Updates on current and former FINRA Dispute Resolution executives

It’s been a while since I’ve had a chance to post here – and now have a few (almost outdated) updates about FINRA Dispute Resolution leaders – both past and present.  In September, Linda Fienberg, long-time leader at FINRA Dispute Resolution announced that she would retire as of November 30.  FINRA CEO Rick Ketchum tapped Rick Berry, Senior VP and Director of Case Administration, to replace her, promoting him to Executive VP and Director of Dispute Resolution.  I wish Rick well in his new role, and know him to be a highly capable and effective leader.

One wonders whether the post-retirement Linda will continue to have a voice in the securities ADR world, like her former colleague George Friedman.  Far from fading out of sight, former Director of Arbitration George Friedman has used his post-FINRA retirement time to write prolifically about arbitration.  Given his many years as an ADR forum executive, he brings a lot of knowledge and expertise to his writings, which are usually quite insightful, predictive, and uncannily accurate.  A recent example here predicts the impact of the midterm elections on consumer arbitration.  His article on Technology, Alternative DIspute Resolution and the Insurance Industry predicts how technology will impact ADR.  I look forward to reading further predictions from George!

Symposium at Cardozo Asking (and perhaps Answering) “Is Mediation a Sleeping Beauty?

Cardozo Law School and its Journal of Conflict Resolution are sponsoring the Jed D. Melnick Annual Symposium, “Is Mediation a Sleeping Beauty?”, on Monday, November 3, 2014 starting at 8:30 a.m.  The impressive line-up of speakers includes many friends of Indisputably, and topics for sessions include the age-old questions: “Is She Sleeping?”, “Is She Beautiful?”, “Who is the Wicked Witch?”, and “Who is Prince Charming?”.  Sounds like it will be very interesting.  For more information, see http://cardozojcr.com/symposia/.  To attend, RSVP to eic@cardozojcr.com.

PIABA Releases Study Criticizing Lack of Diversity of FINRA Arbitrator Pool

At a press conference today and accompanying this press release, the Public Investors Arbitration Bar Association announced it had conducted a study of FINRA’s arbitrator roster.  It concluded that the roster lacks diversity (in particular, it is 80% male), and almost half of the pool is 70 years old or older.

The study also concluded that the forum failed to detect arbitrators’ potential biases and to communicate them to disputants.  More specifically, PIABA stated:

FINRA’s arbitrator disclosure process fails to ensure that it provides updated and accurate background information and information related to potential conflicts of interest and bias to parties. In many cases, arbitrators are unable to indicate when they last updated their disclosure documentation and do not appear to be urged by FINRA to do so on a regular basis. In addition, FINRA fails to have adequate and verifiable procedural safeguards in place to ensure that impartial and neutral arbitrators are added to the arbitrator pool.

PIABA concludes that these two defects in its arbitrator recruitment process results in an unfair forum for investors to resolve their disputes with their broker-dealers. The ball is now in FINRA’s court to refute PIABA’s allegations and reassure the investing public that its arbitrator roster is diverse and that it adequately gathers arbitrator background information and other disclosures and then methodically communicates those disclosures to disputants.

Linda Fienberg To Retire from FINRA Dispute Resolution

Linda Fienberg, the long-time President of FINRA Dispute Resolution and FINRA’s Chief Hearing Officer, announced her retirement last month.  (This post is long overdue, I know.)  She joined FINRA in 1996 and, since then, has worked hard to reform the arbitration process to further FINRA’s investor protection mission.  While some of her decisions arguably were controversial, I always found them to be well-reasoned, principled and consistent.  I learned a lot from her leadership and will miss her presence in the securities arbitration field.

Enjoy your well-deserved retirement, Linda!

Second Circuit Holds Forum Selection Clause Trumps FINRA Arbitration Requirement

Today, the Second Circuit followed an April 2014 decision by the Ninth Circuit in Goldman Sachs & Co. v. Reno (described here) — and rejected an opposite holding by the Fourth Circuit — and held that a forum selection clause in a contract supersedes a broker-dealer’s obligation to arbitrate disputes with a customer under FINRA Rule 12200.  The Court of Appeals, in a single opinion, resolved two cases: Goldman Sachs & Co. v. Golden Empire Sch. Fin. Auth., No. 13-797-cv (2d Cir. Aug. 21, 2014) and Citigroup Global Mkts. Inc. v. N.C. E. Mun. Power Agency, No. 13-2247-cv (2d Cir. Aug. 21, 2014).  The respective forum selection clauses at issue required “all actions and proceedings” related to the transactions between the parties be brought in court.

FINRA’s Rule 12200 has been the source of much litigation recently, as broker-dealers have tried to elude their obligations to arbitrate with customers, by asking courts to construe the word “customer” narrowly.  To aid lower courts, the Second Circuit recently adopted a bright-line definition of “customer.”.  See here.

