Whether an arbitration award should include reasons, authorities or other explanation remains hotly debated. In securities arbitration, despite pressure from investor advocates to add transparency to the FINRA forum by requiring arbitrators to issue explained awards, FINRA’s current rule requires a panel to include an explanation in an award only upon a joint request from all parties. However, securing this agreement from all disputing parties has proven nearly impossible, with very, very few jointly requested explained awards since this rule was put into place (I believe fewer than ten in almost ten years.)
This past week, one arbitrator on a three-arbitrator panel in Tullis v. Ameriprise Fin. Serv., FINRA Arb. No. 16-01261, chose to add an explanation to the award, which his fellow panelists did not join. The case was, at its core, about whether a brokerage firm’s recommendations to its customers (husband and wife of modest means) were suitable. The panel ultimately found that they were not, and awarded claimants the full amount of compensatory damages claimed –$191,772.00, plus post-award interest at 9%.
After the majority’s brief explanation, Arbitrator Paul Meyer wrote:
While the parties did not request a reasoned decision, this Arbitrator considers that most decisions deserve to be explained in order to create a body of precedent unavailable now that most courts no longer have jurisdiction over most securities litigation. Hopefully, this decision may help contribute to that body of law.
He then wrote an explanation far longer than the brief explanation of the majority panelists, stating “[p]rior decisions, even though not binding, are seldom available because FINRA arbitrators are seldom compensated for writing well-reasoned decisions.”
Arbitrator Meyer seemingly felt compelled to write a lengthy explanation because of the widespread misunderstanding about the state of the law with respect to duties that broker-dealers owe to their customers, and in what circumstances brokers are fiduciaries. He appeared particularly distraught at Respondents’ argument that ““when an account is non-discretionary and control of the account remains with the customer, such as the Claimants’ accounts, the duties owed by a stockbroker to the investor do not constitute a fiduciary relationship.’” Arbitrator Meyer wrote: “This rather widespread idea is not correct,” and then he wrote what he believed to be the state of the law on this topic. [He dissented from the other two arbitrators only on the issue of what date the assessment of interest begins to run, arguing that it should be the date over a year earlier that the challenged securities were liquidated, not from the date of the award (June 27, 2017).]
I have no doubt that the law regarding broker-dealers’ obligations to customers is widely misunderstood because of the dearth of precedent in an industry where pre-dispute arbitration clauses are omnipresent. On the other hand, can one arbitrator’s explained award in a sea of unexplained awards create precedent? More importantly, should it?