This post explains how the arbitration panel is selected in three-arbitrator cases, consisting of intra-industry claims, being arbitrated before the Financial Industry Regulatory Authority, Inc. (“FINRA”). More specifically, this post addresses how the arbitration panel is appointed in intra-industry claims between a member firm (the broker-dealer) and an associated person (the individual). Such intra-industry disputes relate to the individual’s employment or former employment with the broker-dealer.
In brief, FINRA provides the broker-dealer and the individual employee with lists of potential panelists, and each the broker-dealer and the individual employee may exercise a certain number of peremptory strikes. The broker-dealer and the individual each rank numerically, in order of preference, the arbitrators whom they did not strike. FINRA combines the parties’ rankings and, in combined rank order, asks the arbitrators to serve on the arbitration panel.
In brief, the broker-dealer and the individual employee may decide which of the listed arbitrators to strike, and the order in which to rate the remaining arbitrators, by, among other methods, discussing the arbitrators with knowledgeable counsel, reviewing the arbitrators’ work histories, and/or analyzing the arbitration awards handed down by panels on which each of the arbitrators served.
If the amount of a claim is more than $100,000, exclusive of interest and expenses, or is unspecified, or if the claim does not request money damages, the arbitration panel will consist of three arbitrators, unless the parties agree in writing to one arbitrator. In these cases, FINRA will send the following lists to the broker-dealer and the individual, depending on the type of claim.
- Disputes Between A Broker-Dealer And An Individual Employee Relating Exclusively To Employment Contracts, Promissory Notes, Or Receipt Of Commissions. FINRA will send two lists of arbitrators to the parties. One list will contain 8 arbitrators from the non-public Chairperson roster; the other will have 16 arbitrators from the non-public roster.
- The parties each may strike up to 4 of the arbitrators on the list containing 8 names, and 8 of the arbitrators on the list containing 16 names, by crossing through the arbitrators’ names. So at least 4 names must remain on each party’s list containing 8 names, and at least 8 names must remain on each party’s list having 16 names.
- Other Disputes Between A Broker-Dealer and an Individual Employee (for example, Form U-5 expungements and N.Y. Labor Law claims). FINRA will send three lists of arbitrators to the parties.The three lists will contain 8 arbitrators from the public Chairperson roster, from the public roster, and from the non-public roster, respectively.
- The broker-dealer and the individual may each strike up to 4 of the arbitrators on the list containing 8 names, and 8 of the arbitrators on the list containing 16 names. So at least 4 names must remain on each party’s list containing 8 names, and at least 8 names must remain on each party’s list containing 16 names.
Regardless of the type of employment claim, the broker-dealer and the individual each may numerically rank the remaining arbitrators on each list. “1” indicates a party’s most preferred arbitrator. FINRA consolidates the parties’ rankings and, in consolidated rank order, contacts arbitrators on each list for appointment to the arbitration panel.
There are at least three methods by which, or by a combination of which, the broker-dealer and the individual may decide which arbitrators to strike from the lists, and in what order numerically to rank the remaining arbitrators on each list. These three methods are as follows:
- Consult With One’s Experienced Counsel. An attorney who regularly arbitrate matters before FINRA may have appeared before a number of the arbitrators on the lists. Based on the awards, rulings, and conduct of an arbitrator in previous proceedings in which the attorney appeared, the attorney likely will have an opinion as to whether that arbitrator should be seated on the panel in the present proceeding.
- Review The Arbitrator’s Employment History. For each arbitrator included on the lists which FINRA sends to the parties, FINRA encloses the arbitrator’s resume. An arbitrator’s CV, which is typically 2 to 4 pages long, sets forth the arbitrator’s employment history, background, and education. (Some of the arbitrators are attorneys; some are professionals working in the financial services industry; and some are neither.)By reviewing the arbitrator’s employment history, a party arguably gains some insight into the arbitrator’s predilections. For example, some people believe that an arbitrator who is a plaintiffs-side attorney, particularly a plaintiffs-side attorney who handles employment matters, is more likely than other arbitrators to rule for the individual employee in an intra-industry dispute.
- Review Arbitration Awards Issued By The Arbitrator’s Panels. Each arbitrator’s resume provided by FINRA further lists, by case ID, case name, and date on which the case ended, every publicly available award issued by a FINRA, NASD, or NYSE arbitration panel of which that arbitrator was a member. The public may access these awards at http://finraawardsonline.finra.org/.
By reviewing the arbitration awards issued by panels, of which a given arbitrator was a member, in proceedings involving the types of claims which are at issue in the present dispute, parties may learn about that arbitrator’s beliefs and inclinations.
It should be noted that this post does not address how the arbitration panel is selected in cases involving statutory employment discrimination claims. A separate FINRA Rule, not discussed here, governs statutory employment discrimination claims.
The Law Offices of David S. Rich, LLC arbitrates business, employment, and securities matters before FINRA and other arbitral bodies in New York City and New Jersey.