I don’t understand why recently amended sec. 29(A) of the Exchange Act doesn’t void the parties’ forum selection clause. That provision voids “any condition, stipulation, or provision binding any person to waive compliance … with any provision of the Exchange Act or its rules.”  Dodd-Frank (2010) amended § 29(a) to include rules issued by all SROs. Thus, since 2010, § 29(A) explicitly invalidates provisions in brokerage agreements that require customers to waive compliance with FINRA rules.  To the extent courts have held in the past that parties could contract around FINRA rules, that line of cases seems to be vitiated by amended § 29(A).

 An equally important issue is whether a broker-dealer’s conduct in trying to avoid arbitration with a customer by inserting a forum selection clause in its contracts with that customer violates FINRA IM-12000, which states that it “may be deemed conduct inconsistent with just and equitable principles of trade and a violation of [FINRA Conduct] Rule 2010 for a member… to…(a) fail to submit a dispute to arbitration under the [FINRA Arbitration] Code.”  FINRA Enforcement should pursue these broker-dealers for including these clauses in customer agreements.

Hat Trick: NHL Adds Arbitration Clause, Class Action Waiver and One-Year Limitations Period to its Consumer Services Agreement

Little did I know that I was on NHL.com’s email list.  I guess having a son wild about all things hockey must have had something to do with it.  So you can imagine my surprise on Saturday morning when I woke up to an email from NHL.com informing me of the new arbitration clause it was adding to its “Terms of Service,” effective August 13, 2014 (three days earlier).

The arbitration clause contains an agreement to arbitrate before the AAA in New York all disputes arising out of the “Services” or “Terms of Service.”  The clause also includes a class action waiver, a collective action waiver, a New York choice of law clause, a New York forum selection clause for all non-arbitrable disputes, and an agreement to shorten ALL applicable limitations period to ONE YEAR.  Here are relevant excerpts:

Last Updated and Effective Date — August 13, 2014


These Terms of Service (the “Terms”) are a legal agreement between you and NHL Interactive CyberEnterprises, LLC and its affiliates, including NHL Enterprises, L.P., NHL Enterprises Canada, L.P., NHL Enterprises B.V., and the National Hockey League (“NHL”, “we” or “us”) governing your access to and use of the websites and online services that display or provide an authorized link to these Terms (collectively, the “Services”). The Services include, without limitation, nhl.com, the NHL app, NHL GameCenter LIVE™, and NHL Vault™.

18. Location, Governing Law, Arbitration, and Time Period Limitation for Bringing Claim

These Terms are governed by, and must be construed in accordance with, the laws of the United States and the State of New York, as applicable, without giving effect to their principles of conflicts of law. By using the Services, you waive any claims that may arise under the laws of other states, countries, territories, or jurisdictions.

With respect to any and all disputes arising out of or in connection with the Services or these Terms (including without limitation the Privacy Policy), the NHL and you agree to negotiate in good faith and undertake reasonable efforts to cooperate with one another in order to achieve a mutually satisfactory resolution. If you and the NHL do not resolve any dispute by informal negotiation, any other effort to resolve the dispute will be conducted exclusively by binding arbitration as described in this section. You are giving up the right to litigate (or participate in as a party or class member) all disputes in court before a judge or jury. Instead, all disputes will be resolved before a neutral arbitrator, whose decision will be final except for a limited right of appeal under the Federal Arbitration Act. Any court with jurisdiction over the parties may enforce the arbitrator’s award.

Any proceedings to resolve or litigate any dispute in any forum will be conducted solely on an individual basis. Neither you nor the NHL will seek to have any dispute heard as a class action or in any other proceeding in which either party acts or proposes to act in a representative capacity. No arbitration or proceeding will be combined with another without the prior written consent of all parties to all affected arbitrations or proceedings.

The NHL and you agree that all disputes arising under these Terms that cannot be settled through informal negotiation will be settled exclusively through confidential binding arbitration in accordance with the commercial rules of arbitration of the American Arbitration Association in New York. The arbitrator’s award shall be binding and may be entered as a judgment in a court of competent jurisdiction. You agree that the NHL may seek any interim or preliminary relief from a court of competent jurisdiction in New York, necessary to protect its rights or property pending the completion of arbitration.

Any claims not subject to arbitration shall be subject to the exclusive jurisdiction of state or federal courts in New York County, New York.

To the extent permitted by law, any claim or dispute under these Terms must be filed within one year in an arbitration proceeding. The one-year period begins when the claim or notice of dispute first could be filed. If a claim or dispute is not filed within one year, it is permanently barred.

Unconscionable?  Let’s discuss.

FINRA Proposes Bungling “Public” and “Non-Public” Arbitrator Definitions

Over the years, to respond to criticism that its arbitrators are biased in favor of the securities industry, FINRA has implemented a series of reforms to its arbitration rules.  It tweaked the definition of “public” and “non-public” arbitrators (the two classifications FINRA uses) to decrease the chance that a “public” arbitrator would have any affiliation with the securities industry, it adjusted the composition of panels in customer cases to guarantee an investor an “all-public” panel, and it improved methods of arbitrator selection to increase choice for disputants (i.e., increased number of strikes; “short list” selection). The two animating principles behind these reforms were increased party choice of neutrals and ensuring neutrality – both actual and perceived – of panelists. FINRA justified the dual classification system as a means to make available to parties arbitrators with expertise in the practices of the securities industry who could apply industry norms and practices to the decision (labeled by FINRA as the non-public arbitrator, but known by practitioners as the “industry” arbitrator).

