“FINRA Arbitrations are Biased Against Customers” and Other Tall Tales Told Around the Campfire

PIABA is winning the public relations battle. Commenting on PIABA’s 2014 report that the “win rate” for investors was only 42% in 2013, Rep. Keith Ellison (D-MN) opined that “there are fundamental problems with the arbitration system.” Recently, the New York Times published a three-part article attacking the fairness of arbitrations, entitled “Arbitration Everywhere, Stacking the Deck of Justice.” Although the series primarily addressed class actions, small claims and religious arbitrations, it opined that “millions of contracts have deprived Americans of one of their most fundamental constitutional rights: their day in court.”
The Facts – A Statistical Analysis
Are FINRA arbitrations actually unfair to customers? Perhaps, it is time for PIABA, the New York Times, and others attacking the fairness of arbitrations to examine the facts. Every month, FINRA provides a variety of Dispute Resolution statistics, including the percentage of cases decided by arbitrators (thus excluding settlements or voluntary dismissals) that result in an award of damages. For most of the last twelve years, that percentage has varied from 42% to 47% with the long-term average being 46%.
Year Decided |
Cases Decided by FINRA Arbitrators |
# of Cases Where Damages Awarded |
% of Cases Where Damages Awarded |
2000 |
1,196 |
635 |
53% |
2001 |
1,172 |
637 |
54% |
2002 |
1,330 |
702 |
53% |
2003 |
1,513 |
742 |
49% |
2004 |
1,894 |
888 |
47% |
2005 |
1,610 |
687 |
43% |
2006 |
1,011 |
425 |
42% |
2007 |
671 |
245 |
37% |
2008 |
474 |
199 |
42% |
2009 |
669 |
304 |
45% |
2010 |
882 |
415 |
47% |
2011 |
670 |
297 |
44% |
2012 |
570 |
255 |
45% |
2013 |
499 |
212 |
42% |
2014 |
465 |
177 |
38% |
2015 (through November) |
423 |
177 |
42% |
TOTAL |
15,049 |
6,997 |
46% |
How does that statistic compare to court cases? The United States Department of Justice conducted a large study2, tracking the results of tens of thousands of court cases in the country’s 75 most populous counties in 2005. The study included both contract and tort cases. Within the tort category were twelve different subcategories that ranged from animal attacks to motor vehicle accidents to false arrest. The study found that Plaintiffs won in torts trials about 52% of the time nationwide.
The tort subcategory within the governmental study that would encompass the type of claims asserted in FINRA arbitrations was non-medical professional malpractice. When the findings of the study are isolated to court trials involving non-medical professional malpractice claims, the Plaintiff’s “win percentage” fell to 39.2%. In other words, more than 3 out of every 5 civil trials involving non-medical professional malpractice resulted in defense victories.
This low win percentage exists despite the fact that dispositive motion practice in court cases eliminates many of the weakest claims before trial. In FINRA arbitrations, on the other hand, PIABA’s lobbying has successfully eliminated the ability of Respondents to file most prehearing dispositive motions.
Conclusion
Arbitration is unfairly stigmatized by PIABA and others. In most cases, arbitration is less expensive and takes less time than a comparable suit in Court. In addition, whereas long-term studies show that approximately 46% of customers have received awards in cases decided by FINRA arbitrators, the customer’s win percentage in similar cases decided by judges or juries is only 39%. It is time to retire the mantra that FINRA arbitrations are unfair to customers.
When David is not spinning tall tales around the campfire, he can be reached at 248-827-1885 or dsaperstein@maddinhauser.com.
1 PIABA touts itself as “the largest US organization of lawyers who represent investors in arbitrations against their stockbrokers.”