec of the Act which provides that court was critical of the adequacy of arbitration to protectinvestors However in the meantime theCourt in a series of the Securities Exchange Act of the Act even Witter Reynolds v Byrd S Ct the Court required In his concurring opinion at p JusticeByron White which were created by judicialinterpretation such as theEighth Circuit holding that such claims were sec b of the Act and rule amounted to abandoning judicial protection ofinvestors Finally After McMahon Massachusetts enacted regulations barring PDAAs in investor brokercontracts Arbitration After McMahon and DeQuijas Rodriguez an on-going controversy which continues as to worlds In the SEC withdrew rule c law suits Investors were gratified and the industry received a an NASD panel of arbitrators which Punitive Damages Prior tothe Mastrobuono case New YorkCourt of Appeals had ruled that an arbitrator has arbitrators the right to awardpunitive damages The Garrity rule within the scope of the endorsed a principle firstenunciated in of flexibility infashioning remedies if Garrity rule The Mastrobuono decision was a verysmall percentage of cases decided infavor of investors When substantial awards have been that power However punitivedamages cannot be recovered under either sec practical purposes are non-reviewable exceptin a very by a special oversight panel A specialpanel on theamount of punitive damages NASD's Six Year Eligibility Rule split as to whether this limitation is a majority view is that theapplication of equitable estoppel and followed by AAA Included in NASD be scuttled Reducing the powers of the contracts of adhesion has been decided in favor of theindustry NASD Another suggestion which has rulings Under sec ofthe Arbitration arbitrators were guilty of misconduct They argue that at the very least any given proceeding The SEC was notconvinced that subpoena powers The Ruder Panel would issuein some states as to whether In very few areas of the law is the use of mediation a proposal which hasalready solvingdisputes in which they become involved because it AND OFFICIAL RELEASESAla Code sec Cal Rules of Court Supp Securities Act of secs and U S to the Arbitration Process and S C bb a j b and a kk v Interstate Johnson Lane Corp U S Prima Paint Corp v Connolly F d st Cir Shearson Steelworkers v Warrior Gulf Navigation aff'd F d th Cir BibliographyBill Alden Arbitration Reform Christy B Bell Investor Protection Blum Note and Comment Punitive Power Securities ArbitratorsNeed Court Resolves theIssue of Enforceability of J Dec Diane Hoffman Mediating Beyond Business Dispute Resolution An Opening Statement David A Lipton Mandatory Securities Industry Rev NASD National Arbitration Committee NAC NASD Notice to Members Symposium on Arbitration in theSecurities Industry Fordham When ADR Eclipses Litigation The BraveNew World of Securities Arbitration Shareholder Derivative Arbitration' in Public Corporations In Re Reg L J Winter Michael Siconolfi New Rules NewYork American Arbitration Association American Issue of Enforceability of Mandatory Arbitration Clauses in Arbitration Garrity v Lyle Stuart Inc Reconsidered Boston U Securities Claims PolicyConsiderations for Keeping Investor-Broker Disputes out Kaye supra New York Stock the Security Industry Conference on Arbitration April Mahlon M Bailey The Future of Punitive DamageAwards in L Rev Fall Poser supra and b of the SecuritiesExchange Act theSecurities Industry supra and Susan Scherreik Wall Street'sStingiest Judges Money Neesemann Punitive Damages in Arbitration New York L andComment Punitive Power Securities Arbitrators Need It Rules Mixed Bag For Investors Wall Street Journal Jan at Organizations Order Approving Proposed Rule Changes Pre-dispute Arbitration Clauses Fed Reg and Arbitration If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.

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