Most recently, FINRA has filed a rule change proposal with the SEC to once again change the definitions of the two classifications.  For the first time, however, it has proposed that an attorney who represents investors in securities disputes be classified as “non-public.” If the SEC approves the proposal, FINRA’s “non-public” arbitrator roster will include arbitrators without industry expertise or experience. This proposal appears to place at a premium (rather than balance equally) the animating principle of actual and perceived neutrality at the expense of party choice of neutrals.  But the more “neutral” an arbitrator is (because of his or her distance from the subject matter of and parties to the dispute), the less expertise the arbitrator has in the subject matter of the dispute.

In my view, this is a perversion of the whole purpose of FINRA’s arbitrator classification system. Arbitration is supposed to be a private dispute resolution process using third-party neutrals who have — if the parties choose — expertise in the subject matter of the dispute. If the arbitration forum cannot supply neutrals with expertise, then the parties don’t get one of the primary benefits of arbitration.  The forum should throw in the garbage its classification system and start from scratch with just one roster of arbitrators, and add far more party choice (via a larger list; more strikes; easier challenges for cause, etc.).  If the forum insists on having two arbitrator classifications, it should call a spade a spade and label them “expertise” and “novice.”

George Friedman, formerly of FINRA Dispute Resolution, in his comment letter to the rule proposal (in the form of an article), offers this and additional persuasive arguments why this rule proposal is a bad idea.  The SEC should take heed.

Second Circuit Adopts Bright-Line Definition of FINRA “Customer” For Arbitration Purposes

The circuit courts continue to refine the definition of the term “customer” under FINRA Rule 12200.  A “customer” can compel a broker-dealer to arbitrate a dispute even in the absence of a pre-dispute arbitration agreement.  FINRA does not define “customer,” except for its mention in Rule 12100(i) (a “customer shall not include a broker or dealer”).

I previously blogged (here) about a recent case in which the Ninth Circuit Court of Appeals adopted the Second Circuit’s 2011 definition: a customer is “a non-broker and non-dealer who purchases commodities or services from a FINRA member in the course of the member’s FINRA-regulated business activities.”  This definition necessarily required a detailed examination of the facts and circumstances of the parties’ relationship.  (In the Ninth Circuit case, the court concluded that a municipal issuer purchasing advisory services for an auction-rate security issuance from an investment bank was a “customer.”)

Now the Second Circuit has come up with what it calls “the precise boundaries of the FINRA meaning of ‘customer.'”  In Citigroup Global Markets Inc. v. Abbar, Docket No 13-2172 (Aug. 1, 2014), the Second Circuit concluded that a Saudi businessman who managed family trusts that lost $383 million invested with a U.K. affiliate of Citigroup, Inc. (“Citi UK), was not a “customer” of Citigroup Global Markets, Inc. (“Citi NY”) under Rule 12200, and thus could not compel Citi NY to arbitrate their dispute.  The Court of Appeals issued “a bright-line rule” and held that “a ‘customer’ under FINRA Rule 12200 is one who, while not a broker or dealer, either (1) purchases a good or service from a FINRA member, or (2) has an account with a FINRA member.”  The Court reasoned that a “simple, predictable and suitably broad definition of ‘customer'” is “necessary” to avoid a “sprawling litigation” that its previous definition required, which “defeats the express goals of arbitration to yield economical and swift outcomes.”  Because Abbar purchased no goods or services from Citi NY (though some of its employees helped develop trading strategies for his accounts) and had no account with it, he was not a “customer” of Citi NY.

Of course, the Court recognized that, as with all legal definitions, exceptions exist for “rare instances of injustice.”  This exception seems to swallow the rule, however, as it should still call for a detailed examination of the facts to mine for injustices.

FINRA Appoints New Arbitration Task Force

FINRA announced today the formation of a new Arbitration Task Force “to consider possible enhancements to its arbitration forum to improve the transparency, impartiality and efficiency of FINRA’s securities arbitration forum for all participants.”  The 13-member Task Force will be Chaired by Professor Barbara Black, my former colleague and frequent co-author, and will include forum arbitrators, representatives from the securities industry, investor advocates and attorneys, industry attorneys and a regulator.

Because virtually all broker-dealers require their customers to arbitrate their disputes, FINRA’s arbitration program, which administers virtually all of these disputes, continues to be criticized as some investors perceive the process is unfair.  FINRA last appointed a task force to conduct a wholesale examination of its arbitration forum in the mid 1990’s, when David S. Ruder (Professor of Law Emeritus, Northwestern) chaired the Arbitration Policy Task Force that issued a January 1996 report to the Board of Governors of NASD (FINRA’s predecessor).  The “Ruder Report,” as it is known, led to many important reforms of the process.

Given my respect for Professor Black, I have no doubt that the “Black Report” will contain similarly significant recommendations to increase the fairness for all disputants.

Securities Arbitration Commentator Launches New Blog

For those interested in the field of securities dispute resolution, check out this new blog, just launched by Securities Arbitration Commentator (http://www.sacarbitration.com/blog/). Here is its opening announcement:

The Securities Arbitration Commentator (“SAC”) is just delighted to welcome you to our new blog, through which we will keep followers informed of key developments in the securities dispute resolution field. Typical blog posts will cover state and federal court cases of importance to our followers, regulatory and rulemaking updates, and the latest news from the securities and alternative dispute resolution worlds.  This week, we lead with an analysis of an important United States Supreme Court ruling impacting the financial industry.


Registration Now Open for Fall 2014 ADR Works in Progress Conference

From FOI, Prof. Ron Aronovsky (Southwestern Law)

Dear Colleagues:

Registration is now open for the AALS ADR Section’s Eighth Annual Works-in-Progress Conference!

The Conference:  Southwestern is honored to host this year’s WIP Conference.  The Conference has traditionally provided a welcoming and interactive forum where ADR scholars from across the country can share their current research, obtain feedback, exchange ideas, reconnect with colleagues and build new collaborative working relationships.  At the conference, junior and senior ADR scholars present their current work-in-progress, ranging from research ideas for a future article to full draft papers. Conference attendees share their insights about the presentation topic and offer constructive feedback to the presenter.  If they wish, presenters who timely submit a full draft of a work-in-progress paper will also be assigned an experienced scholar as commenter.

The Schedule:  The Conference will begin with a welcoming reception hosted by Southwestern on the evening of Thursday, November 6Friday, November 7 will feature a full day of presentations, along with continental breakfast, luncheon and dinner hosted by Southwestern.  The Conference will conclude on Saturday, November 8 with a half-day of presentations, as well as continental breakfast and lunch hosted by Southwestern.

Registration:  To register for the Conference or to get more information, please go to www.swlaw.edu/adrwip.   There is no registration fee (attendees are responsible for their own travel and lodging expenses).  To download an informational flyer about the Conference, please click here.

We hope to see you this November at the Conference.

Best, Ron



Quick Tips for Developing Your ADR Career

Jeffrey T. Zaino, a Vice President at the American Arbitration Association, offers this guest blog post on developing a career as an ADR neutral:

Developing a career as an arbitrator or mediator can be very challenging.  Before you consider moving into the field it is important that you talk to those arbitrators and mediators who have done it successfully. Over the years I have had the opportunity to take their counsel.  The following are some of the best of their many tips regarding how to develop and sustain an ADR career:

  • Compare your resume/panel card to successful neutrals.
  • Keep your resume/panel card updated and fresh.  ADR service providers and advocates do carefully review resumes/panel cards.
  •  Set a fair hourly or per diem rate.  Compare your rate with others with similar backgrounds and experience. Understand what the going rate is in your region.
  • Get involved in various bars associations, state and national.  Do not just be a dormant member, volunteer for committees and produce.  Bar associations provide a wonderful networking opportunity.
  • Become active with non-bar association groups active in the field of ADR (e.g., Association for Conflict Resolution and Labor and Employment Relations Association).
  • Pay your dues – volunteer your services as a neutral to develop skills and network.  There are various pro bono community and court programs.
  • Find multiple mentors to see and learn about different styles. Shadow your mentor not just to be educated but to network with advocates and parties.
  • Practice in your backyard where parties and advocates know of you and your reputation.
  • Participate in ongoing trainings and educational events to keep up on current trends/laws and to network.
  • If pursuing a mediation career read, “Making Peace and Money: Economic Analysis of the Market for Mediators in Private Practice.”
  • Have a webpage and effectively use social media.  Social media is here to stay and many new neutrals use social media to promote themselves.  It is one tool used by parties and advocates to research about neutrals.
  • Google yourself.  If you are active in the community professionally and have a social media presence, what should appear is positive and free information about you.  This is a free advertisement about you and your ADR practice.
  • Do not get discouraged – as any successful neutral will tell you, it takes a lot of hard work and time to develop a career in this field.

AAA Seeking Law School Clinics to Represent Parties in Arbitration and Mediation

I am passing along the following message from Tracey Frisch, Staff Attorney of the American Arbitration Association:


The AAA is looking to compile a list of law school clinics that would provide legal representation to self-represented parties in AAA administered arbitrations and mediations.  If there is a clinic at your school that would provide legal services to self-represented parties in AAA administered arbitrations and/or mediations, please send the detailed eligibility requirements and information about the clinic to lawschoolclinics@adr.org.

Thank you, Tracey Frisch


More on FINRA’s Ruling in the Schwab Class Action Waiver Case

I blogged yesterday (here) about FINRA’s Board of Governors’ Decision finding that Schwab violated FINRA’s rules by inserting a class action waiver in the PDAA in its customer agreement.  A few additional aspects of the decision are worth mentioning.

First, FINRA’s Enforcement Department appealed the lower hearing panel’s adverse ruling to FINRA’s National Adjudicatory Council (NAC), the body that typically hears appeals from Disciplinary Hearing Panel rulings.  Yet, the Board of Governors, not NAC, issued the decision.  What happened?

As my colleague and co-author Professor Barbara Black explained to me, under FINRA rule 9349, NAC submits its proposed decision to the Board of Governors, which almost always becomes final without Board action.  The Board can, however, under rule 9351, call a proposed decision for review and affirm, modify or reverse the proposed decision and/or its sanctions.  We both wonder whether NAC’s proposed decision differed in any material way from the decision ultimately released by the Board of Governors.  I can only surmise that, if the Board of Governors had agreed with NAC’s proposed decision, it wouldn’t have taken the action that it did.

Second, simultaneous with the issuance of the decision, Schwab entered into a Letter of Acceptance, Waiver and Consent (AWC) with FINRA, settling the enforcement action by consenting to a $500,000 penalty and agreeing not to appeal the decision further.  Thus, the AWC ends the matter, and no court will get to rule on the important legal issues arising under the FAA, at least in this case.  I can only wonder why Schwab finally threw in the towel, after vigorously fighting the enforcement action for more than two years. I suspect the negative publicity Schwab received from its unilateral, anti-investor legal maneuver (in inserting the class action waiver in the first place) proved too much for the business people to accept.  Is this General Mills redux?

Perhaps public pressure will, in the end, be the only weapon that consumers and investors have to force companies to put more customer-friendly arbitration clauses in their consumer contracts.  Perhaps ADR folks should initiate the Occupy Arbitration movement?

ODR Conference in June 2014 at Hastings/Stanford

From Ethan Katsh (U Mass):

The 2014 International Online Dispute Resolution Conference will be held in Silicon Valley and San Francisco, June 25-27, 2014.  ODR 2014 <http://www.odr2014.org>  will bring together the technology, law and dispute resolution communities, academic researchers, representatives of  financial institutions, ecommerce and social media companies, and social justice advocates using innovative technologies to leverage change. It will be preceded by a “Hack for Justice” hackathon on June 21st.  Registration and other information is at www.odr2014.org  Particular thanks to Sheila Purcell of Hastings and Jan Martinez of Stanford for co-hosting the meeting.  Please feel free to contact me privately with any questions.

His email is: katsh@legal.umass.edu.

FINRA Reverses Hearing Panel in Schwab Enforcement Case: Class Action Waiver Violates FINRA Rules

In a stunning but hoped-for result (based on am amicus brief I co-authored in the case), FINRA’s Board of Governors reversed a disciplinary hearing panel decision in the FINRA v Schwab enforcement action. (See some of my previous blog posts on the subject, herehere and here.) That hearing panel had held, among other things, that Schwab’s class action waiver in its standard customer agreement’s pre-dispute arbitration clause violated FINRA rules but those rules could not be enforced under the Federal Arbitration Act.

FINRA reversed that aspect of the hearing panel decision, and held that the Securities Exchange Act constituted a sufficient Congressional command to overcome the FAA’s mandate to courts to enforce arbitration agreements as written.  Since the Exchange Act delegated to the SEC, which in turn delegated to FINRA, the authority to regulate broker-dealers’ arbitration agreements for the protection of investors, FINRA’s rules barring class action waivers and mandating that investors be able to bring class claims in court were enforceable.

This is the precise argument I spelled out in my article with Professor Barbara Black, Investor Protection Meets the Federal Arbitration Act, 1 Stan. J. Complex Litig. 1 ­­(2012).

In my view, this is the right result, both under the law and for investors.

Ninth Circuit, FINRA Arbitration and Exchange Act Commands

Last week, the Court of Appeals for the Ninth Circuit decided two issues important in the field of securities arbitration — one of which I believe flatly ignores the Securities Exchange Act of 1934, as amended by Dodd-Frank. The case, Goldman, Sachs & Co. v. City of Reno, __ F.3d __, 2014 WL 1272784 (9th Cir. Mar. 31, 2014), arose out of Goldman’s underwriting and advising services for the City of Reno’s issuance of auction-rate securities (ARS) in 2005 and 2006.  When the market for ARS and thus Reno’s ARS collapsed, Reno initiated a FINRA arbitration against Goldman alleging a whole host of common law and statutory claims.

Goldman resisted arbitration in the courts, and the case went up to the Ninth Circuit. First, the Court ruled that the City of Reno was a “customer” of Goldman  within the meaning of Rule 12200 of FINRA’s Code of Arbitration Procedure for Customer Disputes, and thus Goldman had a duty to arbitrate disputes upon the demand of a “customer.”  However, the Court also ruled that forum selection clauses (District of Nevada) in the relevant agreements trumped Goldman’s duty to arbitrate.  Thus, the case could proceed in federal court.

The Court’s conclusion that Reno is a “customer” of Goldman is not all that controversial in my view, as the court adopted the Second Circuit’s definition from UBS v. WVUH, 660 F.3d 643 (2d Cir. 2011) (“a ‘customer’ is a non-broker and non-dealer who purchases commodities or services from a FINRA member in the course of the member’s FINRA-regulated business activities, i.e., the member’s investment banking and securities business activities”).   I blogged about that Second Circuit case here.

The second holding troubles me.  Sec. 29(A) of the Exchange Act voids “any condition, stipulation, or provision binding any person to waive compliance … with any provision of the Exchange Act or its rules.” Prior to Dodd-Frank (2010), the statute also applied to rules issued by securities exchanges; Dodd-Frank amended § 29(a) to include rules issued by all SROs.  Thus, for the first time, § 29(A) explicitly invalidates provisions in brokerage agreements that require customers to waive compliance with FINRA rules.  To the extent courts have held in the past that parties could contract around FINRA rules, that line of cases seems to be vitiated by amended § 29(A).

It seems to me that this recently amended provision of the ’34 Act voids the parties’ forum selection clause.  I wonder why the City of Reno did not pursue this argument (I saw no mention of it either in the district court’s or Court of Appeal’s decision)?  I also wonder why FINRA’s Enforcement Division did not pursue Goldman; FINRA IM-12000 states that it “may be deemed conduct inconsistent with just and equitable principles of trade and a violation of [FINRA Conduct] Rule 2010 for a member… to…(a) fail to submit a dispute to arbitration under the [FINRA Arbitration] Code.”

This issue is similar, although not identical to, the issues raised in the FINRA v. Schwab disciplinary case (whether FINRA rules void a class action waiver in an arbitration clause in a brokerage firm’s customer agreement), which is still pending on appeal to FINRA’s National Adjudicatory Council.  See here, hereherehere and here.

The issue also brings to mind a larger question raised a decade ago by Prof. Barbara Black:  why do brokerage firms shun FINRA arbitration when institutional investors sue them, but mandate arbitration when individual investors sue them??  See Barbara Black, The Irony of Securities Arbitration Today: Why Do Brokerage Firms Need Judicial Protection?, 72 U. Cinc. L. Rev. 415 (2003).


Arizona State Law Wins ABA Representation in Mediation Competition

Congratulations to students Alden Anderson and Chelsea Hesla from the Sandra Day O’Connor College of Law at Arizona State University, who won the 2014 American Bar Association Section of Dispute Resolution Representation in Mediation Competition.  The National Finals took place this past week at the Section’s Annual Conference in Miami.

As the ABA reported, over 100 teams from 50 law schools competed for the right to advance to the National Finals. Ten teams were invited to compete at Nationals: Emory Law, Fordham University School of Law, Marquette University Law School, Sandra Day O’Connor College of Law at Arizona State University, South Texas College of Law, Southwestern Law School, The Ohio State University Moritz College of Law, University of Idaho College of Law, University of Maryland Francis King Carey School of Law, and William & Mary Law School.

After two preliminary rounds on April 2nd the teams from Sandra Day O’Connor College of Law at Arizona State University, South Texas College of Law, The Ohio State University Moritz College of Law, and University of Maryland Francis King Carey School of Law advanced to the Semi-Final Round on April 3rd. The teams from Sandra Day O’Connor College of Law at Arizona State University and The Ohio State University Moritz College of Law advanced to the Championship Round where Arizona State University students  prevailed.


Profs. Frenkel and Stark Win CPR Outstanding Scholarly Article Award

Profs. Doug Frenkel’s (UPenn) and Jim Stark’s (UConn) recent article Changing Minds: The Work of Mediators and Empirical Studies of Persuasion, 28 Ohio State J. Dispute Resol. 263-352 (2013), has been selected as the outstanding scholarly article of 2013 by the International Institute for Conflict Prevention and Resolution (CPR).  CPR, an organization of executives and counsel from the world’s largest companies and global law firms, government officials, retired judges, highly experienced neutrals, and leading academics, was founded in 1979 and has been dedicated to the growth and development of dispute resolution practice and policy ever since.

I heard them present a summary of the article at the ADR Works-in-Progress Conference in the fall and it is truly a fascinating and ambitious empirical study.  Congratulations to them both on this well-deserved award!

Dropbox adds Arbitration Clause to its Terms of Service

I have a Dropbox account and use it to store a lot of my cloud-based documents. Dropbox emailed its users late last week, announcing changes to its Terms of Service, including the addition of an arbitration clause.  Notably, the clause included submission of disputes to the AAA for arbitration, a right to opt out within 30 days, an agreement that Dropbox will pay all arbitration fees for claims of less than $75,000, a “bonus” payment of $1,000 if the award is greater than any Dropbox offer of settlement, and, of course, a class action waiver.  I have reproduced the clause in its entirety below.

I wonder whether Dropbox adopted the few consumer-friendly features of the clause simply to please its users, to forestall any finding of unconscionability based on the class action waiver, or to try to retain users who might object.  The Dropbox Blog has a more complete announcement of the changes, including quite a few comments from users who object to the arbitration provision and have chosen to drop Dropbox as a result.  At least this is a service for which consumers have a choice: they can sign up for an alternative cloud storage service not subject to arbitration of disputes.

Resolving Disputes

Let’s Try To Sort Things Out First. We want to address your concerns without needing a formal legal case. Before filing a claim against Dropbox, you agree to try to resolve the dispute informally by contacting dispute-notice@dropbox.com. We’ll try to resolve the dispute informally by contacting you via email. If a dispute is not resolved within 15 days of submission, you or Dropbox may bring a formal proceeding.

We Both Agree To Arbitrate. You and Dropbox agree to resolve any claims relating to these Terms or the Services through final and binding arbitration, except as set forth under Exceptions to Agreement to Arbitrate below.

Opt-out of Agreement to Arbitrate. You can decline this agreement to arbitrate by clicking here and submitting the opt-out form within 30 days of first accepting these Terms.

Arbitration Procedures. The American Arbitration Association (AAA) will administer the arbitration under its Commercial Arbitration Rules and the Supplementary Procedures for Consumer Related Disputes. The arbitration will be held in the United States county where you live or work, San Francisco (CA), or any other location we agree to.

Arbitration Fees and Incentives. The AAA rules will govern payment of all arbitration fees. Dropbox will pay all arbitration fees for claims less than $75,000. If you receive an arbitration award that is more favorable than any offer we make to resolve the claim, we will pay you $1,000 in addition to the award. Dropbox will not seek its attorneys’ fees and costs in arbitration unless the arbitrator determines that your claim is frivolous.

Exceptions to Agreement to Arbitrate. Either you or Dropbox may assert claims, if they qualify, in small claims court in San Francisco (CA) or any United States county where you live or work. Either party may bring a lawsuit solely for injunctive relief to stop unauthorized use or abuse of the Services, or intellectual property infringement (for example, trademark, trade secret, copyright, or patent rights) without first engaging in arbitration or the informal dispute-resolution process described above.

No Class Actions. You may only resolve disputes with us on an individual basis, and may not bring a claim as a plaintiff or a class member in a class, consolidated, or representative action. Class arbitrations, class actions, private attorney general actions, and consolidation with other arbitrations aren’t allowed.

Judicial forum for disputes. In the event that the agreement to arbitrate is found not to apply to you or your claim, you and Dropbox agree that any judicial proceeding (other than small claims actions) will be brought in the federal or state courts of San Francisco County (CA). Both you and Dropbox consent to venue and personal jurisdiction there.

Notable AAA Arbitration Rule Revisions in 2013

As others are reflecting on notable events in the past year, I think about the American Arbitration Association’s 2013 revisions to its arbitration rules, and what those revisions mean to arbitration.

First, effective October 1, the AAA’s revised Commercial Arbitration Rules make several important changes to the arbitration process.  All of the changes are summarized on the AAA’s website, but a few notable ones include:

  • R-9: All arbitration claims exceeding $75,000 must be mediated concurrently with the arbitration, unless any party opts out.  Notable for one of the original arbitration service providers to recognize the value of mediation as a critical ADR step in most cases.
  • R-21: Arbitrators should schedule a preliminary hearing “as soon as practicable” after their appointment and related procedural rule P-1 provides a checklist of 19 items the arbitrators should cover during the preliminary hearing.  Notable for how explicit the directions are to the panel as to how to conduct the hearing, but cautions the panel and parties not to “import” court-like procedures into the arbitration.
  • R-22 now addresses discovery in more detail, and provides additional tools to the panel to manage the discovery process.  Notable for its explicit reference to e-discovery.
  • R-33 now expressly mentions the authority of the panel to decide pre-hearing motions.   Notable because the old rules were silent as to pre-hearing motions.
  • Revised Rule 58 (and rule 23) authorizes the arbitrators to impose sanctions for failure of a party to comply with an order of the panel or any of the AAA rules. Notable, just notable.

Second, as of November 1, AAA adopted Optional Appellate Arbitration Rules.  Those rules allow for a “high-level review” of arbitral awards in large, complex cases on grounds not available in court for review of arbitral awards (i.e., errors of law) by consent of all parties.  The AAA will supply former federal or state judges, or “neturals with strong appellate backgrounds” as the appellate reviewers.  These rules are a direct response to disputants’ concerns that there are very limited grounds on which a court can vacate an arbitration award, and the Supreme Court ruled in 2008 that parties cannot contractually expand those grounds.  In large, complex cases, parties simply have too much at stake to yield that much authority and finality to the arbitration panel.  Notable as the AAA attempts to maintain arbitration as an attractive ADR mechanism for parties, yet offer court-like features to respond to criticism that arbitrators lack accountability.

I look forward to assessing ADR developments in 2014!

Congratulations to FOI Hiro Aragaki

Congratulations to Friend of Indisputably Prof. Hiro Aragaki (Loyola Law) on winning one of only two Honorable Mentions in the 2014 AALS Annual Scholarly Paper Competition for junior faculty for his paper “Contract” or “Procedure”? Reinterpreting the Federal Arbitration Act.  He presented a draft of the paper to the recent ADR Works-in-Progress Conference, and his presentation generated a lot of interesting discussion.

He will present his paper at the AALS Annual Meeting in New York on Saturday, January 4, 2014 from 2:00- 3:45 p.m. (conveniently just before the ADR’s section 4:00 program, “ADR and the Regulatory State”).   I am looking forward to both!

Report from Cardozo’s Wonderful ADR Works-in-Progress Conference

Now that I have had a day to catch my breath, I can share a few reflections about the wonderful ADR Works-in-Progress Conference that Cardozo Law School hosted this past Thursday evening through Saturday morning.  Prof. Lela Love, Director of Cardozo’s Kukin Program for Conflict Resolution, assisted by student editors of Cardozo’s Journal of Conflict Resolution, organized and coordinated presentations of papers and projects in various phases of progress on a wide variety of ADR-related topics from more than 25 ADR scholars.

First, due to limited travel budgets, this marks the first time I have been able to attend the ADR WIP conference, a conference conceptualized and founded about six years ago by co-blogger Andrea Schneider (yes, Andrea, yet another shout-out) and promoted by the ADR AALS Section.  Because the conference finally was in New York, I now know what I have been missing all these years.  In an intensive and short period of time, I absorbed the latest developments in the field, thought deeply about and responded to “baking” scholarship and generated ideas and nuances for my own work. [As an aside, those administrators who make seemingly unprincipled decisions about not funding academics to travel to more than one conference per year should take into account the value-added benefits to its faculty of attending these conferences and not putting academics in the unenviable position of having to choose which one to attend (or pay out-of-pocket).]

Second, I loved the format of the conference — or, should I say, the variety of formats. During the day and a half of presentations, the organizers used various mechanisms to permit attendees to provide feedback to presenters.  These included written feedback on postcards, circulating sheets, and post-its, as well as verbal feedback via small and large group discussion and responses to targeted questions.  By mixing up the formats, the conference organizers met the needs of a wider variety of styles of learners and teachers, kept us on our toes and thus generated more meaningful feedback to each presenter.

Finally, the themes that emerged from the conference reveal a proliferation of old and new mechanisms, overuse and underuse of ADR, problems in labeling of neutral styles, behaviors and approaches, and deep concerns among ADR scholars about the fairness of ADR mechanisms.  That being said, the group seemed energized to continue working to improve and promote ADR processes.

I look forward to next year’s WIP conference, no matter the location, and plan on attending regardless of budgetary constraints!

Happy Mediation Settlement Day!

NYS Governor Andrew M. Cuomo and NYC Mayor Michael R. Bloomberg
Proclaim Thursday, October 17 as Mediation Settlement Day

Everyone can benefit from learning about mediation and other Alternative Dispute Resolution resources to resolve conflicts and disputes peacefully.

Throughout the month of October, Mediation Settlement Day sponsors offer special programs to increase understanding about mediation as a means of resolving conflicts and disputes peacefully.

This year’s Mediation Settlement Day Honorary Chair is Kenneth R. Feinberg, Director of the One Boston Fund 2013, Special Master of the Federal September 11th Victim Compensation Fund 2001 and Founder and Managing Partner at Feinberg, Rozen, LLP.

For the third consecutive year, on Mediation Settlement Day at sundown, seven New York landmarks will be illuminated in blue in support of mediation:

– 7 World Trade Center
– Albany Law School
– Mid-Hudson Bridge – Poughkeepsie
– Niagara Falls, the American and Canadian sides (Niagara Falls Illumination Board)
– Peace Bridge Buffalo
– The Electric Tower of Buffalo
– The Staten Island Ferry Terminals in Manhattan/Whitehall display a message inviting the public to learn about mediation at www.nycourts.gov/adr.

CyberWeek 2013 eMediation Competition

Cornell University’s Scheinman Institute on Conflict Resolution, in conjunction with the Modria Mediation Room, is hosting the 2013 Cyberweek eMediation Competition.

WHEN: November 4-8, 2013


1. Competitors must be a current student at a college or university.

2. Mediator – Individuals may register to participate in the competition as a mediator.

3. Parties – Individuals or teams of 2 may register to participate in the competition as a party to the conflict.

TYPES OF CASES INVOLVED: The competition will use cases involving workplace and/ or community disputes.

ONLINE COMPETITION: Each mediation will be asynchronous using Modria’s platform and last four days. The competition will consist of one round.

COMPETITOR EVALUATION: Each pre-determined criterion will be judged on a scale of 1-5 by ADR professionals, allowing for a combined highest score of 40. The scores for each team will be considered a final score. A ranked listing of the top five scoring mediators and the top ten scoring parties will be announced.

REGISTRATION: Competitors must registers by Thursday, October 31. The competition will begin on November 4 and end on November 8. Competitors can register for Cyberweek at:  https://cyberweek2013.eventbrite.com/

After registering for Cyberweek, you can register for the eMediation competition at: http://www.ilr.cornell.edu/conflictRes/eMediationCompetitionRegistration.html

Please contact Richard Todd at Richard.Todd@creighton.edu or Katrina Nobles at kn64@cornell.edu with any questions.